Capital, Interest & Rent

The Passing of the Old Rent Concept

Since the time of Ricardo the Rent Concept has been constantly under criticism, and many amendments of it have been suggested. Yet it holds its place in the texts and in discussion, and still determines to a large extent the outlines of our economic systems. No suggested amendment has succeeded in winning more than a meagre following until of late. Within the past decade, however, the attractive statement of new doctrines by Professor Alfred Marshall has contributed more than any other influence to bring about a remarkable change of opinion on this subject. He has met in a manner that has proved to be generally satisfactory the demand that had become imperative for a restatement of the old concept. In view of the wide and well-merited influence of his Principles of Economics, it may be allowable to take it as typifying the state of contemporary thought on the subject of the rent concept; and it is for this reason that frequent reference will be made to it.

The present paper is an attempt to determine what are the difficulties admitted to-day in the old concept of rent and what defects must be recognized in the newer and dominant form of the concept. Five central ideas may be distinguished in contemporary discussion of rent, giving thus five concepts,—the land, the extension or space relation, the time or long period, the exchanger’s surplus, and the no-cost concepts. These will be taken up in order.

1. THE LAND CONCEPT.

The original form of the rent concept makes it an income arising from land, one of the three factors of production. The essential thing distinguishing it from other incomes is the kind of agents for whose use it is paid. This is the first concept defined by Professor Marshall: “The income derived from the ownership of land and other free gifts of nature is called rent.”1 The definition is given in connection with a statement of the kinds of incomes derived from wealth, the other kind mentioned being interest on capital (profits are analyzed into interest of capital and earnings of management). This view of rent is found so repeatedly expressed in the text-books that it may be called the conventional view. The chapter on the agents of production begins:—

“The agents of production are commonly classed as Land, Labour and Capital. By Land is meant the material and forces which Nature gives freely for man’s aid, in land and water, in air and light and heat.” The next chapter begins, “The requisites of production are commonly spoken of as land, labour and capital: those material things which owe their usefulness to human labour being classed under capital, and those which owe nothing to it being classed as land.” A few lines further the explanation is added, “The term ‘land’ has been extended by economists so as to include the permanent sources of these utilities, whether they are found in land as the term is commonly used, or in seas and rivers, in sunshine and rain, in winds and waterfalls.”2

The usual three shares are not distinctly enumerated when Book VI., on “Value or Distribution and Exchange,” is reached; yet the thought appears and determines the order of treatment and the chapter headings. It is said that there has been “left on one side, as far as might be, all considerations turning on the special qualities and incidents of the agents of production”; but there is promised a “more detailed analysis in the following three groups of chapters on demand and supply in relation to labour, to capital and business power, and to land, respectively.”3 The treatment of distribution, accordingly, falls into these three main conventional divisions: “earnings of labour” (chapters 3-5); “interest of capital” (chapters 6-8); and “rent of land” (chapters 9, 10),—where each of the three shares is linked with a corresponding factor.

The land concept of rent, thus presented, involves many difficulties;4 and a recognition of these leads to a modification of the concept. 1. It is shown that the distinction between land and the products of labor is a loose one, impossible to make in practice. 2. It is said that the distinction is of no importance to the practical business man. In these two statements the distinction seems to be abandoned or discredited. 3. But it is said to be valid, because land is a fixed stock for all time, while capital is not. These points will be considered in order.

1. In the following passages the difficulty of trying to distinguish between land and capital is recognized:—

Those material things which owe their usefulness to human labour [are] classed under capital, and those which owe nothing to it [are] classed as land. The distinction is obviously a loose one: for bricks are but pieces of earth slightly worked up; and the soil of old settled countries has for the greater part been worked over many times by man, and owes to him its present form.5

Further on is emphasized strongly the control that man has over many of the utilities connected with land:—

If the soil be well provided in other respects, and in good condition mechanically, but lack [only certain elements] then there is an opportunity for man to make a great change with but little labour. He can then turn a barren into a very fertile soil by adding a small quantity of just those things that are needed. . . He can even permanently alter the nature of the soil by draining it, or by mixing with it other soil that will supplement its deficiencies.

All these changes are likely to be carried out more extensively and thoroughly in the future than in the past. But even now the greater part of the soil in old countries owes much of its character to human action; all that lies just below the surface has in it a large element of capital, the produce of man’s past labour; the inherent or indestructible properties of the soil, the free gifts of nature, have been largely modified; partiy robbed and partly added to by the work of many generations of men.6

Later is added: “In an old country it is seldom possible to discover what was the original state of the land before it was first cultivated. The results of some of man’s work are for good and evil fixed in the land; they can not be distinguished from the results of nature’s work, but must be counted with them. The line of division between nature’s work and man’s work is blurred, and must be drawn more or less arbitrari-ly.”7

In these passages the concept first stated seems to be given up; for, if only those things which owe nothing to labor are classed as land, and if it is then shown that there is no material thing in settled countries of which this can be said, it follows that everything must be classed as capital.

2. The distinction between land and capital is formally given up by thinkers of this school, so far as it concerns the individual owner, the investor, or business manager. It is said:—

The balance of usage and convenience is in favour of reckoning rights to land (sic) as part of individual capital.8

It is to be observed that land is but a particular form of capital from the point of view of the individual producer.9

A manufacturer or trader owning both land and buildings, regards the two as bearing similar relations to his business.… When he comes to decide whether to obtain [more] space by taking in an extra piece of land, or by building his factory a floor higher, he weighs the net income to be derived from further investments in the one against that to be derived in the other.…This argument says nothing as to whether the appliances were made by man, or part of a stock given by nature.10

It is true that land is but a particular form of capital from the point of view of the individual manufacturer or cultivator.11

There is likeness [between land and appliances made by man] in that, since some of the latter can not be produced quickly, they are practically a fixed stock for short periods, and for those periods the incomes derived from them stand in the same relation to the value of the produce raised by them, as do true rents.12

It may be well to refer once again to the relations between land, whether agricultural or urban, and other forms of wealth regarded from the point of view of the individual investor. Even from the point of view of normal value, the distinction, though a real one, is slighter than is often supposed; and even in an old country, the distinction between land and other forms of wealth has very littie bearing on the detailed transactions of ordinary life.13

The impossibility in practice of distinguishing accurately between things that are “natural” and things that are produced, the absence of any suggestion of a measure to aid in classifying the things that compose land and capital, require the usage approved in these quotations when practical questions are considered. Nearly all economic discussion is from the standpoint of the individual producer. We will note later some of the results of the adoption of this usage.

3. These changes in the concepts of land and capital are not treated as equivalent to an abandonment of the distinction entirely, for it is justified from a different standpoint.

When regarding capital from the social point of view it is best. . . . to separate the capital, which is the result of labour and saving, from those things which nature has given freely.14

The reason for this distinction is given as follows:—

[Although land and other wealth appear alike to the individual], there is this difference from the point of view of society. If one person has possession of another farm there is less land for others to have. His use of it is not in addition to, but in lieu of the use of a farm by other people. Whereas if he invests in improvements of land or in buildings on it, his investments will leave as good a field as before for an increasing population to improve other land or put buildings on it. . . There is likeness amid unlikeness between land and appliances made by man. There is unlikeness because land is a fixed stock for all time: while appliances made by man, whether improvements in land, or in buildings or machinery, &c, are a flow capable of being increased or diminished according to variations in the effective demand for the products which they help in raising.15

The same argument is presented in replying to the suggestion that the farmer considers in just the same way whether he shall try to get more work out of his stock of ploughs or out of his land, and that, therefore, the income does not enter into price any more than does rent. It is answered:—

So far as the individual farmer is concerned the two cases are indeed, parallel. But if he decides to have another plough instead of getting more work out of his present stock of ploughs, that will not make a lasting scarcity of ploughs since more ploughs can be produced to meet the demand: while, if he takes more land, there will be less left for others; since the stock of land in an old country cannot be increased.16

The argument contained in these passages will be criticized in two particulars; and we shall seek to show that it involves in the first place a comparison of one factor viewed statically with another viewed dynamically, and in the second place a comparison of the total supply of one factor with that portion of another factor used in a single industry or by a single undertaker.

(a) The argument assumes that the land is in an old settled country, and that therefore its quantity is fixed. Later, however, it is shown that inventions that will turn the soil deeper, discoveries and new means of transportation that will bring into competition great areas of new land, and improvements that make available the resources before unused are constantly changing the limits of the supply of natural resources, in the economic sense of the word “supply.” The view that land is a fixed stock for all time is contradicted when it said:—

The supply of fertile land cannot be adapted quickly to the demand for it, and therefore the income derived from it may diverge permanently much from normal profits on the cost of preparing it for cultivation.17

Despite this it is assumed that the economic supply of land is necessarily and always fixed; and it is then contrasted with the stock or supply of other things, which is supposed to be increasing and capable of indefinite increase. Whether a static or dynamic view be taken, it is logically necessary to take it alike of both factors: either land must be recognized as an increasing and increasable factor, as well as capital, in which case the question becomes the somewhat speculative one as to their probable future rate of increase compared with the urgency of the demand, or both must be treated as fixed for the moment. In either case, when they are looked at from the same standpoint, the appearance of an essential difference in the two kinds of wealth disappears.

Again, objection must be made to the view of the increase of capital. Capital, as the term is here employed, can be increased; but it does not increase because it is employed in one industry rather than in another. It is sure to be employed in some industry or it is not capital. Why should its use in a particular industry increase the total supply? The additional ploughs can be produced to meet the demand only by the use of the available appliances, which are limited in amount, and which, if used for the ploughs, cannot be used for other things. There will be less productive power to put into other industries unless the general stock of wealth is increased. It is hard to see how the use of the existing stock of capital in one industry rather than another can be assumed to be the cause of this.18

If the historical or dynamic view is taken, the supply of utilities connected with land cannot be treated as fixed in amount. If the static view is taken, it cannot rightly be assumed that capital increases instead of being a limited supply which must be economized. It is from inharmonious assumptions that the conclusion is drawn that an essential difference exists between these things in the real world.

(b) It is argued in the passages under consideration that land and other wealth are different from the point of view of society. This can only mean when both are viewed from that standpoint; but in the argument stated the land only is thus viewed, the capital is still considered only from the individual standpoint. In the case of land the total supply is clearly borne in mind, and the use of land in one industry is seen to take it away from another. But in the case of capital there appears to be a shift to the individual view and the supply used by one undertaker; and, because he can increase or decrease the capital employed in his industry “according to the effective demand” (which means in that one industry), it is concluded that the total supply of capital is thus altered. The objections that have been given in the preceding paragraphs apply here also. The line of reasoning here criticized is interwoven with the idea of the static and dynamic supplies of the various factors; but here and there it can be plainly distinguished.

2.
EXTENSION AS THE FUNDAMENTAL ATTRIBUTE OF LAND AND THE BASIS OF RENT.

Many of the difficulties just considered are generally recognized in current discussion of the rent concept. The old classification of the material things composing wealth, into land and capital, is admitted to be impossible for some purposes, and only justifiable for others by reasoning that is foreign to the Ricardian treatment. In current discussion of the rent concept the view appears that, although the reasons usually given for contrasting land and capital may not hold, yet there is a sound ground for the distinction. One suggestion has just been considered. Another closely related to it is that,

underlying [the distinction between] those material things which owe their usefulness to human labour . . . classed as capital, and those which owe nothing to it. .. classed as land, there is a scientific principle. . . . When we have inquired what it is that marks off land from those material things which we regard as the products of land, we shall find that the fundamental attribute of land is its extension. The right to use a piece of land gives command over a certain space—a certain part of the earth’s surface. The area of the earth is fixed. The geometic relations in which any particular part of it stands to other parts are fixed. Man has no control over them.19

It is stated that this principle has important bearings on economic theory.

We shall find that it is this property of “land” which, though as yet insufficient prominence has been given to it, is the ultimate cause of the distinction which all writers of economics are compelled to make between land and other things. It is the foundation of much that is most interesting and most difficult in economic science.20

Then, after some statements as to the way in which the soil can be enriched by man’s action, it is said:—

We may then continue to use the ordinary distinction between the original or inherent properties, which the land derives from nature, and the artificial properties which it owes to human action: provided that we remember that the first include the space-relations of the plot in question, and the annuity that nature has given it of sunlight and air and rain; and that in many cases these are the chief of the inherent properties of the soil. It is chiefly from them that the ownership of agricultural land derives its peculiar significance, and the Theory of Rent its special character.21

(a) In these statements an initial difficulty results from a lack of positiveness in their expression. In the last paragraph it is stated that the distinction in question may be retained because it rests on the property of extension in land; but, instead of concluding that the only inherent or original properties to be considered in the land concept are the space relations, it is said that they “include” the space relations. This leaves the statement still undefined, for it implies that other things also are included. The intention to include other things appears further in the phrases “in many cases,” “the chief of the inherent properties,” “chiefly from the ownership.” Such phrases give vagueness at the outset to the “fundamental attribute,” “the scientific principle,” that is being stated.

(b) There are some difficulties in the reasoning of the passages quoted. This attribute of land is singled out as the essential one in the distinction between land and other kinds of wealth, for the reason that it is thought to be the one property which man is incapable of influencing. It is thus stated:—

There are other utilities over the supply of which [man] has no control: they are given as a fixed quantity by nature. . . The area of the earth is fixed: the geometic relations in which any particular part of this stands to other parts are fixed and man has no control over them.22

Here is a jump in thought from the “supply” of utilities furnished by the extension of land, the accompanying natural forces of rain, sunshine, and the like, to the physical area of the earth. One could dispute the truth of the statement that the physical extent even of arable land is fixed; but, neglecting the small area of made land, the supply of natural utilities and the existing area of land are widely different things. Part of the earth’s surface undiscovered or inaccessible does not exist for economic purposes: it is not a part of the supply, although it may become such in the future. The utilities of new areas become available to man, become a part of the “supply,” when, as is constantly happening on a large scale, they are brought into relation with industrial communities. The geometric relations, physically considered, are as nothing in economic discussion, compared with the time relations and what might be called the sacrifice relations of two parts of the earth’s surface. New transportation routes and new motive agents are constantly changing the time and toil relations of two areas. When districts which were a month’s journey apart are brought within a day’s journey of each other, when continents are brought into economic relations with markets and with wants, does not the statement that “geometric relations remain unaltered” become a play on words? In cutting tunnels, levelling hills, building railroads, bridging rivers, connecting oceans by new waterways, man exercises as great a control over space relations, it would seem safe to say, as he does over any other material conditions. In the work which has been quoted is discussed the development of new countries, and the effects on prices of products, and on the values of lands in the older countries with which the new countries are brought into competition; and it does not seem possible to consider these facts other than a negation of the idea of a fixed supply of the utilities connected with land.23

(c) The statements under consideration raise hopes of a contribution to economic theory that are unfulfilled. The thought of extension as the essential attribute of land and the foundation of rent has never been developed and applied to “elucidate the interesting and difficult” parts of economic science. “Extension” is not again mentioned in the succeeding six hundred pages of the work quoted, nor is there anything essential in the argument which can be traced to its influence. The concept is distinctly repudiated in the supposed case of meteoric stones which fell in a shower and proved to be of great value in industry. The income from their use, it is said, “would be a true economic rent, whether [the owners] used the stones themselves or loaned them out to manufacturers.”24 The illustration is introduced to show “that the immovability of land, though a most important attribute of land for many purposes, is not essential to the eminent claim which the income derived from land in an old country has to be regarded as a true rent.”25

The illustration, it is said, shows “a perfect form of true rent yielded by a movable commodity.” Here what is called the attribute of extension is apparently implied in immovability, but it is not considered fundamental, it is not essential: it is merely “important for many purposes,” though .what those purposes are is not stated. Here is a case of “true rent,” though it was said that the theory of rent derives its special character from space relations. The theory of rent is presented in a number of ways quite independent of space relations. It appears that the old concept of rent as a payment for the bounty of nature is not displaced in this treatment by the concept of extension.

Closely allied to the thought just noted is the one that in the rent of land there is an element due to environment, or to situation, which is spearable from the elements due to the “value of the soil as it was made by nature,” and that due “to improvements made in it by man.” It is said that in “the full rent of a farm in an old country” the third element, “which is often the most important of all, [is due] to the growth and rich population, and to facilities by communication by public roads, railroads, etc.”26

This idea is not further developed until we reach the chapter on “Influence of Environment on the Income from an Appliance for Production. Situation Rent. Composite Rent.” Reference is made to the two preceding chapters as dealing with “the income dervied from the ownership of the ‘original powers’ of land and other free gifts of nature, and that which is directly due to the investment of private capital.”27 The purpose of the chapter is then stated:—

But there is a third class, holding an intermediate position between these two. It consists of those incomes, or rather those parts of incomes which are the indirect result of the progress of society, rather than the direct result of the investment of capital and labour by individuals for the sake of gain. This class has to be studied now.

Then follows a discussion of “situation rent.” The distinction heretofore considered is that between the first and second elements, land and capital: the distinction now suggested is one between the part of land value due to the free gifts of nature and the part due to environment or situation. This appears to be open also to serious objection. No matter what are the “original powers” of land, they have no fixed or predetermined value: they have value only with reference to the social situation, to the needs of men. The value of a piece of land is apparently thought of as a given amount due to nature in one given set of circumstances; and then, changes such as those mentioned being supposed to take place, the increased value and income of the land is attributed to a new element, the situation. But it may be objected that the situation of the “gifts of nature” near human wants was essential to their value in the first case, just as the presence of certain qualities in the gifts is essential to their value in the second place. In considering time, place, form, and elemental value, it may be assumed for logical and practical purposes that any three of the four features of value are given, and then the change in the value may be attributed to the fourth feature. A ton of ice on a July day in a city may be said to owe its value to its situation, if you contrast it with another ton a thousand miles to the north; but you may also contrast it with a ton of ice six months earlier, or with a ton of water then and there, and then its value appears to be due to other things than situation. The value is equally dependent on the substance, form and time, place, and the presence of wants that can be satisfied. In the case of land the social environment is not a new element which imparts a value separable from that due to nature. The social environment is always one of the conditions which make it possible for the gifts of nature to have any value whatever. While, therefore, it may be permissible, in looking at the subject historically, to speak of a change in the value of natural resources as due to a change in the advantages of the situation, it does not seem allowable, in viewing the subjects statically, to speak of two classes of income from natural resources, one due to the free gifts of nature and the other to the increase in value of those gifts with social progress.

