Capital and Interest

CHAPTER IV

THE USE OF CAPITAL ACCOBDING TO THE SAY-HEBMANN SCHOOL

AMONG the writers of the Say-Hermann school there obtains no exact agreement in the description and definition of the Use. But this want of agreement appears to me traceable, not so much to any real difference of opinion about the subject, as to their common failure to give any clear account of its nature. They hesitate in their definitions, not because they have different objects in view, but because, of the one object that all have in view, they have only uncertain vision. One proof of this lies in the fact that the individual Use theorists get into contradiction with their own definitions almost as often as with those of their colleagues. In this chapter we shall gather together provisionally the more important readings of the conception.

Say speaks of the “productive services “of capital, and defines them as a “labour”which capital performs.

Hermann in one place (p. 109) defines the Nutzung of goods as their Gebrauch. He repeats this on p. Ill, where he says that the Gebrauch of goods of perishable material may be thought of as a good in itself, as a Nutzung. If Gebrauch here is simply identified with Nutzung, this is not the case in a passage on p. 125, where Hermann says that the Gebrauch is the employment of the Nutzung. On p. 287, finally, he explains “the holding together of the technical elements of the product” as the “service,” the “objective Nutzung “of floating capital.

Knies also identifies Gebrauch and Nutzung.1

Schäffle in one place defines Nutzung as the “employment” of goods (Gesell. System, iii. p. 143); similarly on p. 266 as “acquisitive employment.” On p. 267 he calls it “the working of an economical subject by means of wealth, a using of wealth towards fruitful production.” On the same page it is called a “devotion”of wealth to production; with which it is a little inconsistent that, on the next page, he speaks of a devotion of the Nutzung of capital—that is, of the devotion of a devotion. In the Bau und Leben, finally, Schäffle explains the uses in one place (iii. p. 258) as “functions of goods”; somewhat later (p. 259) as “equivalents of useful materials in living labour “; while on p. 260 the Nutzung is defined as the “releasing of the utility (Nutzen) from material goods.”

If we look more closely at this somewhat chequered array of definitions and explications we may see in them two interpretations of the conception of use, a subjective and an objective. These two interpretations correspond pretty exactly with the double sense in which the word Use or Nutzung is generally employed in ordinary speech. It indicates, on the one hand, the subjective activity of the one who uses, and is called in German indifferently Benutzung or Gebrauch in the subjective sense of that equally ambiguous word; or, more significantly, Gebrauchshandlung. And, on the other hand, it indicates an objective function of the goods that are used; a service issuing from the goods. The subjective interpretation appears vaguely in Hermann’s identification of Nutzung and Gebrauch, and very strongly in Schäffle’s earlier work. The objective interpretation distinctly predominates with Say; almost as distinctly with Hermann, who, indeed, in one place speaks explicitly of the “objective use “of capital; and even Schäme inclines to it in his latest work when he speaks of the use as a “function of goods.”

It is easy to see that of the two interpretations it is simply and solely the objective that accords with the character of the Use theory. For, taking it only on the most obvious grounds, it is absolutely impossible to give a subjective meaning to those uses of capital which the borrower buys from the lender, and pays with loan interest. These cannot be acts of use performed by the lender, for he does not perform any such. Nor can they be acts of use performed by the borrower, for, although he may intend to perform such actions, he does not of course require to buy his own actions from the lender. To speak, therefore, of a transference of the uses of capital in the loan, has a meaning only if we understand by the word “uses” objective elements of use of some kind or other. I think, then, that I am justified in leaving out of account, as inconsistencies that contradict the spirit of their own theory, those subjective interpretations of use that are to be found sporadically in individual Use theorists, and in confining myself exclusively to the objective interpretations which have been adopted by the majority, and which, since Schäffle’s change of front, are the only recognised interpretations. By Use, then, in the sense given it by the Say-Hermann school, we have to think of an objective useful element which proceeds from goods, and acquires independent economical existence as well as independent economical value.

