Principles of Economics by Carl Menger
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APPENDIX
E
The
Concept of Capital
THE MOST
FREQUENT MISTAKE that is made not only in the classification but also
in the definition of capital, consists in the stress laid on the technical
instead of the economic standpoint. (Against this practice see
also J.F.E. Lotz, Handbuch der Staatswirthschaftslehre,iErlangen, 1837, I, 60ff., and F.B.W. v.
Hermann, Staatswirthschaftliche Untersuchungen,tMünchen, 1874, pp. 221ff.) The
classification of goods into means of production and consumption goods
(goods of higher order and goods of first order) is scientifically
justified, but does not coincide with a classification of wealth
into capital and non-capital. The opinion of those who use the term
“capital” to refer to all items of wealth that yield a permanent income
seems to me to be equally untenable. For if the concept of wealth is
stretched to include labor power, and if the concept of income
is extended to include the services of consumption goods to their
owners (see Hermann, op. cit.,ipp.
582ff. and G. v. Schmoller, “Die Lehre vom Einkommen in ihrem
Zusammenhang mit den Grundprincipien der Steuerlehre,” Zeitschrift
für die gesammte Staatswissenschaft,iXIX
(1863), 53ff. and 76ff.), a consistent extension of this doctrine leads
one to the proposition that labor power (see already N.F.
Canard, Principes d’économie politique, Paris, 1801, p.
9, and J.B. Say, Cours complet d’économie politique pratique,
Paris, 1840, p. 144), land (see Ehrenberg, Die
Staatswirthschaft nach Naturgesetzen, Leipzig 1819, p. 13; J.A.
Oberndorfer, System der Nationalökonomie, Landshut, 1822,
p. 207; “Lord Lauderdale on Public Wealth,” The Edinburgh Review,
IV, no. 8, [July, 1804], 364; Hermann, op. cit.,ipp. 221ff.; and L. v. Hasner, System der
politischen Oekonornie, Prague, 1860, p. 294), and finally also all
consumption goods of any durability (Hermann, op. cit., pp.
225–226) must all be called capital.
Correctly understood, however, capital consists only of those
quantities of economic goods that are available to us in the present
for future periods of time and are capable of being applied to uses
whose nature and economic character I have discussed at length in the
text of the present work (p. 152). This means that the following
conditions must be met simultaneously: (1) the time period during which
an economizing individual has command of the necessary quantities of
economic goods must be long enough to permit a production process (in
the economic sense of the term, p. 157) to take place; and (2) the
amounts and kinds of the available quantities of goods must be such
that through them, the economizing individual has either direct or
indirect command of the complementary goods of higher order that are
necessary for the production of goods of lower order. Hence quantities
of economic goods that are at the command of economizing individuals
for such short time periods or in such amounts, kinds, or forms that
their productivity is lost are not capital.
The most important difference between capital on the one hand and items
of wealth that yield an income (land, buildings, etc.) on the other is
that the later are concrete durable goods whose services
themselves have both goods character and economic character, whereas
capital represents, directly or indirectly, a combination of
economic goods of higher order (i.e., complementary quantities of these
goods) whose services also have economic character and therefore yield
income, but whose productivity is of an essentially different nature
than that of durable wealth that is not capital. Almost all the
theoretical difficulties that have arisen in the theory of capital can
be traced to the linguistic confusion involved in including both of the
above sources of income in the concept capital.
The fact that under developed trading conditions capital is usually
reckoned in terms of money and also most frequently offered in the
convenient form of money to persons requiring it, has resulted in
capital generally being interpreted in ordinary life as a sum of money.
It is plain that this concept of capital is much too narrow, and that a
particular form of capital has been elevated to the status of the genus
itself. On the other hand, the opposite error has been made by those
who do not regard money capital as true capital at all, but only as
representing it. The first of the two views is analogous to that of the
mercantilists who regarded only money as “wealth,” while the latter
view is that of a number of opponents of mercantilism who have gone too
far in their opposition and do not even accord sums of money the status
of true wealth. (Among more recent writers, see, above all, Michel
Chevalier, Cours d’économie politique,tParis,
1866, III, 584ff., and H.C. Carey, Principles of Social Science,
Philadelphia, 1858, II, 337.) In reality, money capital is only one
convenient form of capital that is especially suitable for use under
advanced trading conditions. (See H. Brocher, “Zwei Worte über
Kapital und Geld,” Jahrbücher für Nationalökonomie
und Statistik, VII (1866), 33–37.) Karl Knies emphasizes this fact
most effectively in his Die politische Oekonomie vom Standpunkte
der geschichtlichen Methode (Braunschweig, 1853, p. 87): “Wir
finden bei allen einzelnen Nationen in sofern eine Analogie der
Entwicklung, als überall das Capital seine wirthschaftliche Kraft
erst nach der Einführung und der verbreiteteren Anwendung des
Metallgeldes stärker entwickeln, seine ausgedehntere Macht erst
auf den höheren Culturstufen entfalten kann.”
Money does, of course, facilitate the
transfer of capital from one hand to another, and especially also the
transfer of capital goods and the transformation of capital into any
desired form (its application to any desired use), but the concept of
money is entirely foreign to the concept of capital. (See E.
Dühring, “Kritik des Kapitalbegriffs und seiner Rolle in der
Volkswirthschaftslehre,” Jahrbücher für
Nationalökonomie und Statistik, V [1865], 318–343, and F.
Kleinwächter, “Beitrag zur Lehre vom Kapitale,” ibid., IX
[1867], 369–421).
To Chapter III, Section 3. See note 15 of
Chapter III.—TR.
“We find that the development of all nations
was analogous to this extent, that capital was everywhere able to
develop its economic power strongly only after the introduction and
widespread use of metallic money and to reveal its more extensive power
only at higher levels of civilization.”
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