3.
TIME AS THE GROUND OF THE DISTINCTION BETWEEN RENT AND INTEREST.

It is said that the distinction between rent and interest may be made to turn on a difference of time. It is probably true that nowhere in current discussion will the statement be found that this is the whole difference, but it is put thus:—

The greater part, though not the whole, of the distinction between rent and interest on capital turns on the length of the period which we have in view.28 [And again:] For the time they [the net incomes derived from appliances for production already made] hold nearly the same relation to the price of the things which they take part in producing, as is held by land or any other free gift of nature.29

The idea recurs frequently that “for the time” the supply of any agent may be regarded as fixed, and, therefore, as not conforming to its cost of production; and in such case the income yielded by it is “of the nature of rent.”30 The reservation in the phrase, “though not the whole of the distinction,” leaves in doubt the value of the statement for exact theory. But the trend of the thought is evident. It is a departure from the land concept, wherein rent is always a return for the gifts of nature, and from the extension concept, where rent is paid for one property of land. It is a continuity concept of a peculiar sort, the difference between rent and interest appearing gradually as the time is lengthened within which the productive agents are considered. “In passing from the gifts of nature through the more permanent improvements in the soil to less permanent improvements  . . . we find a continuous series.”31

In this conception, as the period under consideration is lengthened, the rent bearer, if it is a perishable thing, gradually becomes an interest bearer, rent gradually merges into interest, and there is no sharp dividing line between them. In the static view of industry, the income from material agents is rent, and interest is nonexistent. If there is any thought here of the bounty of nature or of the attribute of extension, it comes in the dynamic view of industry in considering long periods. The income derived from the durable sources is always rent (in this conception), and never becomes interest; while the income from appliances which must be renewed, is sometimes rent (in short periods), but becomes interest if a period of some length be considered.

In this brief restatement and explanation is implied no adverse criticism. That this concept has a much different content from the others may make an inconsistency in an economic treatise, but not necessarily within the concept itself, which may be an improvement on those found defective. That it is a continuity concept, and that only the two extremes are in logical opposition, is not necessarily a fault. The question is, What sort of continuity is shown? The difficulty is that this concept is never thought of by business men in the conduct of practical affairs. Such a usage of terms cannot be maintained except on the most abstract plane. A terminology which does not reflect distinctions present, though perhaps but vaguely, in the minds of practical men, does not meet the requirements even of the abstracter economic theory.

Further criticism may be reserved, for the time concept is nowhere in contemporary discussion fully worked out; and it may perhaps be looked upon as an undeveloped thought suggested by the recent mode of treating costs and rent. Those goods which are worn out and renewed more or less frequently tend, in the long run, to conform (it is thought) to the cost rule, while the durable goods are independent of the cost rule. In the latter case the income is a true rent; but all the other appliances yield what appears to be a rent, if they be studied for short periods, within which their value cannot be adjusted to their cost. This supposed relation between cost and rent—the no-cost concept of rent—will later be given a fuller consideration.

4.
RENT AS A GENERAL SURPLUS.

The word “rent” is frequently used of late in reference to almost any surplus gain. For example, the term “consumer’s rent” is applied to “the excess of price which [a buyer] would be willing to pay rather than go without [a thing], over that which he actually does pay.”32 Rent is here not connected with any particular kind of agents, nor is it any regular form of income; but it is merely a margin of advantage in an exchange. It must be noted that the term is used cautiously: “It has some analogies to a rent; but is perhaps best called simply consumer’s surplus.”33

The word is used also in connection with the “extra incomes which are earned by extraordinary natural abilities.”34 It is said that there is strong “cause for regarding them as of the nature of a rent, or producer’s surplus, resulting from the possession of a differential advantage for production, freely given by nature.” Several cases are cited where the term might be misleading; and it is said that “the greatest caution is required in the application of the term rent to the earnings of natural ability.”35 Yet the use is sanctioned under some circumstances.

The term “producer’s surplus or rent” is used still more broadly of the earnings of the most ordinary ability, as indicating a surplus of pleasure to the workers above the sacrifice involved in their work. As they are paid for the earlier hours “at a rate sufficient to compensate them for the last and most distressing hour,” they are said to be “reaping a producer’s surplus, or rent,”36 on the earlier hours.

Still another variation is given to the term when it is said that “a negative rent” is “reaped” by the man who would prefer to stop work an hour earlier, but cannot.37 In all these cases the thought is that an income, or share, of the product should be called a rent whenever it represents a value greater than that which is attributable to the sacrifice that is or must be made to secure it. The rent concept has become one of surpluses found throughout the whole range of industry.

5.
EXAMINATION OF THE DOCTRINE THAT RENT DOES NOT ENTER INTO MONEY COST OF PRODUCTION, PRELIMINARY TO THE STUDY OF QUASI-RENTS.

Pervading the current treatment of rent is the thought that it is a share of the product (or an income, or the yield of a factor) which “does not enter into the cost of production.” This comes to be the very essence of the rent concept. The criticism of this concept naturally divides itself into two parts, corresponding to the generally recognized double meaning of cost of production.

The term cost of production [is used] in two senses, sometimes to signify the difficulty of producing a thing, and sometimes to express the outlay of money that has to be incurred in order to induce people to overcome this difficulty and produce it.38

The “efforts and sacrifices” required to make the commodity are called “the real cost of production,” while “the sums of money that have to be paid for these efforts and sacrifices” are called “the money cost of production, or, for shortness, the expenses of production,” “or, in other words, they are the supply price.”

There is no question that it is with cost in the money sense that rent is linked in the proposition above quoted.

The price of the whole produce is determined by the expenses, or money cost, of production on the margin of cultivation; and rent does not enter into cost of production.39

It is this doctrine which will now be examined with the view of determining what basis it affords for a concept of rent. First, let it be noted that, in viewing the money costs of production as regulating value, one is taking the individual standpoint. The costs are thought of as incurred by the undertaker when he pays out money. We are told that in studying this feature of rent “the easiest as well as the most practical course is to go straight to production for sale in a market.”40 There is no question as to how much sacrifice is involved to the laborer, to the capitalist, or to the landlord, in giving services or the use of the wealth which they control to the undertaker who pays for them. Cost of production is said to regulate or determine the value of products because, if the price is not high enough to meet these money costs, some undertakers will reduce their output, others will go out of business. Vice versa, if prices rise, other undertakers will be tempted into the business by the more than ordinary balance over and above expenses. In this view, everything that an undertaker pays out in order to produce a commodity would seem to be a necessary part of his costs, and, it being supposed that he is not a land-owner, rent is a part of these as much as is any other payment. The typical undertaker is supposed to rent his land, to hire his labor, and to borrow his capital. To the undertaker, be he farmer, manufacturer, or merchant, these various costs stand in just the same relation to his production. No one of them is to him a surplus, for he is paying their full value as fixed by competition in the market. The only surplus to him is a surplus of the price over and above the sum of costs entering into the product.

A consideration of these facts gives an appearance of self-evident error to the doctrine in question. It seems to be a denial of the good sense of the undertaker. It suggests the thought that those who state the doctrine have overlooked the fact that the undertaker pays rent. Indeed, it will be shown later that the idea of rent as a surplus starts with the thought of the owner who has especially good land and thus gets a surplus product;41 but, in the argument at the stage we are now considering it, the facts above stated are fully conceded. It is said:—

The doctrines do not mean that a tenant farmer need not take his rent into account when making up his year’s balance sheet. When he is doing that, he must count his rent just in the same way as he does any other expenses.42

This argument does not imply that a manufacturer when making up the profit and loss account of his business would not count his rent among his expenses.43

In making up the profit and loss account of the cultivation of land, the farmer’s rent must be reckoned among his expenses.44

These imply also that rent must be taken into account just as any other expense in any increase of the business which involves the use of more land. The doctrine would thus seem to be given up; but it is justified by this reasoning:—

What they do mean is that, when the farmer is doubting whether it is worth his while to apply more capital and labour to the land, then he need not think of his rent; for he will have to pay this same rent whether he applies this extra capital and labour, or not. Therefore if the marginal produce due to this additional outlay seems likely to give him normal profits, he applies it: and his rent does not then enter into his calculations.45

It has before been assumed that it is possible to estimate the expenses of production while omitting rent; that is, “on the margin of cultivation.”

That is, they are estimated for a part of the produce which either is raised on land that pays no rent because it is poor or badly situated; or, is raised on land that does pay rent, but by applications of capital and labour which only just pay their way, and therefore can contribute nothing towards the rent. It is these expenses which the demand must just cover: for if it does not, the supply will fall off, and the price will be raised till it does cover them. Those parts of the produce which yield a surplus will generally be produced even if that price is not maintained; their surplus therefore does not govern the price: while there is no surplus yielded by that portion of the produce the expenses of production of which do take direct part in governing the price. No surplus then enters into that (money) cost of production which gives the level at which the price of the whole supply is fixed.46

The last unit of product which the undertaker attempts to secure, it is said, contains no element of rent, whether it be produced on rich rent-bearing land (on the intensive margin) or on the poorest piece of land (on the extensive margin). Most stress is placed, however, on the argument as to the intensive margin; for that is present in every industry.

A number of reasons may be adduced for rejecting the doctrine that has been stated.

1. The statement that rent does not enter into the cost of production, when interpreted as has been shown, is a violation of the plain and usual meaning of the words, and one that is confessed. Nearly all the attention that has been attracted to the phrase has been due to its evident contradiction of the facts as understood by the practical man.47 It is here justified by giving it a most unpractical meaning. It is said that, while rent is practically a part of the expenses of production at every moment of time, exactly as every other outlay is, yet in a certain logical sense it may be looked upon as not being a part. Even if the logic of this were sound, it comes very near being a quibble on words.

2. The logic by which it is shown that the undertaker need not consider as part of his expenses the rent of the last or marginal unit of product proves too much to be sound. In exactly the same way one can seem to show that interest, wages, and profits do not “enter into” the cost of production,—a reductio ad absurdum which has. not failed to appear under the light of recent criticism.48 Nor does this possibility escape the ingenious thinkers who hold the doctrine under criticism. Speaking of the farmer, it is said:—

The question whether he has carried his cultivation of a particular piece of land as far as he profitably can, and whether he should try to force more from it, or to take in another piece of land, is of the same kind as the question whether he should buy a new plough, or try to get a little more work out of the present stock of ploughs . . . . That part of his produce which he is in doubt whether to raise by extra use of his existing ploughs, or by introducing a new plough, may be said to be derived from a marginal use of the plough. It pays nothing net (i.e., nothing beyond a charge for actual wear-and-tear) toward the net income earned by the plough.49

Again, it is said more generally of the manufacturer or trader:—

That part of this production which he just forces out of his existing appliances, being in doubt whether it would not be better worth his while to increase those appliances than to work so intensively those which he has, contributes nothing of the income which those appliances yield him. This argument says nothing as to whether the appliances were made by man, or part of a stock given by nature.50

When it is noted that these statements are made in connection with the thought that all material agents are capital from the standpoint of the undertaker, the conclusion seems necessary that all claims of any exceptional relation of rent to money costs, and hence to value, must be given up. But such consequences do not appear to be recognized.

To restate our argument: If it can be shown that each of the productive factors employed by an undertaker, in a certain logical sense, costs him nothing in the marginal product, it follows that no one of these factors and no one of the items of expenses is on this account in an exceptional relation to the value of the product. Either one must say that none of the undertaker’s outlay “enters into” the cost of the product, which to the business man would appear to be a very Pickwickian statement, or one must say that all of them enter in just the same way, hence this can be no peculiarity of rent.

The same argument may be made to apply to each and every item of expense entering into costs. If seed, ploughs, horses, reapers, fences, barns, are used by a farmer in producing a certain crop, the amount of every item but one can be increased, and another unit or product procured, without any addition to the cost of that one item. Thus each item may be shown, with equal fallaciousness, to be no part of the cost of production of that unit of product supposed to be price-determining.

It must be borne in mind that the supposed peculiarity of rent is not made dependent on the element of time, the length of the period under consideration, but is based on reasoning applicable at any given moment, as appears above, to each and every item entering into production. By a mere logical device the actual expenses of production may be conjured away, while the burden of their payment rests with undiminished force on the shoulders of the undertaker.

3. The doctrine contradicts the conditions which it postulates. A fundamental assumption of the whole argument is that there is free competition among intelligent renters. It is assumed that the tenant who rents the land knows what the land would be worth when used in connection with the best possible proportions of other agents, and bids that amount for rent. Of course, the best proportions are relative to the general state of knowledge at the time. Under the justifiable assumption of diminishing returns with increasing applications of labor and capital, there is an ideal point at which the maximum economic result would be secured from the land, and beyond which the application of the slightest additional capital would involve a loss. It is this ideal point which every practical undertaker is striving to attain. In theoretical discussion the additional doses of capital are supposed to be infinitesimally small, as are the additional units of product. The argument under criticism assumes that a blunder has been made by the undertaker, and that it would pay to add more capital than he had counted on. But, if the rent has been really a competitive one, and the doses be considered as infinitesimally small, there must be some product secured for rent for each added unit of capital and labor up to the very last, in order that the tenant may pay the competitive rent. The last unit of product of any finite amount would contain this element of advantage, and under competition would have to pay its corresponding rent. The only product obtained, in the strict theory of the case, without paying rent, would be one unit infinitesimally small,—in plain Anglo-Saxon, would be nothing at all. No Finite unit of product can be shown to be a no-rent unit in the theory of the intensive application of labor and capital with regularly diminishing returns. The concrete units are produced at varying costs for labor and interest on capital, and every one contains an element of rent. This rent is a part of the undertaker’s costs, and equalizes the total costs of the various units of product; for under perfect competition he is compelled to pay it, if he is to retain control of that quantity of land which is economically most favorable for the output he is producing.51

4. The marginal costs in one industry may contribute to rents in another. If it were logical in the case of any business that is paying rent to look upon certain marginal units as contributing nothing to money rent in that business, and if these units, because just paying, were considered as regulating the price of the whole supply, still is it not a begging of the question to say that a payment to rent is not a part of the money costs of the marginal unit? For the marginal units of money cost are not ultimate factors of value. They are a complex of many payments for various elements, and there is no proof that these do not contain an element of rent which must be paid if the supply of materials is to be obtained and the supply of the .product is to be maintained. Some of these elements may be secured from natural resources having a high rental value: some of them, in fact, may be bought from landlords who have received them as rents in kind. So when the theorist, seeking to show that rent is not a necessary part of money costs, has eliminated the rent of the immediate product, a final answer has not been reached: the difficulty has only begun. He must again take each portion of the costs and eliminate the rent found in it, seeking, if he may, the marginal units of these marginal units, in which no troublesome element of rent is found. These complex units of cost, which are admitted to enter into the price and determine it, are thus seen to be in many cases made up in part of payments to rents, to “price-determined” things of value. They are not the homogeneous, rentless units they were assumed to be.52

5. Such rentless marginal units could not be considered as regulating and determining the value of the product in any causal or exceptional sense. The four preceding reasons all are in support of the view that rent is a necessary part of the expenses of any product in the same sense that any other outlay of the undertaker is. If those reasons are sound, the supposed peculiarity of rent in relation to costs is sufficiently disproved. But it may be made clearer that rent bears just the same relation to the money costs that every other outlay of the undertaker does, if the analysis is carried one step farther to show that, if some units could justly be looked upon as rentless, they could not, except by chance, be the ones that fix the limits of supply and hence govern price, even in an abstractly logical view.53 The marginal units of supply which it just pays the undertaker to produce may be those containing a large element of rent.

Start with the existing market price. It is determined by the market conditions at the moment. If price falls, there is a readjustment or reduction of supply because costs are not met on some units. If price rises, there is an increase of supply because other agents seek that industry. The only sense in which it is claimed that these marginal costs determine price is by their effect on supply. The marginal units produced with the poorest land (or other agents) or with the poorest powers of agents used, are assumed to be the regulative units. But neither is there practical proof of this nor is it logically evident. Any unit that is added to supply or taken from supply, because not paying at any moment, may be just as logically considered the marginal unit in determining supply. Suppose that a large fertile source of supply for wheat is newly discovered or made available. Coming into the market in large quantities, these units of product increase supply, depress price, and drive large areas of land either out of cultivation or into other industries.54 There is a readjustment of the old sources of supply, a loss of the weaker units on the margin; but it is no causal matter, it is the effect of a change at another point. The employment in the industry and the very costs (that is, value) of these supposedly determining units are seen to be determined by other units of supply. Constantly some of the better agents are being tempted into other uses or agents yielding a high rental are brought back into the industry. Those sources of supply and units of product which have large elements of rent in them are just as effective in determining the final equilibrium of supply as any rentless units can be. The work of preserving the supply just where it will cause the price on the market to cover these costs is not left to a few rentless units along the margin. In the case of any important product it is performed by thousands of units of supply of the better agents, any one of which is ready, at the slightest change of price, to shift into or out of the industry, if thereby it can earn a greater rental. If these marginal units of supply, which it just pays the undertaker to secure, thus usually contribute to rent, rent must be said to contribute to the marginal money cost of production.