Now nothing can be more certain than that there are, in fact, certain objective useful services of goods that obtain economical independence, and may, not unfitly, be designated by the name of Uses (Nutzungen). I have already, in another place, treated of these in detail, and done my utmost to describe their true nature as exactly and thoroughly as possible.2 Singularly enough, this attempt of mine stands almost alone in economic literature. I say “singularly enough “deliberately, for it does seem to me a very wonderful thing that, in a science which from beginning to end turns, as on its axis, on the satisfying of needs by means of goods,—on the relation of use between men and goods,—no inquiry has ever been made into the technical character of the use of goods. Or that, in a science where pages, chapters, even monographs have been written on many another conception, not a couple of lines should have been devoted to the definition or explanation of the fundamental conception “use of a good,” and that the expression should be dragged into every theoretical research in all the confusion and ambiguity which it has in ordinary life.

Since for our present purpose everything depends on us getting a reliable idea of the useful functions which goods serve, I must at this point go into the matter with some exactitude; only begging the reader not to look on what follows as a digression, but as strictly germane to the subject.3

4 Geld, p. 61: “ Nutzung—the Gebrauch of a good lasting over a period of time, and limitatile by moments of time.”

5 See my Hechte und Verhältnisse vom Standpunkte der volkwirthschaftlichen Güterlehre, Innsbruck, 1881, p. 51.

6 I take the liberty in the next chapter of repeating, partly in the same words, the argument of my Rechte und Verhältnisse, which was written some time ago with a view to the present work.

• 1Grundlagen der National-Oekonomie, tenth edition, Stuttgart, 189. I
• 2This consideration of itself suggests the indefmiteness of what is usually called Undertaker’s Profit. In the Limited Liability Company this “ wage of intellect “ is measured and paid, but the varying dividend shows that it by no means exhausts this “profit.” The solution probably is that the attempt to assess undertaker’s wage on any principle is hopeless in present circumstances. It is a “ glorious risk,” depending, among other things, on adroitness, foresight, opportunity, and exploitation of labour—four factors scarcely reducible to figures. But with this line of thought, interesting and important as it is, we have nothing to do here.
• 3See Endemann, Grundsätze, pp. 9, 21.
• 4Physical productivity manifests itself in an increased quantity of products, or, it may be, in an improved quality of products. We may illustrate it by the well-known example given by Koscher: “Suppose a nation of fisher-folk, with no private ownership in land and no capital, dwelling naked in caves, and living on fish caught by the hand in pools left by the ebbing tide. All the workers here may be supposed equal, and each man catches and eats three fish per day. But now one prudent man limits his consumption to two fish per day for 100 days, lays up in this way a stock of 100 fish, and makes use of this stock to enable him to apply his whole labour-power to the making of a boat and net. By the aid of this capital he catches from the first perhaps thirty fish a day.”
• 5The question now is, Is such a dividend pure interest? Here we have to reckon with the familiar fact that limited companies, under similar conditions, pay the most various rates of dividend. If then we accept “dividend” as the equivalent of “interest” we shall have to conclude that varying rates of interest are obtainable on equal amounts of capital. On looking closer, however, we find the dividing line again reasserting itself. If a sound industrial company is known to be paying a dividend higher than a certain definite percentage on its capital, the value of the stock, or parent capital, will rise to the point where dividend corresponds to an interest no greater than this definite percentage—e.g. the £100 stock of a great railway paying 5 per cent will rise to something like £125, at which price the 5 per cent dividend on the original capital shows a return of 4 per cent on the new value of the capital.
• 6THE canon doctrine of interest had to all appearance reached its zenith sometime during the thirteenth century. Its principles held almost undisputed sway in legislation, temporal as well as spiritual. Pope Clement V, at the Council of Vienna in 1311, could go so far as to threaten with excommunication those secular magistrates who passed laws favourable to interest, or who did not repeal such laws, where already passed, within three months. Nor were the laws inspired by the canon doctrine content with opposing interest in its naked and undisguised form; by the aid of much ingenious casuistry they had even taken measures to prosecute it under many of the disguises by which the prohibition had been evaded. Finally, literature no less than legislation fell under the sway of the canon doctrine, and for centuries not a trace of opposition to the principle of the prohibition dared show itself.