The facts above noted are admitted in the current defenses of the doctrine under discussion. It is said:—

“Each crop strives against others for the possession of the land. If any one crop shows signs of being more remunerative than before, relatively to others, the cultivators will devote more of their land and resources to it.” As a result, any one crop, as oats, must pay even for the poorest land on which it is grown enough rent to hold the land from a competing use. There thus results “a modification of the classical doctrine of rent and value.” “The margin of cultivation has now to be described as the margin of the profitable application of capital and labour to all land which the competition of other crops yields to oats. “And this means, as it is further explained, that “the expenses of production of those oats which only just pay their way, are increased by the diversion to other crops of land which would return large crops of oats; land which would yield a good rent under them, but which yields a better rent under other crops.”55

Let us note what effect these facts are admitted to have on the doctrine under discussion. It is admitted that marginal units in one crop, which it just pays to produce, do contain an element of money cost sufficient to pay the rent that would be earned by a competing crop, and that the demand for land in other uses raises the marginal expenses and the price. It is distinctly stated that the argument is valid for urban as well as rural land. This would seem to cover the great majority of products, and nearly all the rent that is paid for any purpose. If the rents of all competing crops mutually enter into each other’s prices, the door has been opened quite as effectually for the entrance of rent into price as if the relation had been made more direct. It is implied, further, that, in considering this competition for the use of fertile soils, “the classical economists” are not followed. It is admitted that “it requires a modification of the amended doctrines as to rent and value,” that the statement that the normal value of a single crop is determined by cost of production under the most unfavorable circumstances (that is, on land paying no rent) was incomplete in the way above noted; and, finally, it is admitted that the phrase “rent does not enter into the cost of production,” when applied to a particular crop or to any particular product, “is liable to misinterpretation,” should be avoided, “and its use is inexpedient.”56 The phrase, when meaning the money cost of production, never is applied except to a particular product. So the doctrine appears to be effectually discredited by its defenders. But this conclusion is rejected, and the claim is made that “it is still true that rent is not an element in those expenses of production of marginal oats to which the price of the whole conforms.” It does not seem to us possible to harmonize this with the facts above admitted. The only reason given, one considered sufficient to justify the doctrine, is the one fully considered in another connection,—the logical device of a rentless unit of product.

The suggestion may be ventured that, when considering the money costs of production as regulating the supply of various goods, the marginal unit is logically the no-profit unit for the undertaker. A no-profit unit of product, moreover, is, in an abstract view of the case (that is, assuming that there has been neither blunder nor miscalculation), the last unit that can be made to earn enough in the business to pay its burden of rent, wages, and interest. The no-profit unit results from just that ideal right combination of instruments which yields the highest net product in the whole industry. No change in the proportion of the various factors could make any one of them contribute a particle more to the net result of the undertaker’s profits. When money costs of production are looked at concretely, as they are by the business men, all kinds alike are essential, and all enter into the cost. If the yield of the various factors be studied by the methods of marginal product and mathematical increments, each can be considered as reaching at last a point of no-yield to the undertaker. It is this which in an empirical way the business man is striving to locate. The marginal or no-profit unit, to any undertaker, is the unit where every factor may be logically looked upon as having reached this point.

6. The doctrine is by logical necessity given up when land is classed as a particular form of capital from the point of view of the individual undertaker.57 Passages have been cited in another connection58 to show that contemporary defenders of the rent doctrine give up the attempt to distinguish between land and capital, and justify it only because of differences which are said to appear from a social standpoint. But, as has several times been pointed out in this paper, the undertaker views the payment of “rent” and “interest” in precisely the same way, as the purchase of so much productive power. All of these expenditures are, by means of the money expression, reduced to comparable and homogeneous units of money cost. All costs represent capital expended by the undertaker.

The giving up of the distinction between land and capital, when taking the business man’s standpoint, involves as a consequence the giving up of the old distinction between rent and interest, when considering the money costs of production. The maintenance of the distinction and the founding upon it of an important doctrine (that of quasi-rents) can hardly be explained except as due to the survival of economic traditions, and to a failure to adjust the older and the newer thought.

The conclusion of this long series of arguments is not only that the time-honored doctrine is unsound, but that this is by logical implication repeatedly admitted by those who still formally assert its validity.

6.
THE NO-COST CONCEPT OF RENT.

The doctrine just stated, far from being rejected, is made the basis of the concept of rent which may be considered the dominant one at present among the economists of England and America. On the assumption that the doctrine has been proved, this peculiar relation to value is made the essence of the rent concept; and all the incomes which are thought to share this peculiarity are classed as rent. It is explained that the “incomes derived from appliances for production made by man” are called quasi-rents, “partly because (in short periods) the stock of them has to be regarded as temporarily fixed,” but essentially, as is stated in the next sentence, because “for the time they hold nearly the same relation to the price of the things which they take part in producing, as is held by land or any other free gift of nature, of which the stock is permanently fixed; and whose net income is a true rent.”59

In such cases the incomes from improvements on land “do not take direct part in determining the price of the produce, but rather depend on them” (sic).60 Hence these incomes are called quasi-rents; that is, of the nature of rent. The point repeatedly insisted upon is that the mark of rent or of quasi-rent is that it does not “enter directly into the marginal cost of production.”61 In this concept rent is an income that is “a result and not a cause of selling price.”62 Rent is a share, or an income, that does not correspond to a cost which must be met if the supply of the product is to be maintained. The expression “a cause of selling price” means the same as “enters into the cost of production.” Instead of a sharp classification of sources of income, as was involved in the original concept of rent, there is here presented a continuity classification of the incomes themselves, ranging from those at the one extreme, which never enter into the cost of production, in a continuous series to those which do not enter when very short periods are considered, but do enter at any other time. At the head of the series are the free gifts of nature, whose supply is said to be fixed, and likewise must be logically the incomes flowing from the possession of strictly unreproducible articles, as masterpieces of art, autographs, though these are not mentioned: all such are true rents. At various points along the scale come the incomes from appliances made by man, the supply of which can be renewed or increased in varying periods of time.

The attempt will now be made to show that this concept of rent as the no-cost income, and the doctrine of quasi-rents connected with it, involve a number of fallacies; that they are radically out of harmony with the principles just criticized, on which they are supposed to rest; and that they grow out of a confusion between the two sets of ideas enumerated in parallel columns, as follows:—

1.	Between the undertaker	and the owner.
2.	“  Undertaker’s cost	“   owner’s income.
3.	“   production of the good	“   production of the appliance.
4.	“  money cost	“   real cost.
5.	“  the individual	“   the social standpoint

1. The undertaker’s vs. the owner’s standpoint.

As we have seen, the consideration of money costs of production and their relation to the value of goods compels the adoption of the undertaker’s standpoint. The costs of goods act on their value, so far as they do it at all, through the medium of the undertakers, who adjust supply according to the price. We have maintained that in so doing they must count the rent of land precisely as they do any other item; while the doctrine here criticized seems to be that, just as the undertakers need not count their rent, so they need not count any other items of expense, for not one of them enters into the cost of production in short periods. Such a reductio ad absurdum must cause the no-cost doctrine to be renounced; but the conclusion is escaped because the thought has passed on from the undertaker and his burden of costs, and his constant endeavor to adjust supply to the price, and has gone over to the owner of the appliances of production.

This shift of thought is evident in the first paragraph of the chapter on quasi-rents. It is said that

The farmer pays “rent” to his landlord [this is rent as undertaker’s cost] without troubling himself to distinguish how much of the annual net value of his land is due to the free gifts of nature and how much . . . to improvement.

In the next sentence the shift to rent as the owner’s income is made:—

Now the income derived from . . . appliances of production made by man have really something analogous to true rents. . . . For the time they hold nearly the same relation to the price of things which they take part in producing, as is held by land.63

Every item of outlay by the undertaker may be viewed from two sides: to the undertaker it is always a money cost, and never an income; to the one who receives it64 in payment for labor or the use of appliances it is always a part of income, and never a money cost. Now, in the chapter65 on quasi-rents, after the first sentence, the discussion is all of incomes: “the incomes from buildings,” “the net incomes from appliances for production already made may be called their quasi-rents,” “the extra income derived from improvements that have been made in the land by its individual owner,”—these are a few of a large number of expressions showing that the payment is not looked upon as a money cost, but as an owner’s income. This helps us to under-stand how it is possible to say that none of the shares are money costs: it is an unannounced and doubtless unconscious shift to a quite different conception.

In this connection it may be suggested that the idea that rent is not a part of undertaker’s costs originated in just this fallacy. Here no share of the produce is a cost, because all are viewed as owner’s income: there rent is not a cost, because for the moment it is assumed that the undertaker is an owner and has no rent to pay. The thought appears at the beginning of the chapter on Rent in these words:—

When a person is in an advantageous position for any branch of production, he is likely to obtain a “producer’s surplus,”—that is, a benefit in excess of what is required to remunerate him for his immediate outlay. This surplus is likely to exist when he produces for his own consumption, as much as when he produces for sale.66

It requires no argument to prove that this is a surplus only to the owner, and that competition keeps it from being a surplus to the undertaker and makes it a cost. So that, if the standpoint of money costs be held consistently, almost the exact opposite of the usual statement must be made. Instead of rent being to the undertaker a “surplus above costs,” it is essentially that payment which, as a part of costs, prevents the undertaker from getting any surplus which can be attributed to the rented agents.

3. Production of the commodity vs. production of the appliance.

The changes just noted involve a change of thought also from the production of the commodity in question to that of the production of the appliances. The things these appliances take part in producing are still spoken of, but the interest is indirect. In the case of the production of the commodity, the undertaker pays what he is forced to in each case for the agents of production “without troubling himself” about their origin. The period within which the supply affects price is that within which appliances can be diverted from one use to another. Here, however, the price of commodities is supposed to remain unchanged until new appliances can be brought into existence, tempted by the higher income: the period considered important is that within which the supply of “improvements” or of “means of production” can be increased. Their (real) cost is thought of as reflected on in the price of the goods; but let it be noted in passing that this can never raise, it can only lower the price, through increased supply. Only occasionally is it impossible to divert some of the existing appliances almost immediately to other uses with greater or less ease, so that the period sufficient to increase the supply of the commodity rarely is the same as that needed for creating new appliances. When the relation of money costs to the price of commodities was talked of, it was with reference to their influence in increasing or decreasing the supply of the various commodities: when the relation of owner’s income to prices is talked of, it is with reference to the effect they will have in increasing or decreasing the supply of available appliances. The undertaker reaps his unexpected profit when the price of his product suddenly rises, and he has either a large stock of it or has contracts out for the materials, so that he can get a large margin between costs and price by producing quickly and more cheaply than his new competitors. The owner reaps an unexpected income when his appliances are suddenly in greater demand. The case to test what the effect is of a relatively fixed supply of appliances on the undertaker’s costs is that where he has no standing contract for materials when the increased demand for the product arises; and here can be seen most clearly that money costs do enter into price. The value of the appliance for the time limited would rise, its owner would get an increased income, and the undertaker must meet increased costs if he is to continue to produce the article.

4. Money cost vs. real cost.

All of these shifts of thought seem to be traceable to the perennial source of error,—the confusion of money costs and real costs. In speaking of the cost of the undertaker, it is usually money cost; in speaking of cost to the one whom the undertaker pays, whether he be a laborer, capitalist, or land-owner, it is real cost that is meant. In the quasi-rent discussion this error is palpable. It is said that

for periods that are long in comparison with the time needed to make improvements of any kind, and bring them into full operation, the net incomes derived from them are but the price required to be paid for the efforts and sacrifices of those who make them. . . . But in short periods . . . these incomes may be regarded as quasi-rents which do not take direct part in determining the price of the produce, but rather depend on them.67

Here all the points are combined. It is the owner’s income, the supply of improvements, and the cost in the form of effort and sacrifice which must be met. There is no hint of the thought that even in the shortest periods the payment that is income to the owner must be a cost to the undertaker. So throughout “the free gift of nature” is said to yield an income that is not a cost. The “made appliances” have cost “effort and sacrifice,” which is no more than enough to remunerate the owner. This is the very heart of the quasi-rent doctrine,—the thought that there is a difference in the cost which must be undergone to bring into existence different productive agents. Some are free gifts, and involve no cost (sacrifice): others are made by man, and cost effort. It is not clearly seen and borne in mind that money costs have no correspondence with these, but are merely the market value of the agents of which a producer makes use.

Here mention may be made of a troublesome fallacy in the very definition of land as “the free gifts of nature.” If it is defined in this way, man cannot increase land by his efforts; for it is then not land, not being a free gift. Everything to which man has given the slightest effort becomes capital. But, if land be taken in the usual practical sense, as the earth and the materials it affords, whether difficult to get at or not, it is evident that most kinds of land can be secured with varying degrees of difficulty. All economists drop into this conception sooner or later.68 In this sense, land has a supply price, just as any other good has. The supply is increased when the price is sufficient to meet the money costs in the same practical sense in which this is said of other things. This is plainly admitted when it is said that

the supply of fertile land cannot be adapted quickly to the demand for it, and therefore the income derived from it may diverge permanently much from normal profits on the cost of preparing it for cultivation.69

5. The individual vs. the social standpoint.

The distinction between the individual and the social views of land, on which much stress is laid by contemporary economists, rests on the recognition of the two points of view indicated. By individual point of view is meant that of the undertaker who considers money costs. By the point of view of society is meant apparently that of owners in general, who are considered as expending effort, making sacrifices, incurring real costs, in the increase of productive appliances. This distinction is made repeatedly,70 and it must be noted that it is fatal to anything but a “real cost” conception of rent. If land is but a particular form of capital to the undertaker, then there is no difference between rent and interest as money costs to the undertaker. It is only when real costs are considered that there is any difference to note. Now real costs are very little considered in practical business under a money economy. As they are not capable of mathematical expression, they are dismissed pretty effectually from any discussion of practical business problems, of rent in its relation to market values, and from the economist’s analysis of industry. It is difficult to see how the conclusion can be evaded that the distinction still insisted on in current discussion between rent and other shares of industry as they affect value, and the quasi-rent doctrine itself, [rests] on a confusion of these two essentially different conceptions.

7.
REVIEW AND CONCLUSION.

This paper has been mainly critical and negative, yet some positive results may appear in glancing over the ground that has been traversed.

(1) The land concept, the first of the rent concepts, was one that rested on a classification of material things. When anything had been classified as land, it followed that the income from its use was rent.

(2) The extension, or space relation, concept is an attempt to escape some of the difficulties of this classification by narrowing the concept of land to those properties only which were assumed to be neither increasable nor destructible. The fertile qualities of soil, the many destructible and removable material elements, would thus be classified as capital, even though they had not been produced by man. This concept is hardly more than suggested. It is not fully developed by any author.71

(3) Next in logical order is the one we reserved for the last and fullest treatment, the no-cost concept. It originates unquestionably from the land concept, in the thought that free gifts have no “real” cost, and, therefore, the material services rendered by them do not involve a cost. The application of this notion to rents has two phases, separately considered above. First, by an error of reasoning, the idea that rent is a surplus and not a “real” cost to the owner of land is carried over to the undertaker; and rent is assumed not to be a money cost to him.

So strongly does this notion take root that, when reasons are sought, a very evident fallacy is taken as convincing. It is then assumed that the reason why rent does not enter into the cost of goods is that land cannot be increased in quantity (though this was not the reason that had been given),72 and the same relation to cost must be found in anything else that is fixed in supply. Here the land concept is subordinated; and land is thought to yield a rent only because it has no cost of production, and does not enter into the cost of production of commodities.

(4) The time concept is but a variation of this. It takes time to increase the stock of productive agents, and an income from any agent is to be considered rent when brief periods are considered; for within that period, it is assumed, rent does not enter into the money costs of the commodities.

(5) The exchanger’s surplus concept is merely a loose extension of the thought that any surplus may be looked upon as rent, any gain which does not involve a real sacrifice. It abandons the idea that rent is a regularly accruing income. It is carelessly thought out, and nevertheless has found its way into wide and reckless use during this period of psychological economics.

One feature marks all these concepts: it is the inclusion of land, the “free gift of nature.” In the land concept it is the very essence. The extension concept is narrowed to those of these gifts which are deemed to be fixed in supply: in the other three, land becomes only one of many things which yield at one time or another a rent, yet it remains the typical rent, the “true rent,” the “rent proper,” because it is the one thing that is looked upon as unvarying in supply and incapable of increase. Yet this common feature does not bind these various concepts together into a consistent series: it does not make them mere variations of one another. In the land concept and in the no-cost concept, for example, there are essentially different central thoughts. Within the later concept, land is included merely because it is one of many things which are found to have the rent character.

The golden rule of the critic of art, never to judge a picture by its defects, may perhaps be adapted to the criticism of economic theory. The errors, if they be such, in the work of the distinguished economist from whom we have quoted, are inherited from the past. There is not one of them without a history. They merely become evident in their statement along with the newer ideas. In that which is most characteristic, original, and positive in his work, Professor Marshall has left the old concept of rent far behind. The logical consequence of his treatment is that all the division fences between the different sorts of material wealth have been levelled; and rent is the income of any material agent, when static problems, practical business rent, and the money aspects of production are under discussion. And this is a service of high order to economic thought.

The main conclusions of this paper may be summed up in these statements:—

The old concept of rent is passing; it is not being undermined by attacks of the old sort, by those who do not seek to understand it; but it is now abandoned in all but form by those who represent the most conservative wing of economic thought.

The various new concepts considered are imperfect and unsuccessful efforts to escape the difficulties of the older view.

The use of the term “rent” for any surplus above “real” cost is out of harmony with the conception of rent as a regularly accruing income, and with the practical needs of a money economy in which the concept must be employed.

The doctrine of quasi-rents, involving the idea that no income, or share, enters into market prices in short periods, cannot stand. On the other hand, the recognition that there is no difference in short periods between land and other wealth in relation to market values is a great advance.

The relation which rare and not easily producible appliances have to market price over long periods of time is of just the opposite character from that asserted. The less capable of increase particular appliances are, the greater income they yield, the more therefore it “enters into price” as the demand for their products increases.

The need for a new concept of rent which will evade the difficulties of the old is evident.73 The way is prepared for it by the break-down of the old and the patent difficulties of the substitutes that have been presented.

 

_________________

Reprinted from Quarterly Journal of Economics 15 (May 1901).

NOTES

74. P. 150. References are to the fourth edition, 1898.

75. Pp. 213, 220.

76. P. 628.

77. A number of these are noted in the article on “Recent Discussion of the Capital Concept” in this journal for November, 1900 [cf. 33-73].

78. P. 220. He adds, however, that “there is a scientific principle underlying the distinction, which is the fixity of the supply of utilities connected with land.” This is discussed below, p. 322.

79. Pp. 223, 224. The indestructible properties are said to be robbed!

80. P. 233.

81. P. 144.

82. P. 492.

83. P. 493.

84. Pp. 607-8.

85. P. 494.

86. P. 717.

87. P. 144.

88. P. 493.

89. P. 478, note.

90. P. 494. See other examples, pp. 714, 760, 765. Note also the point discussed below, p. 327.

91. E.g., p. 608, where this view is taken.

92. P. 220.

93. P. 221.

94. Pp. 224, 225.

95. Pp. 220-1.

96. See above, pp. 319, 322.

97. P. 501.

98. Ibid.

99. P. 233.

100. P. 504.

101. Preface, p. x.

102. P. 489.

103. Especially pp. 489-499.

104. P. 496.

105. P. 199.

106. Ibid. See also the diagram of producer’s and consumer’s rent, p. 521.

107. P. 661.

108. P. 663.

109. P. 598.

110. P. 599, notes.

111. P. 418, note.

112. P. 477. This is shown by many other passages; e.g., pp. 418, 423, 426, 428, 430, 431, 433, 473, 477, 561, 608.

113. P. 476.

114. See below, pp. 345-346.

115. P. 478.

116. P. 486.

117. P. 487.

118. P. 478.

119. P. 477.

120. See recognition of this, p. 482, note.

121. This point has been noted, doubtless quite independently, by Mr. H. M. Thompson, in The Theory of Wages (1892), pp. 49-80; by Mr. J. A. Hobson, The Economics of Distribution (1900), pp. 113-159; and by Professor J. B. Clark, The Distribution of Wealth (1899), pp. 354-365.

122. P. 492.

123. P. 493.

124. It is not intended to call in question the worth of the mathematical method of increments in economic studies, but only the correctness of this particular application of it.

125. This argument, if sound, invalidates the theory of distribution and the terminology presented by Dr. C. W. Macfarlane in Value and Distribution (1899).

126. P. 477.

127. Adam Smith, noting such facts, stated a doctrine opposed to that under criticism, saying that the most fertile coal and silver mines regulate the price of the whole supply. Wealth of Nations, Book I., chap, xi., Part II. This is equally unwarranted.

128. Pp. 481, 482. The thought is further illustrated, p. 487.

129. See pp. 481-483, passim.

130. P. 492.

131. P. 419.

132. P. 489. The italics are Professor Marshall’s.

133. P. 491.

134. Pp. 419, 498.

135. P. 495.

136. P. 489.

137. If he be not merely another undertaker through whose hands the thing has passed and who must pass on to others a part of the price as part of his costs.

138. P. 489, Book V., chap. ix.

139. P. 476.

140. P. 491.

141. E.g., p. 220.

142. P. 494.

143. See above, pp. 319-321.

144. Besides Professor Marshall, already cited, see Professor J. R. Commons’s interesting and ingenious presentation of this idea in The Distribution of Wealth (1893), pp. 27-41.

145. See above, pp. 321-326.

146. It need hardly be said that a notable essay in the direction here indicated is the concept presented by Professor J. B. Clark.

• 1Böhm-Bawerk undertook in his two large volumes to deal thoroughly with the theories of interest, and, to do so, was led to deal with the concepts of capital; for, thought he, it is capital for which interest is paid. However much he disputed the relation of production and interest, he had no doubt, in undertaking his study, as to the relation of capital and interest. Interest is the yield of capital in the broader sense, and capital the source of interest. They are correlative terms. To clear the field for his own concept of capital, Böhm-Bawerk, therefore, passes in review the various conceptions of capital that have been employed. He begins by following the historical order, and later groups the concepts in logical order. In the chapter on historical development he begins with a mention of the mediaeval view of capital as “an interest-bearing sum of money,” gives a few words to Turgot’s “saved goods” (a very inadequate, not to say mistaken, interpretation of Turgot’s view), and passes on to Adam Smith’s division of these into consumption goods and capital that brings an income. In Smith’s treatment the author thinks he finds the germ of the productivity theory of interest, which he considers false. Smith, in giving two varieties of the concept,—capital as a means of acquisition to the individual, and capital as a means of social production,—has in reality given, says Böhm-Bawerk, “two entirely independent conceptions, resting substantially on quite different foundations, and only connected externally by a very loose bond.” After devoting several pages to discussing this difficulty, the author abandons the historical order, and enumerates eight other variations of the concept: Hermann’s “every durable foundation of a utility which has exchange value”; Menger’s “groups of economic goods of higher rank [productive goods] now available to us for future periods,” Kleinwächter’s “tools of production”; Jevons’s “sustenance of the laborer”; Marx’s “instruments for the exploitation of the laborer”; Knies’s goods available to satisfy wants in the future; Walras’s goods which can be used more than once; MacLeod’s “value of the productive power contained in material goods.“ These are discussed more at length in Chapter V., the most important contentions being that the distinction between consumption goods and what he calls “the true instrument of production” is essential; that labor must not be confused with capital; that land must for many important reasons also be kept distinct; and that capital should be looked upon not as a “sum of value” hovering over goods, but as the “complex of goods” itself.
• 2Böhm-Bawerk undertook in his two large volumes to deal thoroughly with the theories of interest, and, to do so, was led to deal with the concepts of capital; for, thought he, it is capital for which interest is paid. However much he disputed the relation of production and interest, he had no doubt, in undertaking his study, as to the relation of capital and interest. Interest is the yield of capital in the broader sense, and capital the source of interest. They are correlative terms. To clear the field for his own concept of capital, Böhm-Bawerk, therefore, passes in review the various conceptions of capital that have been employed. He begins by following the historical order, and later groups the concepts in logical order. In the chapter on historical development he begins with a mention of the mediaeval view of capital as “an interest-bearing sum of money,” gives a few words to Turgot’s “saved goods” (a very inadequate, not to say mistaken, interpretation of Turgot’s view), and passes on to Adam Smith’s division of these into consumption goods and capital that brings an income. In Smith’s treatment the author thinks he finds the germ of the productivity theory of interest, which he considers false. Smith, in giving two varieties of the concept,—capital as a means of acquisition to the individual, and capital as a means of social production,—has in reality given, says Böhm-Bawerk, “two entirely independent conceptions, resting substantially on quite different foundations, and only connected externally by a very loose bond.” After devoting several pages to discussing this difficulty, the author abandons the historical order, and enumerates eight other variations of the concept: Hermann’s “every durable foundation of a utility which has exchange value”; Menger’s “groups of economic goods of higher rank [productive goods] now available to us for future periods,” Kleinwächter’s “tools of production”; Jevons’s “sustenance of the laborer”; Marx’s “instruments for the exploitation of the laborer”; Knies’s goods available to satisfy wants in the future; Walras’s goods which can be used more than once; MacLeod’s “value of the productive power contained in material goods.“ These are discussed more at length in Chapter V., the most important contentions being that the distinction between consumption goods and what he calls “the true instrument of production” is essential; that labor must not be confused with capital; that land must for many important reasons also be kept distinct; and that capital should be looked upon not as a “sum of value” hovering over goods, but as the “complex of goods” itself.
• 3Böhm-Bawerk undertook in his two large volumes to deal thoroughly with the theories of interest, and, to do so, was led to deal with the concepts of capital; for, thought he, it is capital for which interest is paid. However much he disputed the relation of production and interest, he had no doubt, in undertaking his study, as to the relation of capital and interest. Interest is the yield of capital in the broader sense, and capital the source of interest. They are correlative terms. To clear the field for his own concept of capital, Böhm-Bawerk, therefore, passes in review the various conceptions of capital that have been employed. He begins by following the historical order, and later groups the concepts in logical order. In the chapter on historical development he begins with a mention of the mediaeval view of capital as “an interest-bearing sum of money,” gives a few words to Turgot’s “saved goods” (a very inadequate, not to say mistaken, interpretation of Turgot’s view), and passes on to Adam Smith’s division of these into consumption goods and capital that brings an income. In Smith’s treatment the author thinks he finds the germ of the productivity theory of interest, which he considers false. Smith, in giving two varieties of the concept,—capital as a means of acquisition to the individual, and capital as a means of social production,—has in reality given, says Böhm-Bawerk, “two entirely independent conceptions, resting substantially on quite different foundations, and only connected externally by a very loose bond.” After devoting several pages to discussing this difficulty, the author abandons the historical order, and enumerates eight other variations of the concept: Hermann’s “every durable foundation of a utility which has exchange value”; Menger’s “groups of economic goods of higher rank [productive goods] now available to us for future periods,” Kleinwächter’s “tools of production”; Jevons’s “sustenance of the laborer”; Marx’s “instruments for the exploitation of the laborer”; Knies’s goods available to satisfy wants in the future; Walras’s goods which can be used more than once; MacLeod’s “value of the productive power contained in material goods.“ These are discussed more at length in Chapter V., the most important contentions being that the distinction between consumption goods and what he calls “the true instrument of production” is essential; that labor must not be confused with capital; that land must for many important reasons also be kept distinct; and that capital should be looked upon not as a “sum of value” hovering over goods, but as the “complex of goods” itself.
• 4Böhm-Bawerk undertook in his two large volumes to deal thoroughly with the theories of interest, and, to do so, was led to deal with the concepts of capital; for, thought he, it is capital for which interest is paid. However much he disputed the relation of production and interest, he had no doubt, in undertaking his study, as to the relation of capital and interest. Interest is the yield of capital in the broader sense, and capital the source of interest. They are correlative terms. To clear the field for his own concept of capital, Böhm-Bawerk, therefore, passes in review the various conceptions of capital that have been employed. He begins by following the historical order, and later groups the concepts in logical order. In the chapter on historical development he begins with a mention of the mediaeval view of capital as “an interest-bearing sum of money,” gives a few words to Turgot’s “saved goods” (a very inadequate, not to say mistaken, interpretation of Turgot’s view), and passes on to Adam Smith’s division of these into consumption goods and capital that brings an income. In Smith’s treatment the author thinks he finds the germ of the productivity theory of interest, which he considers false. Smith, in giving two varieties of the concept,—capital as a means of acquisition to the individual, and capital as a means of social production,—has in reality given, says Böhm-Bawerk, “two entirely independent conceptions, resting substantially on quite different foundations, and only connected externally by a very loose bond.” After devoting several pages to discussing this difficulty, the author abandons the historical order, and enumerates eight other variations of the concept: Hermann’s “every durable foundation of a utility which has exchange value”; Menger’s “groups of economic goods of higher rank [productive goods] now available to us for future periods,” Kleinwächter’s “tools of production”; Jevons’s “sustenance of the laborer”; Marx’s “instruments for the exploitation of the laborer”; Knies’s goods available to satisfy wants in the future; Walras’s goods which can be used more than once; MacLeod’s “value of the productive power contained in material goods.“ These are discussed more at length in Chapter V., the most important contentions being that the distinction between consumption goods and what he calls “the true instrument of production” is essential; that labor must not be confused with capital; that land must for many important reasons also be kept distinct; and that capital should be looked upon not as a “sum of value” hovering over goods, but as the “complex of goods” itself.
• 5Böhm-Bawerk undertook in his two large volumes to deal thoroughly with the theories of interest, and, to do so, was led to deal with the concepts of capital; for, thought he, it is capital for which interest is paid. However much he disputed the relation of production and interest, he had no doubt, in undertaking his study, as to the relation of capital and interest. Interest is the yield of capital in the broader sense, and capital the source of interest. They are correlative terms. To clear the field for his own concept of capital, Böhm-Bawerk, therefore, passes in review the various conceptions of capital that have been employed. He begins by following the historical order, and later groups the concepts in logical order. In the chapter on historical development he begins with a mention of the mediaeval view of capital as “an interest-bearing sum of money,” gives a few words to Turgot’s “saved goods” (a very inadequate, not to say mistaken, interpretation of Turgot’s view), and passes on to Adam Smith’s division of these into consumption goods and capital that brings an income. In Smith’s treatment the author thinks he finds the germ of the productivity theory of interest, which he considers false. Smith, in giving two varieties of the concept,—capital as a means of acquisition to the individual, and capital as a means of social production,—has in reality given, says Böhm-Bawerk, “two entirely independent conceptions, resting substantially on quite different foundations, and only connected externally by a very loose bond.” After devoting several pages to discussing this difficulty, the author abandons the historical order, and enumerates eight other variations of the concept: Hermann’s “every durable foundation of a utility which has exchange value”; Menger’s “groups of economic goods of higher rank [productive goods] now available to us for future periods,” Kleinwächter’s “tools of production”; Jevons’s “sustenance of the laborer”; Marx’s “instruments for the exploitation of the laborer”; Knies’s goods available to satisfy wants in the future; Walras’s goods which can be used more than once; MacLeod’s “value of the productive power contained in material goods.“ These are discussed more at length in Chapter V., the most important contentions being that the distinction between consumption goods and what he calls “the true instrument of production” is essential; that labor must not be confused with capital; that land must for many important reasons also be kept distinct; and that capital should be looked upon not as a “sum of value” hovering over goods, but as the “complex of goods” itself.
• 6Böhm-Bawerk undertook in his two large volumes to deal thoroughly with the theories of interest, and, to do so, was led to deal with the concepts of capital; for, thought he, it is capital for which interest is paid. However much he disputed the relation of production and interest, he had no doubt, in undertaking his study, as to the relation of capital and interest. Interest is the yield of capital in the broader sense, and capital the source of interest. They are correlative terms. To clear the field for his own concept of capital, Böhm-Bawerk, therefore, passes in review the various conceptions of capital that have been employed. He begins by following the historical order, and later groups the concepts in logical order. In the chapter on historical development he begins with a mention of the mediaeval view of capital as “an interest-bearing sum of money,” gives a few words to Turgot’s “saved goods” (a very inadequate, not to say mistaken, interpretation of Turgot’s view), and passes on to Adam Smith’s division of these into consumption goods and capital that brings an income. In Smith’s treatment the author thinks he finds the germ of the productivity theory of interest, which he considers false. Smith, in giving two varieties of the concept,—capital as a means of acquisition to the individual, and capital as a means of social production,—has in reality given, says Böhm-Bawerk, “two entirely independent conceptions, resting substantially on quite different foundations, and only connected externally by a very loose bond.” After devoting several pages to discussing this difficulty, the author abandons the historical order, and enumerates eight other variations of the concept: Hermann’s “every durable foundation of a utility which has exchange value”; Menger’s “groups of economic goods of higher rank [productive goods] now available to us for future periods,” Kleinwächter’s “tools of production”; Jevons’s “sustenance of the laborer”; Marx’s “instruments for the exploitation of the laborer”; Knies’s goods available to satisfy wants in the future; Walras’s goods which can be used more than once; MacLeod’s “value of the productive power contained in material goods.“ These are discussed more at length in Chapter V., the most important contentions being that the distinction between consumption goods and what he calls “the true instrument of production” is essential; that labor must not be confused with capital; that land must for many important reasons also be kept distinct; and that capital should be looked upon not as a “sum of value” hovering over goods, but as the “complex of goods” itself.
• 7Among these many variations the author gives his approval to that of Adam Smith, giving it “a more distinct formulation,” however, and distinguishing between the wider and narrower conceptions, acquisitive (private) and productive (social) capital.
• 8Of the former he says : “Capital in general we shall call a group of Products which serve as means to the Acquisition of Goods. Under this general conception we shall put that of Social Capital as narrower conception.” The problem of interest, he thinks, is connected with private or acquisitive capital, not necessarily with social or productive capital.
• 9What judgment now is to be passed on this reading of the capital concept? We must be struck by the fact that in the matter of simplicity the results of the author’s study are not ideal. But he asserts with a tone of triumph that the “conception meets all our logical and terminological requirements. Logically, it is unas-sailable.” He concludes with this hopeful prophecy: “If, then, unbiased people are ever to agree on the conception of capital, we may expect that this will be the one chosen.” His strongest ground for such a hope was the fact that he had made a place under the name “capital” for the two most generally employed concepts, and that the concept of social capital is the one widely held,—“products used for further production.” He did not claim much originality for this part of his work. He says: “The heavy part of the Positive Theory of Capital lies in the theory of interest. In the other portions of the subject [he seems to mean the concept of capital] I was able, at least on the whole, to follow in the footsteps of previous theorists.”
• 10What judgment now is to be passed on this reading of the capital concept? We must be struck by the fact that in the matter of simplicity the results of the author’s study are not ideal. But he asserts with a tone of triumph that the “conception meets all our logical and terminological requirements. Logically, it is unas-sailable.” He concludes with this hopeful prophecy: “If, then, unbiased people are ever to agree on the conception of capital, we may expect that this will be the one chosen.” His strongest ground for such a hope was the fact that he had made a place under the name “capital” for the two most generally employed concepts, and that the concept of social capital is the one widely held,—“products used for further production.” He did not claim much originality for this part of his work. He says: “The heavy part of the Positive Theory of Capital lies in the theory of interest. In the other portions of the subject [he seems to mean the concept of capital] I was able, at least on the whole, to follow in the footsteps of previous theorists.”
• 11What judgment now is to be passed on this reading of the capital concept? We must be struck by the fact that in the matter of simplicity the results of the author’s study are not ideal. But he asserts with a tone of triumph that the “conception meets all our logical and terminological requirements. Logically, it is unas-sailable.” He concludes with this hopeful prophecy: “If, then, unbiased people are ever to agree on the conception of capital, we may expect that this will be the one chosen.” His strongest ground for such a hope was the fact that he had made a place under the name “capital” for the two most generally employed concepts, and that the concept of social capital is the one widely held,—“products used for further production.” He did not claim much originality for this part of his work. He says: “The heavy part of the Positive Theory of Capital lies in the theory of interest. In the other portions of the subject [he seems to mean the concept of capital] I was able, at least on the whole, to follow in the footsteps of previous theorists.”
• 12The immediate reception of this portion of the author’s work largely justified his hopes. His careful restatement of the concept and the authority of his name undoubtedly added to the prestige it already enjoyed. The more usual point of attack on the author has been his interest theory, not his capital concept, which has been far less questioned,—in fact, has usually been accepted as flawless. Some protests, however, have already been raised against it; and, although it is still the dominant concept, discontent with this and other features of the older economic thought has been spreading. The earnest teacher, using the available text-books, and attempting to correct their treatment in accord with recent criticisms, is in despair. To one who has watched the course of the discussion it might seem that the service of Böhm-Bawerk’s work, so far as it touches the capital concept, lay not in settling, but in reopening the whole question. Remembering, however, that most students still accept Böhm-Bawerk’s statement of the concept, we turn to a group of thinkers who would give other readings to it; and we shall confine our study to the leading representatives of two differing views on the question.
• 13This part of the Austrian writer’s work, especially, was attacked by Professor John B. Clark, who defends the productivity theory of interest, though that point we need not raise in this paper. His own views had been published at the same time as the German edition of the Positive Theory of Capital; but more attention was attracted to them, it is probable, as a result of this controversy than at their first publication. I shall not enter into the merits of the discussion as a whole. It was carried on with great skill, with some later confessed misunderstandings, and at times, perhaps, with an over-subtlety which makes it exceedingly difficult to follow. I shall simply try to state the issue involved as to the capital concept.
• 14This part of the Austrian writer’s work, especially, was attacked by Professor John B. Clark, who defends the productivity theory of interest, though that point we need not raise in this paper. His own views had been published at the same time as the German edition of the Positive Theory of Capital; but more attention was attracted to them, it is probable, as a result of this controversy than at their first publication. I shall not enter into the merits of the discussion as a whole. It was carried on with great skill, with some later confessed misunderstandings, and at times, perhaps, with an over-subtlety which makes it exceedingly difficult to follow. I shall simply try to state the issue involved as to the capital concept.
• 15In every-day speech and in the writings of economists there have been, since before the time of Adam Smith, two broadly marked ways of thinking of capital: one views it as concrete goods, such as tools and machines; the other, as the money expression, or market value, of the goods. It is probable that no writer has long kept from the use of the term in both these ways, no matter what his formal definition. Frequently both uses will be found on the same page. A few writers only have chosen to frame their capital concept in accord with the second of these ways of thinking. Böhm-Bawerk has taken the former way, defining capital as the concrete goods; and in the interest problem he insists on the need of comparing goods of like kind and quantity. Clark declares this to be an error, and defines capital in harmony with the second way of thinking of it. He says, “There is in existence a permanent fund of productive wealth, expressible in money, but not embodied in money; and it is this that business men designate by the term capital.” The concrete things which make up this fund he calls “capital goods.” In contrast with this list of goods he often speaks of his kind of capital as “true capital,” or “pure capital,” which, as he says elsewhere, “resides in many unlike things, but consists of a single entity that is common to them all. That entity is ‘effective social utility.’” Again, he says: “Capital goods are . . . vanishing elements. True capital . . . is abiding.” Elsewhere he clothes his definition, which he calls “the common and practical sense of the term,” in these words: “Capital is an abiding fund of wealth employed in production.”
• 16In every-day speech and in the writings of economists there have been, since before the time of Adam Smith, two broadly marked ways of thinking of capital: one views it as concrete goods, such as tools and machines; the other, as the money expression, or market value, of the goods. It is probable that no writer has long kept from the use of the term in both these ways, no matter what his formal definition. Frequently both uses will be found on the same page. A few writers only have chosen to frame their capital concept in accord with the second of these ways of thinking. Böhm-Bawerk has taken the former way, defining capital as the concrete goods; and in the interest problem he insists on the need of comparing goods of like kind and quantity. Clark declares this to be an error, and defines capital in harmony with the second way of thinking of it. He says, “There is in existence a permanent fund of productive wealth, expressible in money, but not embodied in money; and it is this that business men designate by the term capital.” The concrete things which make up this fund he calls “capital goods.” In contrast with this list of goods he often speaks of his kind of capital as “true capital,” or “pure capital,” which, as he says elsewhere, “resides in many unlike things, but consists of a single entity that is common to them all. That entity is ‘effective social utility.’” Again, he says: “Capital goods are . . . vanishing elements. True capital . . . is abiding.” Elsewhere he clothes his definition, which he calls “the common and practical sense of the term,” in these words: “Capital is an abiding fund of wealth employed in production.”
• 17In every-day speech and in the writings of economists there have been, since before the time of Adam Smith, two broadly marked ways of thinking of capital: one views it as concrete goods, such as tools and machines; the other, as the money expression, or market value, of the goods. It is probable that no writer has long kept from the use of the term in both these ways, no matter what his formal definition. Frequently both uses will be found on the same page. A few writers only have chosen to frame their capital concept in accord with the second of these ways of thinking. Böhm-Bawerk has taken the former way, defining capital as the concrete goods; and in the interest problem he insists on the need of comparing goods of like kind and quantity. Clark declares this to be an error, and defines capital in harmony with the second way of thinking of it. He says, “There is in existence a permanent fund of productive wealth, expressible in money, but not embodied in money; and it is this that business men designate by the term capital.” The concrete things which make up this fund he calls “capital goods.” In contrast with this list of goods he often speaks of his kind of capital as “true capital,” or “pure capital,” which, as he says elsewhere, “resides in many unlike things, but consists of a single entity that is common to them all. That entity is ‘effective social utility.’” Again, he says: “Capital goods are . . . vanishing elements. True capital . . . is abiding.” Elsewhere he clothes his definition, which he calls “the common and practical sense of the term,” in these words: “Capital is an abiding fund of wealth employed in production.”
• 18In every-day speech and in the writings of economists there have been, since before the time of Adam Smith, two broadly marked ways of thinking of capital: one views it as concrete goods, such as tools and machines; the other, as the money expression, or market value, of the goods. It is probable that no writer has long kept from the use of the term in both these ways, no matter what his formal definition. Frequently both uses will be found on the same page. A few writers only have chosen to frame their capital concept in accord with the second of these ways of thinking. Böhm-Bawerk has taken the former way, defining capital as the concrete goods; and in the interest problem he insists on the need of comparing goods of like kind and quantity. Clark declares this to be an error, and defines capital in harmony with the second way of thinking of it. He says, “There is in existence a permanent fund of productive wealth, expressible in money, but not embodied in money; and it is this that business men designate by the term capital.” The concrete things which make up this fund he calls “capital goods.” In contrast with this list of goods he often speaks of his kind of capital as “true capital,” or “pure capital,” which, as he says elsewhere, “resides in many unlike things, but consists of a single entity that is common to them all. That entity is ‘effective social utility.’” Again, he says: “Capital goods are . . . vanishing elements. True capital . . . is abiding.” Elsewhere he clothes his definition, which he calls “the common and practical sense of the term,” in these words: “Capital is an abiding fund of wealth employed in production.”
• 19In every-day speech and in the writings of economists there have been, since before the time of Adam Smith, two broadly marked ways of thinking of capital: one views it as concrete goods, such as tools and machines; the other, as the money expression, or market value, of the goods. It is probable that no writer has long kept from the use of the term in both these ways, no matter what his formal definition. Frequently both uses will be found on the same page. A few writers only have chosen to frame their capital concept in accord with the second of these ways of thinking. Böhm-Bawerk has taken the former way, defining capital as the concrete goods; and in the interest problem he insists on the need of comparing goods of like kind and quantity. Clark declares this to be an error, and defines capital in harmony with the second way of thinking of it. He says, “There is in existence a permanent fund of productive wealth, expressible in money, but not embodied in money; and it is this that business men designate by the term capital.” The concrete things which make up this fund he calls “capital goods.” In contrast with this list of goods he often speaks of his kind of capital as “true capital,” or “pure capital,” which, as he says elsewhere, “resides in many unlike things, but consists of a single entity that is common to them all. That entity is ‘effective social utility.’” Again, he says: “Capital goods are . . . vanishing elements. True capital . . . is abiding.” Elsewhere he clothes his definition, which he calls “the common and practical sense of the term,” in these words: “Capital is an abiding fund of wealth employed in production.”
• 20Needless to say, Böhm-Bawerk defends himself vigorously against the charge of “side-tracking” the theory of capital in defining the concept as he had done. The controversy turned about the phrase “goods of like kind and quantity,” and the question as to the real nature of the comparison of present and future goods. Clark holds that it is two sums of “quite different goods” that are compared. Böhm-Bawerk saves his phrase by the expedient of making the “goods of like kind and quantity” mean “dollars,” “exactly as does Professor Clark.” This is not a novelty with him; for, as he points out, he had “in many, and in some of the most important, passages of the Positive Theory of Capital . . . used money as an illustration of the proposition that present are worth more than future goods.” Without quite indorsing Clark’s comment on this point, we may agree with him that this appears to surrender the entire question concerning the formula “of like kind and quantity.” What meaning is in the phrase “the technical superiority of present goods over future goods,” when those goods are made to mean dollars? What becomes of the elaborate analysis of the roundabout method of production? Certainly, it means something very different, when the present goods employed are taken merely as circulating medium which is not in the normal case retained by the individual producers nor used up by society. The truth is, Böhm-Bawerk had fallen into the common error of using two different conceptions of capital, and at the first attack was found in an untenable position. This phase of the controversy seems to end by showing that the conception of capital made use of by Böhm-Bawerk himself, when he discusses business problems, takes the money expression, and differs in important ways from that of concrete goods expressed in his elaborately framed definition. A word as to the relation of these two views. It is to be noted that both parties agree that economists must study wealth under both these aspects. Böhm-Bawerk admits that he does so. The point against him is that, while framing his concept and basing his argument as to interest on the first, he introduces the second view, in some ways inconsistent, without recognizing the shift of concept. And Clark says that “the issue is not whether concrete capital goods are or are not to be studied at all. For certain purposes they have to be studied.” But he would confine the term “capital” to the sum of wealth or “permanent fund” constituted of the perishable goods.
• 21Needless to say, Böhm-Bawerk defends himself vigorously against the charge of “side-tracking” the theory of capital in defining the concept as he had done. The controversy turned about the phrase “goods of like kind and quantity,” and the question as to the real nature of the comparison of present and future goods. Clark holds that it is two sums of “quite different goods” that are compared. Böhm-Bawerk saves his phrase by the expedient of making the “goods of like kind and quantity” mean “dollars,” “exactly as does Professor Clark.” This is not a novelty with him; for, as he points out, he had “in many, and in some of the most important, passages of the Positive Theory of Capital . . . used money as an illustration of the proposition that present are worth more than future goods.” Without quite indorsing Clark’s comment on this point, we may agree with him that this appears to surrender the entire question concerning the formula “of like kind and quantity.” What meaning is in the phrase “the technical superiority of present goods over future goods,” when those goods are made to mean dollars? What becomes of the elaborate analysis of the roundabout method of production? Certainly, it means something very different, when the present goods employed are taken merely as circulating medium which is not in the normal case retained by the individual producers nor used up by society. The truth is, Böhm-Bawerk had fallen into the common error of using two different conceptions of capital, and at the first attack was found in an untenable position. This phase of the controversy seems to end by showing that the conception of capital made use of by Böhm-Bawerk himself, when he discusses business problems, takes the money expression, and differs in important ways from that of concrete goods expressed in his elaborately framed definition. A word as to the relation of these two views. It is to be noted that both parties agree that economists must study wealth under both these aspects. Böhm-Bawerk admits that he does so. The point against him is that, while framing his concept and basing his argument as to interest on the first, he introduces the second view, in some ways inconsistent, without recognizing the shift of concept. And Clark says that “the issue is not whether concrete capital goods are or are not to be studied at all. For certain purposes they have to be studied.” But he would confine the term “capital” to the sum of wealth or “permanent fund” constituted of the perishable goods.
• 22Needless to say, Böhm-Bawerk defends himself vigorously against the charge of “side-tracking” the theory of capital in defining the concept as he had done. The controversy turned about the phrase “goods of like kind and quantity,” and the question as to the real nature of the comparison of present and future goods. Clark holds that it is two sums of “quite different goods” that are compared. Böhm-Bawerk saves his phrase by the expedient of making the “goods of like kind and quantity” mean “dollars,” “exactly as does Professor Clark.” This is not a novelty with him; for, as he points out, he had “in many, and in some of the most important, passages of the Positive Theory of Capital . . . used money as an illustration of the proposition that present are worth more than future goods.” Without quite indorsing Clark’s comment on this point, we may agree with him that this appears to surrender the entire question concerning the formula “of like kind and quantity.” What meaning is in the phrase “the technical superiority of present goods over future goods,” when those goods are made to mean dollars? What becomes of the elaborate analysis of the roundabout method of production? Certainly, it means something very different, when the present goods employed are taken merely as circulating medium which is not in the normal case retained by the individual producers nor used up by society. The truth is, Böhm-Bawerk had fallen into the common error of using two different conceptions of capital, and at the first attack was found in an untenable position. This phase of the controversy seems to end by showing that the conception of capital made use of by Böhm-Bawerk himself, when he discusses business problems, takes the money expression, and differs in important ways from that of concrete goods expressed in his elaborately framed definition. A word as to the relation of these two views. It is to be noted that both parties agree that economists must study wealth under both these aspects. Böhm-Bawerk admits that he does so. The point against him is that, while framing his concept and basing his argument as to interest on the first, he introduces the second view, in some ways inconsistent, without recognizing the shift of concept. And Clark says that “the issue is not whether concrete capital goods are or are not to be studied at all. For certain purposes they have to be studied.” But he would confine the term “capital” to the sum of wealth or “permanent fund” constituted of the perishable goods.
• 23Needless to say, Böhm-Bawerk defends himself vigorously against the charge of “side-tracking” the theory of capital in defining the concept as he had done. The controversy turned about the phrase “goods of like kind and quantity,” and the question as to the real nature of the comparison of present and future goods. Clark holds that it is two sums of “quite different goods” that are compared. Böhm-Bawerk saves his phrase by the expedient of making the “goods of like kind and quantity” mean “dollars,” “exactly as does Professor Clark.” This is not a novelty with him; for, as he points out, he had “in many, and in some of the most important, passages of the Positive Theory of Capital . . . used money as an illustration of the proposition that present are worth more than future goods.” Without quite indorsing Clark’s comment on this point, we may agree with him that this appears to surrender the entire question concerning the formula “of like kind and quantity.” What meaning is in the phrase “the technical superiority of present goods over future goods,” when those goods are made to mean dollars? What becomes of the elaborate analysis of the roundabout method of production? Certainly, it means something very different, when the present goods employed are taken merely as circulating medium which is not in the normal case retained by the individual producers nor used up by society. The truth is, Böhm-Bawerk had fallen into the common error of using two different conceptions of capital, and at the first attack was found in an untenable position. This phase of the controversy seems to end by showing that the conception of capital made use of by Böhm-Bawerk himself, when he discusses business problems, takes the money expression, and differs in important ways from that of concrete goods expressed in his elaborately framed definition. A word as to the relation of these two views. It is to be noted that both parties agree that economists must study wealth under both these aspects. Böhm-Bawerk admits that he does so. The point against him is that, while framing his concept and basing his argument as to interest on the first, he introduces the second view, in some ways inconsistent, without recognizing the shift of concept. And Clark says that “the issue is not whether concrete capital goods are or are not to be studied at all. For certain purposes they have to be studied.” But he would confine the term “capital” to the sum of wealth or “permanent fund” constituted of the perishable goods.
• 24Needless to say, Böhm-Bawerk defends himself vigorously against the charge of “side-tracking” the theory of capital in defining the concept as he had done. The controversy turned about the phrase “goods of like kind and quantity,” and the question as to the real nature of the comparison of present and future goods. Clark holds that it is two sums of “quite different goods” that are compared. Böhm-Bawerk saves his phrase by the expedient of making the “goods of like kind and quantity” mean “dollars,” “exactly as does Professor Clark.” This is not a novelty with him; for, as he points out, he had “in many, and in some of the most important, passages of the Positive Theory of Capital . . . used money as an illustration of the proposition that present are worth more than future goods.” Without quite indorsing Clark’s comment on this point, we may agree with him that this appears to surrender the entire question concerning the formula “of like kind and quantity.” What meaning is in the phrase “the technical superiority of present goods over future goods,” when those goods are made to mean dollars? What becomes of the elaborate analysis of the roundabout method of production? Certainly, it means something very different, when the present goods employed are taken merely as circulating medium which is not in the normal case retained by the individual producers nor used up by society. The truth is, Böhm-Bawerk had fallen into the common error of using two different conceptions of capital, and at the first attack was found in an untenable position. This phase of the controversy seems to end by showing that the conception of capital made use of by Böhm-Bawerk himself, when he discusses business problems, takes the money expression, and differs in important ways from that of concrete goods expressed in his elaborately framed definition. A word as to the relation of these two views. It is to be noted that both parties agree that economists must study wealth under both these aspects. Böhm-Bawerk admits that he does so. The point against him is that, while framing his concept and basing his argument as to interest on the first, he introduces the second view, in some ways inconsistent, without recognizing the shift of concept. And Clark says that “the issue is not whether concrete capital goods are or are not to be studied at all. For certain purposes they have to be studied.” But he would confine the term “capital” to the sum of wealth or “permanent fund” constituted of the perishable goods.
• 25(1) The discussion is confined by Clark at the outset to social capital. He uses this term in a wider sense than Böhm-Bawerk does (as is explained in the next paragraph), but not differently as to the exclusion of consumption goods. Social capital is that kind which Böhm-Bawerk himself considers to be productive. Clark gains thus a distinct tactical advantage over his opponent in upholding the productivity theory of interest, though that is not of immediate importance to us here. The fact, however, that Böhm-Bawerk does not note this limitation, but fights the issue on the ground chosen by his adversary, shows that he himself is caught in the confusion of the two concepts, and is the strongest evidence of the inexpediency of the division of capital into social and private. On the other hand, the fact is of immediate interest to us that Clark gives this narrower content to the term “capital,” confining capital to “material forms of wealth that do not directly minister to consumers’ wants,” and does not make a place for acquisitive consumption goods, nor explain the interest from them, as is done by Böhm-Bawerk in his concept of private capital. In this respect the concept evidently needs addition or correction.
• 26(1) The discussion is confined by Clark at the outset to social capital. He uses this term in a wider sense than Böhm-Bawerk does (as is explained in the next paragraph), but not differently as to the exclusion of consumption goods. Social capital is that kind which Böhm-Bawerk himself considers to be productive. Clark gains thus a distinct tactical advantage over his opponent in upholding the productivity theory of interest, though that is not of immediate importance to us here. The fact, however, that Böhm-Bawerk does not note this limitation, but fights the issue on the ground chosen by his adversary, shows that he himself is caught in the confusion of the two concepts, and is the strongest evidence of the inexpediency of the division of capital into social and private. On the other hand, the fact is of immediate interest to us that Clark gives this narrower content to the term “capital,” confining capital to “material forms of wealth that do not directly minister to consumers’ wants,” and does not make a place for acquisitive consumption goods, nor explain the interest from them, as is done by Böhm-Bawerk in his concept of private capital. In this respect the concept evidently needs addition or correction.
• 27(1) The discussion is confined by Clark at the outset to social capital. He uses this term in a wider sense than Böhm-Bawerk does (as is explained in the next paragraph), but not differently as to the exclusion of consumption goods. Social capital is that kind which Böhm-Bawerk himself considers to be productive. Clark gains thus a distinct tactical advantage over his opponent in upholding the productivity theory of interest, though that is not of immediate importance to us here. The fact, however, that Böhm-Bawerk does not note this limitation, but fights the issue on the ground chosen by his adversary, shows that he himself is caught in the confusion of the two concepts, and is the strongest evidence of the inexpediency of the division of capital into social and private. On the other hand, the fact is of immediate interest to us that Clark gives this narrower content to the term “capital,” confining capital to “material forms of wealth that do not directly minister to consumers’ wants,” and does not make a place for acquisitive consumption goods, nor explain the interest from them, as is done by Böhm-Bawerk in his concept of private capital. In this respect the concept evidently needs addition or correction.
• 28(2) In the second place, Clark’s explanation of the genesis of capital is inconsistent with his own concept. Land used productively—for example, a farm, a waterfall, a mine, any rare and useful natural agent—is capital according to his definition. In his earlier utterances, such things are in plain words, included. In the later articles this is still the inevitable implication of the definition,—“a fund of productive wealth expressible in money”; but a reader new to the author’s doctrine would find no specific statement to this effect, and there would be small chance that the meaning in question would be gathered. The whole logic of the argument is against it. “The genesis of capital,” we are told, “takes place by a process for which the good old term ‘abstinence’ is, as I venture to maintain, the best designation.” This does not seem to give a place in capital to natural agents. There are, we are told, two classes of accumulators: the typical capitalists, who save to make permanent additions to their capital; and the quasi-capitalists, who “save sums now, intending to spend them later.” There is no place here for the unearned increment of a newly discovered mine, which to-day forms for many men the chief productive wealth expressible in money. If this is saving, it is a sense so unusual as to require a special explanation by the author; and it is difficult to see how it can consistently be given. There certainly would be no attempt to evade the real question by assuming that the dollars that bought the mine had been saved; for the mine may not have been sold, and, if so, it is irrelevant to the issue. If the definition adopted by Clark is consistently applied, there are necessarily many things forming a part of capital which never have been saved, and which never have called for abstinence, as Clark employs that term. In fact, Clark seems to show here, as did Böhm-Bawerk, some traces of the error of the labor theory of value, so difficult to throw off.
• 29(2) In the second place, Clark’s explanation of the genesis of capital is inconsistent with his own concept. Land used productively—for example, a farm, a waterfall, a mine, any rare and useful natural agent—is capital according to his definition. In his earlier utterances, such things are in plain words, included. In the later articles this is still the inevitable implication of the definition,—“a fund of productive wealth expressible in money”; but a reader new to the author’s doctrine would find no specific statement to this effect, and there would be small chance that the meaning in question would be gathered. The whole logic of the argument is against it. “The genesis of capital,” we are told, “takes place by a process for which the good old term ‘abstinence’ is, as I venture to maintain, the best designation.” This does not seem to give a place in capital to natural agents. There are, we are told, two classes of accumulators: the typical capitalists, who save to make permanent additions to their capital; and the quasi-capitalists, who “save sums now, intending to spend them later.” There is no place here for the unearned increment of a newly discovered mine, which to-day forms for many men the chief productive wealth expressible in money. If this is saving, it is a sense so unusual as to require a special explanation by the author; and it is difficult to see how it can consistently be given. There certainly would be no attempt to evade the real question by assuming that the dollars that bought the mine had been saved; for the mine may not have been sold, and, if so, it is irrelevant to the issue. If the definition adopted by Clark is consistently applied, there are necessarily many things forming a part of capital which never have been saved, and which never have called for abstinence, as Clark employs that term. In fact, Clark seems to show here, as did Böhm-Bawerk, some traces of the error of the labor theory of value, so difficult to throw off.
• 30(2) In the second place, Clark’s explanation of the genesis of capital is inconsistent with his own concept. Land used productively—for example, a farm, a waterfall, a mine, any rare and useful natural agent—is capital according to his definition. In his earlier utterances, such things are in plain words, included. In the later articles this is still the inevitable implication of the definition,—“a fund of productive wealth expressible in money”; but a reader new to the author’s doctrine would find no specific statement to this effect, and there would be small chance that the meaning in question would be gathered. The whole logic of the argument is against it. “The genesis of capital,” we are told, “takes place by a process for which the good old term ‘abstinence’ is, as I venture to maintain, the best designation.” This does not seem to give a place in capital to natural agents. There are, we are told, two classes of accumulators: the typical capitalists, who save to make permanent additions to their capital; and the quasi-capitalists, who “save sums now, intending to spend them later.” There is no place here for the unearned increment of a newly discovered mine, which to-day forms for many men the chief productive wealth expressible in money. If this is saving, it is a sense so unusual as to require a special explanation by the author; and it is difficult to see how it can consistently be given. There certainly would be no attempt to evade the real question by assuming that the dollars that bought the mine had been saved; for the mine may not have been sold, and, if so, it is irrelevant to the issue. If the definition adopted by Clark is consistently applied, there are necessarily many things forming a part of capital which never have been saved, and which never have called for abstinence, as Clark employs that term. In fact, Clark seems to show here, as did Böhm-Bawerk, some traces of the error of the labor theory of value, so difficult to throw off.
• 31(2) In the second place, Clark’s explanation of the genesis of capital is inconsistent with his own concept. Land used productively—for example, a farm, a waterfall, a mine, any rare and useful natural agent—is capital according to his definition. In his earlier utterances, such things are in plain words, included. In the later articles this is still the inevitable implication of the definition,—“a fund of productive wealth expressible in money”; but a reader new to the author’s doctrine would find no specific statement to this effect, and there would be small chance that the meaning in question would be gathered. The whole logic of the argument is against it. “The genesis of capital,” we are told, “takes place by a process for which the good old term ‘abstinence’ is, as I venture to maintain, the best designation.” This does not seem to give a place in capital to natural agents. There are, we are told, two classes of accumulators: the typical capitalists, who save to make permanent additions to their capital; and the quasi-capitalists, who “save sums now, intending to spend them later.” There is no place here for the unearned increment of a newly discovered mine, which to-day forms for many men the chief productive wealth expressible in money. If this is saving, it is a sense so unusual as to require a special explanation by the author; and it is difficult to see how it can consistently be given. There certainly would be no attempt to evade the real question by assuming that the dollars that bought the mine had been saved; for the mine may not have been sold, and, if so, it is irrelevant to the issue. If the definition adopted by Clark is consistently applied, there are necessarily many things forming a part of capital which never have been saved, and which never have called for abstinence, as Clark employs that term. In fact, Clark seems to show here, as did Böhm-Bawerk, some traces of the error of the labor theory of value, so difficult to throw off.
• 32(2) In the second place, Clark’s explanation of the genesis of capital is inconsistent with his own concept. Land used productively—for example, a farm, a waterfall, a mine, any rare and useful natural agent—is capital according to his definition. In his earlier utterances, such things are in plain words, included. In the later articles this is still the inevitable implication of the definition,—“a fund of productive wealth expressible in money”; but a reader new to the author’s doctrine would find no specific statement to this effect, and there would be small chance that the meaning in question would be gathered. The whole logic of the argument is against it. “The genesis of capital,” we are told, “takes place by a process for which the good old term ‘abstinence’ is, as I venture to maintain, the best designation.” This does not seem to give a place in capital to natural agents. There are, we are told, two classes of accumulators: the typical capitalists, who save to make permanent additions to their capital; and the quasi-capitalists, who “save sums now, intending to spend them later.” There is no place here for the unearned increment of a newly discovered mine, which to-day forms for many men the chief productive wealth expressible in money. If this is saving, it is a sense so unusual as to require a special explanation by the author; and it is difficult to see how it can consistently be given. There certainly would be no attempt to evade the real question by assuming that the dollars that bought the mine had been saved; for the mine may not have been sold, and, if so, it is irrelevant to the issue. If the definition adopted by Clark is consistently applied, there are necessarily many things forming a part of capital which never have been saved, and which never have called for abstinence, as Clark employs that term. In fact, Clark seems to show here, as did Böhm-Bawerk, some traces of the error of the labor theory of value, so difficult to throw off.
• 33(3) Again, Clark would seem to err by extreme statement in making it in the nature of capital to be a “permanent fund.” “In creating capital, we put the personal good away from us forever. . . . An addition to the social fund of perpetual capital is brought into existence.” “Nothing generates capital that does not add to the permanent fund of invested wealth.” “True capital . . . is, in the absence of untoward accidents, perpetual, and yields perpetual fruits.” Many other expressions emphasize the same thought. Now this evidently does not apply at all to the author’s quasi-capitalist, who saves to spend later. That, of course, is why he uses the term “quasi,” which evades the issue. Either such savings are capital (in which case why quasi?) or they are not capital, and may be omitted from the concept. The author, after stating that a part of the accumulation of capital is due to these quasi-capitalists, proceeds as if there were none such. If better or more tools and larger stocks were accumulated, and were then allowed to deteriorate while in use without being replaced, our author must certainly call them capital while they lasted; and, if so, the element of permanency is no essential part of the capital concept. Indeed, if a fund of productive wealth must be permanent to be capital, we cannot be sure that there is any such a thing; for we have not the gift of prophecy, and all human interests are fleeting. Clark himself says, “Capital . . . normally will never perish”; but “this is not saying that no capital ever perishes in fact.” This says clearly enough that permanency is not an essential mark of the concept, and makes meaningless both the word itself in that connection and a number of sentences, besides those quoted, in which this feature is emphasized as a vital mark of the concept. There is a valid thought in his contention, but it is not that capital is in its nature perpetual. There is ambiguity in the phrases “increase of capital” and “decrease of capital,” because they may mean either some of the parts or the whole. A part of capital may perish while the total amount of capital is preserved or even increased. Clark would confine the expression to the whole of capital, and objects to the form of statement “capital is destroyed” when the value of the concrete goods is passed on to other goods. But what of the cases where the total value is not preserved? The zeal of his attack carries him to an extreme and untenable expression, and makes him insist upon an unessential.
• 34(3) Again, Clark would seem to err by extreme statement in making it in the nature of capital to be a “permanent fund.” “In creating capital, we put the personal good away from us forever. . . . An addition to the social fund of perpetual capital is brought into existence.” “Nothing generates capital that does not add to the permanent fund of invested wealth.” “True capital . . . is, in the absence of untoward accidents, perpetual, and yields perpetual fruits.” Many other expressions emphasize the same thought. Now this evidently does not apply at all to the author’s quasi-capitalist, who saves to spend later. That, of course, is why he uses the term “quasi,” which evades the issue. Either such savings are capital (in which case why quasi?) or they are not capital, and may be omitted from the concept. The author, after stating that a part of the accumulation of capital is due to these quasi-capitalists, proceeds as if there were none such. If better or more tools and larger stocks were accumulated, and were then allowed to deteriorate while in use without being replaced, our author must certainly call them capital while they lasted; and, if so, the element of permanency is no essential part of the capital concept. Indeed, if a fund of productive wealth must be permanent to be capital, we cannot be sure that there is any such a thing; for we have not the gift of prophecy, and all human interests are fleeting. Clark himself says, “Capital . . . normally will never perish”; but “this is not saying that no capital ever perishes in fact.” This says clearly enough that permanency is not an essential mark of the concept, and makes meaningless both the word itself in that connection and a number of sentences, besides those quoted, in which this feature is emphasized as a vital mark of the concept. There is a valid thought in his contention, but it is not that capital is in its nature perpetual. There is ambiguity in the phrases “increase of capital” and “decrease of capital,” because they may mean either some of the parts or the whole. A part of capital may perish while the total amount of capital is preserved or even increased. Clark would confine the expression to the whole of capital, and objects to the form of statement “capital is destroyed” when the value of the concrete goods is passed on to other goods. But what of the cases where the total value is not preserved? The zeal of his attack carries him to an extreme and untenable expression, and makes him insist upon an unessential.
• 35(3) Again, Clark would seem to err by extreme statement in making it in the nature of capital to be a “permanent fund.” “In creating capital, we put the personal good away from us forever. . . . An addition to the social fund of perpetual capital is brought into existence.” “Nothing generates capital that does not add to the permanent fund of invested wealth.” “True capital . . . is, in the absence of untoward accidents, perpetual, and yields perpetual fruits.” Many other expressions emphasize the same thought. Now this evidently does not apply at all to the author’s quasi-capitalist, who saves to spend later. That, of course, is why he uses the term “quasi,” which evades the issue. Either such savings are capital (in which case why quasi?) or they are not capital, and may be omitted from the concept. The author, after stating that a part of the accumulation of capital is due to these quasi-capitalists, proceeds as if there were none such. If better or more tools and larger stocks were accumulated, and were then allowed to deteriorate while in use without being replaced, our author must certainly call them capital while they lasted; and, if so, the element of permanency is no essential part of the capital concept. Indeed, if a fund of productive wealth must be permanent to be capital, we cannot be sure that there is any such a thing; for we have not the gift of prophecy, and all human interests are fleeting. Clark himself says, “Capital . . . normally will never perish”; but “this is not saying that no capital ever perishes in fact.” This says clearly enough that permanency is not an essential mark of the concept, and makes meaningless both the word itself in that connection and a number of sentences, besides those quoted, in which this feature is emphasized as a vital mark of the concept. There is a valid thought in his contention, but it is not that capital is in its nature perpetual. There is ambiguity in the phrases “increase of capital” and “decrease of capital,” because they may mean either some of the parts or the whole. A part of capital may perish while the total amount of capital is preserved or even increased. Clark would confine the expression to the whole of capital, and objects to the form of statement “capital is destroyed” when the value of the concrete goods is passed on to other goods. But what of the cases where the total value is not preserved? The zeal of his attack carries him to an extreme and untenable expression, and makes him insist upon an unessential.
• 36(3) Again, Clark would seem to err by extreme statement in making it in the nature of capital to be a “permanent fund.” “In creating capital, we put the personal good away from us forever. . . . An addition to the social fund of perpetual capital is brought into existence.” “Nothing generates capital that does not add to the permanent fund of invested wealth.” “True capital . . . is, in the absence of untoward accidents, perpetual, and yields perpetual fruits.” Many other expressions emphasize the same thought. Now this evidently does not apply at all to the author’s quasi-capitalist, who saves to spend later. That, of course, is why he uses the term “quasi,” which evades the issue. Either such savings are capital (in which case why quasi?) or they are not capital, and may be omitted from the concept. The author, after stating that a part of the accumulation of capital is due to these quasi-capitalists, proceeds as if there were none such. If better or more tools and larger stocks were accumulated, and were then allowed to deteriorate while in use without being replaced, our author must certainly call them capital while they lasted; and, if so, the element of permanency is no essential part of the capital concept. Indeed, if a fund of productive wealth must be permanent to be capital, we cannot be sure that there is any such a thing; for we have not the gift of prophecy, and all human interests are fleeting. Clark himself says, “Capital . . . normally will never perish”; but “this is not saying that no capital ever perishes in fact.” This says clearly enough that permanency is not an essential mark of the concept, and makes meaningless both the word itself in that connection and a number of sentences, besides those quoted, in which this feature is emphasized as a vital mark of the concept. There is a valid thought in his contention, but it is not that capital is in its nature perpetual. There is ambiguity in the phrases “increase of capital” and “decrease of capital,” because they may mean either some of the parts or the whole. A part of capital may perish while the total amount of capital is preserved or even increased. Clark would confine the expression to the whole of capital, and objects to the form of statement “capital is destroyed” when the value of the concrete goods is passed on to other goods. But what of the cases where the total value is not preserved? The zeal of his attack carries him to an extreme and untenable expression, and makes him insist upon an unessential.
• 37(3) Again, Clark would seem to err by extreme statement in making it in the nature of capital to be a “permanent fund.” “In creating capital, we put the personal good away from us forever. . . . An addition to the social fund of perpetual capital is brought into existence.” “Nothing generates capital that does not add to the permanent fund of invested wealth.” “True capital . . . is, in the absence of untoward accidents, perpetual, and yields perpetual fruits.” Many other expressions emphasize the same thought. Now this evidently does not apply at all to the author’s quasi-capitalist, who saves to spend later. That, of course, is why he uses the term “quasi,” which evades the issue. Either such savings are capital (in which case why quasi?) or they are not capital, and may be omitted from the concept. The author, after stating that a part of the accumulation of capital is due to these quasi-capitalists, proceeds as if there were none such. If better or more tools and larger stocks were accumulated, and were then allowed to deteriorate while in use without being replaced, our author must certainly call them capital while they lasted; and, if so, the element of permanency is no essential part of the capital concept. Indeed, if a fund of productive wealth must be permanent to be capital, we cannot be sure that there is any such a thing; for we have not the gift of prophecy, and all human interests are fleeting. Clark himself says, “Capital . . . normally will never perish”; but “this is not saying that no capital ever perishes in fact.” This says clearly enough that permanency is not an essential mark of the concept, and makes meaningless both the word itself in that connection and a number of sentences, besides those quoted, in which this feature is emphasized as a vital mark of the concept. There is a valid thought in his contention, but it is not that capital is in its nature perpetual. There is ambiguity in the phrases “increase of capital” and “decrease of capital,” because they may mean either some of the parts or the whole. A part of capital may perish while the total amount of capital is preserved or even increased. Clark would confine the expression to the whole of capital, and objects to the form of statement “capital is destroyed” when the value of the concrete goods is passed on to other goods. But what of the cases where the total value is not preserved? The zeal of his attack carries him to an extreme and untenable expression, and makes him insist upon an unessential.
• 38(a) I am not quite in sympathy with the point of view of either of the parties to the discussion, but between them it is a question not as to what happens,—not of fact,—but of expression; and Böhm-Bawerk’s opinion commends itself when he says it is a “figure of speech” that is “misleading” to say that the real wages, consisting of “consumption goods” received to-day for work done on goods not be completed for years, are the “true and immediate fruit” of, e.g., the tanner’s labor. To the tanner, of course, they are the “immediate” and only fruits, since they are all he gets for his labor. The question is, does it seem logical and expedient from the general standpoint in economic discussion to consider and speak of them as the “true fruits” of that day’s labor? The expression chosen appears to say merely that these things express the present market value of the laborer’s services; that is, it is a roundabout and somewhat whimisical way of stating the truism that they are the man’s wages.
• 39(a) I am not quite in sympathy with the point of view of either of the parties to the discussion, but between them it is a question not as to what happens,—not of fact,—but of expression; and Böhm-Bawerk’s opinion commends itself when he says it is a “figure of speech” that is “misleading” to say that the real wages, consisting of “consumption goods” received to-day for work done on goods not be completed for years, are the “true and immediate fruit” of, e.g., the tanner’s labor. To the tanner, of course, they are the “immediate” and only fruits, since they are all he gets for his labor. The question is, does it seem logical and expedient from the general standpoint in economic discussion to consider and speak of them as the “true fruits” of that day’s labor? The expression chosen appears to say merely that these things express the present market value of the laborer’s services; that is, it is a roundabout and somewhat whimisical way of stating the truism that they are the man’s wages.
• 40(b) Further, it may be urged that the inaptness of this expression is more apparent when something other than subsistence goods is considered. In the example chosen of the tanner, it is at least debatable whether it is best to call the shoes he gets to-day the “true fruit” of his labor. But in the case of the laborer receiving food and clothing for digging a canal or working on a marble palace, it is straining the point further to use the expression. If here, too, his wages are called the “true fruit” of his labor, it still appears that the peculiar power ascribed to capital is due only to one part of capital, the finished consumption goods. No matter how large a stock of capital in the form of machines, buildings, and raw materials may be on hand, if there be no stock of finished goods, labor and its results are not synchronized.
• 41(c) A further objection to this way of conceiving of the nature of capital’s work is that it would, if true, be applicable only to “produced” forms of capital. As indicated by the phrases “industry and its fruition,” “labor and its fruits,” it implies vaguely the labor theory of value as to the origin of capital. The picture of labor continuously flowing into the reservoir of capital and consumption goods at the same time flowing out is not satisfactory as applied to products; for it implies that the inflow of a quantity of labor forces out consumption goods whose quantity is determined or measured by the quantity of inflowing labor. The value of consumption goods flowing out, however, is great-er in varying degrees than the value of labor flowing in; and it is only through their values that we can compare at all the quantities of the two streams. Further, it is not a happy figure; for it suggests that all the goods that are a part of capital will eventually become consumption goods, whereas in many cases this is not expected nor desired. It is significant that Clark in describing the process speaks only of “the materials, raw and partly wrought,” of which an article for consumption is made. He ignores machines and durable goods. It is only in the gradual passing on of their value, as they are used up, to the things that are made by them, that machines and more durable agents can be said to ripen at all. Even Clark’s value conception of capital, however, though it explains this point better than does the concrete concept of capital, does not avoid the difficulty. The point may be most clearly seen in the case of natural agents, which, as we have noted, are in Clark’s treatment included in the “fund” of capital. If we consider not merely capital in the form of products more or less fitted for consumption, but, as his concept requires, durable natural agents also, the phrases we are criticizing appear hardly short of absurd. Clark forgets this kind when he says: “The capital goods that are set working are not permanent. They pass away, and are replaced.” Natural agents, the field, the waterfall, insofar as they are thought of apart from betterments upon them, have not been originated by labor; and they are not in a state of transformation that will eventually ripen them into consumption goods. They stand there to be used by man, if he wishes, as an aid in securing future harvests or products; but neither the things themselves nor their value or money expression is “synchronizing” labor and its fruits. If there is any synchronizing, it is done not by this, but by some other part of capital, and is, therefore, not an essential mark of the capital concept.
• 42(c) A further objection to this way of conceiving of the nature of capital’s work is that it would, if true, be applicable only to “produced” forms of capital. As indicated by the phrases “industry and its fruition,” “labor and its fruits,” it implies vaguely the labor theory of value as to the origin of capital. The picture of labor continuously flowing into the reservoir of capital and consumption goods at the same time flowing out is not satisfactory as applied to products; for it implies that the inflow of a quantity of labor forces out consumption goods whose quantity is determined or measured by the quantity of inflowing labor. The value of consumption goods flowing out, however, is great-er in varying degrees than the value of labor flowing in; and it is only through their values that we can compare at all the quantities of the two streams. Further, it is not a happy figure; for it suggests that all the goods that are a part of capital will eventually become consumption goods, whereas in many cases this is not expected nor desired. It is significant that Clark in describing the process speaks only of “the materials, raw and partly wrought,” of which an article for consumption is made. He ignores machines and durable goods. It is only in the gradual passing on of their value, as they are used up, to the things that are made by them, that machines and more durable agents can be said to ripen at all. Even Clark’s value conception of capital, however, though it explains this point better than does the concrete concept of capital, does not avoid the difficulty. The point may be most clearly seen in the case of natural agents, which, as we have noted, are in Clark’s treatment included in the “fund” of capital. If we consider not merely capital in the form of products more or less fitted for consumption, but, as his concept requires, durable natural agents also, the phrases we are criticizing appear hardly short of absurd. Clark forgets this kind when he says: “The capital goods that are set working are not permanent. They pass away, and are replaced.” Natural agents, the field, the waterfall, insofar as they are thought of apart from betterments upon them, have not been originated by labor; and they are not in a state of transformation that will eventually ripen them into consumption goods. They stand there to be used by man, if he wishes, as an aid in securing future harvests or products; but neither the things themselves nor their value or money expression is “synchronizing” labor and its fruits. If there is any synchronizing, it is done not by this, but by some other part of capital, and is, therefore, not an essential mark of the capital concept.
• 43(c) A further objection to this way of conceiving of the nature of capital’s work is that it would, if true, be applicable only to “produced” forms of capital. As indicated by the phrases “industry and its fruition,” “labor and its fruits,” it implies vaguely the labor theory of value as to the origin of capital. The picture of labor continuously flowing into the reservoir of capital and consumption goods at the same time flowing out is not satisfactory as applied to products; for it implies that the inflow of a quantity of labor forces out consumption goods whose quantity is determined or measured by the quantity of inflowing labor. The value of consumption goods flowing out, however, is great-er in varying degrees than the value of labor flowing in; and it is only through their values that we can compare at all the quantities of the two streams. Further, it is not a happy figure; for it suggests that all the goods that are a part of capital will eventually become consumption goods, whereas in many cases this is not expected nor desired. It is significant that Clark in describing the process speaks only of “the materials, raw and partly wrought,” of which an article for consumption is made. He ignores machines and durable goods. It is only in the gradual passing on of their value, as they are used up, to the things that are made by them, that machines and more durable agents can be said to ripen at all. Even Clark’s value conception of capital, however, though it explains this point better than does the concrete concept of capital, does not avoid the difficulty. The point may be most clearly seen in the case of natural agents, which, as we have noted, are in Clark’s treatment included in the “fund” of capital. If we consider not merely capital in the form of products more or less fitted for consumption, but, as his concept requires, durable natural agents also, the phrases we are criticizing appear hardly short of absurd. Clark forgets this kind when he says: “The capital goods that are set working are not permanent. They pass away, and are replaced.” Natural agents, the field, the waterfall, insofar as they are thought of apart from betterments upon them, have not been originated by labor; and they are not in a state of transformation that will eventually ripen them into consumption goods. They stand there to be used by man, if he wishes, as an aid in securing future harvests or products; but neither the things themselves nor their value or money expression is “synchronizing” labor and its fruits. If there is any synchronizing, it is done not by this, but by some other part of capital, and is, therefore, not an essential mark of the capital concept.
• 44(5) It is likely that to some points in what has been thus far said the answer will be made that they are due to misunderstanding of the author’s meaning. No doubt the author attaches great weight to the constrast he draws between true capital and capital goods, which it might seem I had neglected. The reply is a criticism stronger, perhaps, than any of the foregoing against Clark’s capital concept. There is in his mode of thinking of this contrast an over-abstraction that is neither expedient nor logical; and there results in his presentation some inconsistency of thought and statement. In some passages, capital is said to be as concrete a thing as can be. It “consists in goods. It is not an abstraction, and it is not a force independently of matter. It has substance. If at any instant we could collect in one place all the material forms of wealth that do not directly minister to consumers’ wants, we should have the fund for the moment before our eyes in substantial embodiment.” Capital is thus “productive wealth, expressible in money, but not embodied in money.” That is plain enough, and we are still on solid ground: we are not puzzled here by the “entity, effective social utility,” of the earlier statement, where capital does not consist of the concrete things, but is the “fund that resides in many unlike things,” and is “embodied in instruments of production.” This has the unpleasant flavor of Marx’s labor jelly, though it need not be taken as more than a loose, convenient way of expressing the market value of the concrete things. But the development that follows of the paradoxical contrasts between capital goods and true capital appears to be mischievous subtlety. The very adjectives “true” and “pure” applied to capital are suspicious. Why not plain “capital”? We are told that “the genesis of capital goods is unlike that of capital.” It would seem that, if capital consists of concrete goods, then making concrete goods is making capital. But the author says not, unless those goods are net additions to the stock; that is, more than replace the capital destroyed in the same time. “Build an altogether new engine. That is creating capital. Renewing an old one is only preserving capital.” The simple mode of expression that some capital has been created, while an equal amount has been destroyed, is thus not to be permitted. Surely, since capital has substance and consists in goods, there is only one way in which its amount can be preserved while some of it is being destroyed; and that is, by “creating” more capital to replace that destroyed. And what would be the circle within which the balance must be struck? Would it be the individual, the national, or the world economy? If John builds a machine while his neighbor lets one decay, then has John created no capital? It is true that care is often needed, in speaking of any increase, to indicate whether it is a net increase or not, but no more needed in the case of a “fund of capital” than in that of a herd of cattle. The striking antithesis of the goods that make up capital with the capital itself appears thus to be over-abstraction and unreality.
• 45(5) It is likely that to some points in what has been thus far said the answer will be made that they are due to misunderstanding of the author’s meaning. No doubt the author attaches great weight to the constrast he draws between true capital and capital goods, which it might seem I had neglected. The reply is a criticism stronger, perhaps, than any of the foregoing against Clark’s capital concept. There is in his mode of thinking of this contrast an over-abstraction that is neither expedient nor logical; and there results in his presentation some inconsistency of thought and statement. In some passages, capital is said to be as concrete a thing as can be. It “consists in goods. It is not an abstraction, and it is not a force independently of matter. It has substance. If at any instant we could collect in one place all the material forms of wealth that do not directly minister to consumers’ wants, we should have the fund for the moment before our eyes in substantial embodiment.” Capital is thus “productive wealth, expressible in money, but not embodied in money.” That is plain enough, and we are still on solid ground: we are not puzzled here by the “entity, effective social utility,” of the earlier statement, where capital does not consist of the concrete things, but is the “fund that resides in many unlike things,” and is “embodied in instruments of production.” This has the unpleasant flavor of Marx’s labor jelly, though it need not be taken as more than a loose, convenient way of expressing the market value of the concrete things. But the development that follows of the paradoxical contrasts between capital goods and true capital appears to be mischievous subtlety. The very adjectives “true” and “pure” applied to capital are suspicious. Why not plain “capital”? We are told that “the genesis of capital goods is unlike that of capital.” It would seem that, if capital consists of concrete goods, then making concrete goods is making capital. But the author says not, unless those goods are net additions to the stock; that is, more than replace the capital destroyed in the same time. “Build an altogether new engine. That is creating capital. Renewing an old one is only preserving capital.” The simple mode of expression that some capital has been created, while an equal amount has been destroyed, is thus not to be permitted. Surely, since capital has substance and consists in goods, there is only one way in which its amount can be preserved while some of it is being destroyed; and that is, by “creating” more capital to replace that destroyed. And what would be the circle within which the balance must be struck? Would it be the individual, the national, or the world economy? If John builds a machine while his neighbor lets one decay, then has John created no capital? It is true that care is often needed, in speaking of any increase, to indicate whether it is a net increase or not, but no more needed in the case of a “fund of capital” than in that of a herd of cattle. The striking antithesis of the goods that make up capital with the capital itself appears thus to be over-abstraction and unreality.
• 46(5) It is likely that to some points in what has been thus far said the answer will be made that they are due to misunderstanding of the author’s meaning. No doubt the author attaches great weight to the constrast he draws between true capital and capital goods, which it might seem I had neglected. The reply is a criticism stronger, perhaps, than any of the foregoing against Clark’s capital concept. There is in his mode of thinking of this contrast an over-abstraction that is neither expedient nor logical; and there results in his presentation some inconsistency of thought and statement. In some passages, capital is said to be as concrete a thing as can be. It “consists in goods. It is not an abstraction, and it is not a force independently of matter. It has substance. If at any instant we could collect in one place all the material forms of wealth that do not directly minister to consumers’ wants, we should have the fund for the moment before our eyes in substantial embodiment.” Capital is thus “productive wealth, expressible in money, but not embodied in money.” That is plain enough, and we are still on solid ground: we are not puzzled here by the “entity, effective social utility,” of the earlier statement, where capital does not consist of the concrete things, but is the “fund that resides in many unlike things,” and is “embodied in instruments of production.” This has the unpleasant flavor of Marx’s labor jelly, though it need not be taken as more than a loose, convenient way of expressing the market value of the concrete things. But the development that follows of the paradoxical contrasts between capital goods and true capital appears to be mischievous subtlety. The very adjectives “true” and “pure” applied to capital are suspicious. Why not plain “capital”? We are told that “the genesis of capital goods is unlike that of capital.” It would seem that, if capital consists of concrete goods, then making concrete goods is making capital. But the author says not, unless those goods are net additions to the stock; that is, more than replace the capital destroyed in the same time. “Build an altogether new engine. That is creating capital. Renewing an old one is only preserving capital.” The simple mode of expression that some capital has been created, while an equal amount has been destroyed, is thus not to be permitted. Surely, since capital has substance and consists in goods, there is only one way in which its amount can be preserved while some of it is being destroyed; and that is, by “creating” more capital to replace that destroyed. And what would be the circle within which the balance must be struck? Would it be the individual, the national, or the world economy? If John builds a machine while his neighbor lets one decay, then has John created no capital? It is true that care is often needed, in speaking of any increase, to indicate whether it is a net increase or not, but no more needed in the case of a “fund of capital” than in that of a herd of cattle. The striking antithesis of the goods that make up capital with the capital itself appears thus to be over-abstraction and unreality.
• 47(5) It is likely that to some points in what has been thus far said the answer will be made that they are due to misunderstanding of the author’s meaning. No doubt the author attaches great weight to the constrast he draws between true capital and capital goods, which it might seem I had neglected. The reply is a criticism stronger, perhaps, than any of the foregoing against Clark’s capital concept. There is in his mode of thinking of this contrast an over-abstraction that is neither expedient nor logical; and there results in his presentation some inconsistency of thought and statement. In some passages, capital is said to be as concrete a thing as can be. It “consists in goods. It is not an abstraction, and it is not a force independently of matter. It has substance. If at any instant we could collect in one place all the material forms of wealth that do not directly minister to consumers’ wants, we should have the fund for the moment before our eyes in substantial embodiment.” Capital is thus “productive wealth, expressible in money, but not embodied in money.” That is plain enough, and we are still on solid ground: we are not puzzled here by the “entity, effective social utility,” of the earlier statement, where capital does not consist of the concrete things, but is the “fund that resides in many unlike things,” and is “embodied in instruments of production.” This has the unpleasant flavor of Marx’s labor jelly, though it need not be taken as more than a loose, convenient way of expressing the market value of the concrete things. But the development that follows of the paradoxical contrasts between capital goods and true capital appears to be mischievous subtlety. The very adjectives “true” and “pure” applied to capital are suspicious. Why not plain “capital”? We are told that “the genesis of capital goods is unlike that of capital.” It would seem that, if capital consists of concrete goods, then making concrete goods is making capital. But the author says not, unless those goods are net additions to the stock; that is, more than replace the capital destroyed in the same time. “Build an altogether new engine. That is creating capital. Renewing an old one is only preserving capital.” The simple mode of expression that some capital has been created, while an equal amount has been destroyed, is thus not to be permitted. Surely, since capital has substance and consists in goods, there is only one way in which its amount can be preserved while some of it is being destroyed; and that is, by “creating” more capital to replace that destroyed. And what would be the circle within which the balance must be struck? Would it be the individual, the national, or the world economy? If John builds a machine while his neighbor lets one decay, then has John created no capital? It is true that care is often needed, in speaking of any increase, to indicate whether it is a net increase or not, but no more needed in the case of a “fund of capital” than in that of a herd of cattle. The striking antithesis of the goods that make up capital with the capital itself appears thus to be over-abstraction and unreality.
• 48(5) It is likely that to some points in what has been thus far said the answer will be made that they are due to misunderstanding of the author’s meaning. No doubt the author attaches great weight to the constrast he draws between true capital and capital goods, which it might seem I had neglected. The reply is a criticism stronger, perhaps, than any of the foregoing against Clark’s capital concept. There is in his mode of thinking of this contrast an over-abstraction that is neither expedient nor logical; and there results in his presentation some inconsistency of thought and statement. In some passages, capital is said to be as concrete a thing as can be. It “consists in goods. It is not an abstraction, and it is not a force independently of matter. It has substance. If at any instant we could collect in one place all the material forms of wealth that do not directly minister to consumers’ wants, we should have the fund for the moment before our eyes in substantial embodiment.” Capital is thus “productive wealth, expressible in money, but not embodied in money.” That is plain enough, and we are still on solid ground: we are not puzzled here by the “entity, effective social utility,” of the earlier statement, where capital does not consist of the concrete things, but is the “fund that resides in many unlike things,” and is “embodied in instruments of production.” This has the unpleasant flavor of Marx’s labor jelly, though it need not be taken as more than a loose, convenient way of expressing the market value of the concrete things. But the development that follows of the paradoxical contrasts between capital goods and true capital appears to be mischievous subtlety. The very adjectives “true” and “pure” applied to capital are suspicious. Why not plain “capital”? We are told that “the genesis of capital goods is unlike that of capital.” It would seem that, if capital consists of concrete goods, then making concrete goods is making capital. But the author says not, unless those goods are net additions to the stock; that is, more than replace the capital destroyed in the same time. “Build an altogether new engine. That is creating capital. Renewing an old one is only preserving capital.” The simple mode of expression that some capital has been created, while an equal amount has been destroyed, is thus not to be permitted. Surely, since capital has substance and consists in goods, there is only one way in which its amount can be preserved while some of it is being destroyed; and that is, by “creating” more capital to replace that destroyed. And what would be the circle within which the balance must be struck? Would it be the individual, the national, or the world economy? If John builds a machine while his neighbor lets one decay, then has John created no capital? It is true that care is often needed, in speaking of any increase, to indicate whether it is a net increase or not, but no more needed in the case of a “fund of capital” than in that of a herd of cattle. The striking antithesis of the goods that make up capital with the capital itself appears thus to be over-abstraction and unreality.
• 49To sum up the objections to Clark’s conception of capital:
• 50We now turn to the notable contribution of Professor Irving Fisher. He lays a basis for his own treatment with sound statements as to the requisites of a good definition, and careful studies of the definitions and usage of the leading authorities. He believes that a mistake has been made as to the real character of the problem, that it is not one of the classification of wealth, and that unavoidable difficulties “attend every effort to delimit capital from ‘other wealth.’ “ His own conclusion, then, is that capital should be taken to mean simply all wealth at a point of time. It is contrasted not with other wealth,—for that category is exhausted,—but with the same wealth as a flow during a given period, and at a rate. The contrast, then, is between a stock and a flow, and still more important “between stock and rate of flow.” This conception is ingeniously developed, use being made of mathematical terminology, and is applied in criticism of rival definitions. Finally, the attempt is made to show how it could be employed in the discussion of various economic questions.
• 51We now turn to the notable contribution of Professor Irving Fisher. He lays a basis for his own treatment with sound statements as to the requisites of a good definition, and careful studies of the definitions and usage of the leading authorities. He believes that a mistake has been made as to the real character of the problem, that it is not one of the classification of wealth, and that unavoidable difficulties “attend every effort to delimit capital from ‘other wealth.’ “ His own conclusion, then, is that capital should be taken to mean simply all wealth at a point of time. It is contrasted not with other wealth,—for that category is exhausted,—but with the same wealth as a flow during a given period, and at a rate. The contrast, then, is between a stock and a flow, and still more important “between stock and rate of flow.” This conception is ingeniously developed, use being made of mathematical terminology, and is applied in criticism of rival definitions. Finally, the attempt is made to show how it could be employed in the discussion of various economic questions.
• 52We now turn to the notable contribution of Professor Irving Fisher. He lays a basis for his own treatment with sound statements as to the requisites of a good definition, and careful studies of the definitions and usage of the leading authorities. He believes that a mistake has been made as to the real character of the problem, that it is not one of the classification of wealth, and that unavoidable difficulties “attend every effort to delimit capital from ‘other wealth.’ “ His own conclusion, then, is that capital should be taken to mean simply all wealth at a point of time. It is contrasted not with other wealth,—for that category is exhausted,—but with the same wealth as a flow during a given period, and at a rate. The contrast, then, is between a stock and a flow, and still more important “between stock and rate of flow.” This conception is ingeniously developed, use being made of mathematical terminology, and is applied in criticism of rival definitions. Finally, the attempt is made to show how it could be employed in the discussion of various economic questions.
• 53We now turn to the notable contribution of Professor Irving Fisher. He lays a basis for his own treatment with sound statements as to the requisites of a good definition, and careful studies of the definitions and usage of the leading authorities. He believes that a mistake has been made as to the real character of the problem, that it is not one of the classification of wealth, and that unavoidable difficulties “attend every effort to delimit capital from ‘other wealth.’ “ His own conclusion, then, is that capital should be taken to mean simply all wealth at a point of time. It is contrasted not with other wealth,—for that category is exhausted,—but with the same wealth as a flow during a given period, and at a rate. The contrast, then, is between a stock and a flow, and still more important “between stock and rate of flow.” This conception is ingeniously developed, use being made of mathematical terminology, and is applied in criticism of rival definitions. Finally, the attempt is made to show how it could be employed in the discussion of various economic questions.
• 54(2) It agrees with Böhm-Bawerk’s and differs from Clark’s conception in considering that the concrete things should be estimated by physical measurements, and not in their money expression. The objection to Clark’s view in this regard, he says, “is not that this summation of value is inadmissible, but that it is a secondary operation. Objects of capital are antecedent to the value of those objects. . . . Wheat must be measured in bushels before it is measured in dollars.” He, therefore, finds it a “serious objection to Clark’s definition” that he endeavors “to include different sorts of capital in the same fund, reduced to a common equivalent in terms of value.” Here, in my opinion, is a radical defect in Fisher’s view, (a) It is true that wheat must “be measured in bushels before it can be measured in dollars,” but it must also be tested for quality. One will not value as highly a small apple as a large one, a sour as a sweet one, a rotten as a sound one. We could thus say that apples must be measured in sweetness before being measured in value. But an inventory of all possible measurable qualities, while helpful in estimating, would not itself express the amount of capital, for the things might after all have no value at all. (b) Though an intelligible description of the quantity of any single kind of goods could be made in such terms, yet the total quantity of many different kinds of goods cannot be expressed for economic purposes in a single sum excepting in terms of value. A capital account in which five pounds of feathers were added to a bushel of wheat and a yard of cloth would give a curious total, (c) Fisher is inevitably betrayed into inconsistency when he comes to estimate the quantities of wealth, and express in percentages the relation between the stock and rate of flow; for this can be done only by comparison of values.
• 55(2) It agrees with Böhm-Bawerk’s and differs from Clark’s conception in considering that the concrete things should be estimated by physical measurements, and not in their money expression. The objection to Clark’s view in this regard, he says, “is not that this summation of value is inadmissible, but that it is a secondary operation. Objects of capital are antecedent to the value of those objects. . . . Wheat must be measured in bushels before it is measured in dollars.” He, therefore, finds it a “serious objection to Clark’s definition” that he endeavors “to include different sorts of capital in the same fund, reduced to a common equivalent in terms of value.” Here, in my opinion, is a radical defect in Fisher’s view, (a) It is true that wheat must “be measured in bushels before it can be measured in dollars,” but it must also be tested for quality. One will not value as highly a small apple as a large one, a sour as a sweet one, a rotten as a sound one. We could thus say that apples must be measured in sweetness before being measured in value. But an inventory of all possible measurable qualities, while helpful in estimating, would not itself express the amount of capital, for the things might after all have no value at all. (b) Though an intelligible description of the quantity of any single kind of goods could be made in such terms, yet the total quantity of many different kinds of goods cannot be expressed for economic purposes in a single sum excepting in terms of value. A capital account in which five pounds of feathers were added to a bushel of wheat and a yard of cloth would give a curious total, (c) Fisher is inevitably betrayed into inconsistency when he comes to estimate the quantities of wealth, and express in percentages the relation between the stock and rate of flow; for this can be done only by comparison of values.
• 56(3) This conception shares what I believe to be an error, common with it to both of the others, in that it makes the income of a community consist of “streams . . . of the very same commodities” that compose the total capital. This, again, implies that all things of value originate in labor, and are on their way towards the goal of consumption goods: whereas many things, standing where they are, may be made to push other things towards that goal, though never getting nearer to it themselves; e.g., machines and natural agents. Fisher means by income a “flow of things” (material things), and rejects Mr. Edwin Cannan’s conception “of income as a flow of pleasure,” or satisfactions The book-keeping of society will be thrown badly out of balance if services be not counted as a part of income; but, even if services be included as a part both of income and of capital at a point of time, there are still many things, as above indicated, that are a part of Fisher’s capital only, and never are a part of the flow of income. They never have been made for consumption, and never will be fitted for consumption.
• 57(3) This conception shares what I believe to be an error, common with it to both of the others, in that it makes the income of a community consist of “streams . . . of the very same commodities” that compose the total capital. This, again, implies that all things of value originate in labor, and are on their way towards the goal of consumption goods: whereas many things, standing where they are, may be made to push other things towards that goal, though never getting nearer to it themselves; e.g., machines and natural agents. Fisher means by income a “flow of things” (material things), and rejects Mr. Edwin Cannan’s conception “of income as a flow of pleasure,” or satisfactions The book-keeping of society will be thrown badly out of balance if services be not counted as a part of income; but, even if services be included as a part both of income and of capital at a point of time, there are still many things, as above indicated, that are a part of Fisher’s capital only, and never are a part of the flow of income. They never have been made for consumption, and never will be fitted for consumption.
• 58(3) This conception shares what I believe to be an error, common with it to both of the others, in that it makes the income of a community consist of “streams . . . of the very same commodities” that compose the total capital. This, again, implies that all things of value originate in labor, and are on their way towards the goal of consumption goods: whereas many things, standing where they are, may be made to push other things towards that goal, though never getting nearer to it themselves; e.g., machines and natural agents. Fisher means by income a “flow of things” (material things), and rejects Mr. Edwin Cannan’s conception “of income as a flow of pleasure,” or satisfactions The book-keeping of society will be thrown badly out of balance if services be not counted as a part of income; but, even if services be included as a part both of income and of capital at a point of time, there are still many things, as above indicated, that are a part of Fisher’s capital only, and never are a part of the flow of income. They never have been made for consumption, and never will be fitted for consumption.
• 59The distinction between private and social capital is considered by Böhm-Bawerk to be of the very greatest importance, and he deems his clear distinguishing of them to be one of his highest services to economic theory. The failure to distinguish them, he thinks, is the chief reason for the “false” productivity theory of interest. If the difference is not seen between capital, the source of interest, and capital, the tool in production, interest, he argues, is naturally thought to be due to productivity. B ut, if it is clearly seen that a part of interest-bearing capital is not a tool in production, then productivity cannot be the one essential explanation of interest. This point was evaded by Clark, as I have shown; for he simply considers social or productive capital, and omits mention of acquisitive consumption goods. It was not raised in his discussion with Clark by Böhm-Bawerk himself, for his attention was fixed on other points; but in his reply to Walker it is put very clearly. “There is interest without any production whatever. . . . I refer, for example, to interest on consumption loans and to the return on durable consumption goods, such as rented houses, pianos, and the like.” Private capital is, by his view, social or productive capital plus some other things, enjoyable and more or less durable products let for hire to the user. Of what importance is this class of goods that makes all the difference between the two concepts? He has here mentioned rented houses and pianos: the stock illustration is the masquerade suit let by the costumer. A complete list of these articles would include a very small amount of wealth compared with that in social capital, and, doubtless, very much less than that in the rest of consumption goods. Yet it would be wrong to claim on this account that it is not worth while to make a difference in the concept. Logical differences of any importance call for distinctions in concepts, no matter how slight be the quantitative differences. I pass, therefore, to a criticism of the logical grounds for such a distinction.
• 60The distinction between private and social capital is considered by Böhm-Bawerk to be of the very greatest importance, and he deems his clear distinguishing of them to be one of his highest services to economic theory. The failure to distinguish them, he thinks, is the chief reason for the “false” productivity theory of interest. If the difference is not seen between capital, the source of interest, and capital, the tool in production, interest, he argues, is naturally thought to be due to productivity. B ut, if it is clearly seen that a part of interest-bearing capital is not a tool in production, then productivity cannot be the one essential explanation of interest. This point was evaded by Clark, as I have shown; for he simply considers social or productive capital, and omits mention of acquisitive consumption goods. It was not raised in his discussion with Clark by Böhm-Bawerk himself, for his attention was fixed on other points; but in his reply to Walker it is put very clearly. “There is interest without any production whatever. . . . I refer, for example, to interest on consumption loans and to the return on durable consumption goods, such as rented houses, pianos, and the like.” Private capital is, by his view, social or productive capital plus some other things, enjoyable and more or less durable products let for hire to the user. Of what importance is this class of goods that makes all the difference between the two concepts? He has here mentioned rented houses and pianos: the stock illustration is the masquerade suit let by the costumer. A complete list of these articles would include a very small amount of wealth compared with that in social capital, and, doubtless, very much less than that in the rest of consumption goods. Yet it would be wrong to claim on this account that it is not worth while to make a difference in the concept. Logical differences of any importance call for distinctions in concepts, no matter how slight be the quantitative differences. I pass, therefore, to a criticism of the logical grounds for such a distinction.
• 61The puzzle is an old one. It compels us to say that a thing becomes capital or ceases to be capital not because of any change in its physical or economic nature, not because it is more or less serviceable to the community, not because the use to which it is put is altered, but simply because the man who owns it does or does not happen to be the one who enjoys that use. Now Böhm-Bawerk himself, in his interest theory, has given us a hint of the way such an absurdity can be avoided without the use of a separate concept, though he does not see the application possible here. The person who rents a house buys the “material services” of the thing during a definite period. The whole value of the house is simply the sum of a long series of uses. To the logical eye, though not to the technical eye of the law, the tenant or user is the owner of the thing during the time, with only such conditions as will insure its safe keeping and return at the close of the period. It may be looked upon as a sale to the tenant of a use or a group of uses defined by a period of time, and with the agreement to return the use-bearer when a group that has not been purchased begins to mature. The value of the unpurchased uses does not appear in the transaction, but they are bound up with the use-bearer that is given and returned. The dancer is often compelled to deposit the price of the masquerade suit when he takes it out. After the ball is over, his subjective valuation having fallen, he is the gainer by returning it at an agreed price which to the costumer represents its worth as stock to him. The latter keeps such things in stock because there are, on an average, enough such sales to pay his trouble, expenses, and a return on that amount of stock. Such rented consumption goods, being owned for the time by the user, form, then, no exception to the general class of consumption goods The income of the dealer or the house owner is explained as a profit gained in exchange, like that of any other retail merchant, and includes a payment for services, risk, and income from stock employed. To explain such transactions as the sale of a group of uses (which is actually the temporary sale of the use-bearer) is entirely consistent with Böhm-Bawerk’s treatment of interest, and makes needless the elaborate distinction between private and social capital.
• 62(2) The foregoing would seem to be a valid reply, at all events as an argumentum ad hominem, to Böhm-Bawerk; but it may appear to some to be too elaborate and artificial. The distinction in question may then be attacked on the still stronger ground that it confuses things economic and legal. It is based on an unclear view of the relations of economic and contract interest. Let us look at this distinction. Contract interest is the interest actually paid by one person to another as the result of an agreement. Economic interest is the advantage attributable to the possession and use of a thing during a given period, regardless of its ownership. There is economic interest when a man uses his own plough to raise a crop or his own storeroom as a place of business. Now, in the case of all the things included under social (productive) capital, contract is based on and tends to conform to economic interest. In all such cases it is economic interest that we seek to explain logically through the economic nature of the goods. Contract interest is a secondary problem,—a business and legal problem,—as to who shall have the benefit of the income arising with the possession of the goods. It is closely connected with the question of ownership. Only by accident, mistaken judgment, or old agreements, can the contract interest connected with social capital continue when economic interest does not. The two are related as cause and effect. Yet in the case of the relatively small group of consumption goods let for hire there is in the current view here represented by Böhm-Bawerk only contract interest, there being supposed to be no economic interest on which it is based. The economist’s problem in distribution is essentially an impersonal one, to determine the economic contribution regardless of the question of legal ownership. Here, if it be held that there is no economic interest or contribution, we have an anomalous case where the final answer to the interest problem must contain a mixture of economic and legal elements. No solution of this contradiction will, I believe, be found short of the view that contract and economic interest are normally inseparable. By “normally” I mean that no man contracts to pay interest, or, being free to choose, actually does pay it, unless he has reason to believe that he thereby will gain the benefit of what must be called economic interest of a somewhat greater amount.
• 63(3) This brings us to another objection to the distinction between social and private capital; namely, that it involves a wrong conception of the nature of income. I shall maintain that income must be looked upon as a series or group of satisfactions, not as a series or group of material things. Though scattered authority may be found for this view, it is at variance with the views alike of Böhm-Bawerk, of Clark, and of Fisher, as well as those of the great majority of economists, and requires explanation and defense. The thesis is that the economic goods which are “produced” either by human effort or by the material services of goods must, in their last analysis, be looked upon as satisfactions. Böhm-Bawerk notices this view as expressed by Roscher, and rejects it; yet the view is one peculiarly in harmony with the psychological treatment of value which Böhm-Bawerk favors. Indeed, it seems to me the view to which that value theory logically and inevitably leads. Roscher fails to apply this thought consistently, as Böhm-Bawerk rightly shows; and with that we will not concern ourselves. The view suggested looks upon all material goods as means of production or capital, their value being derived from the states of satisfaction to which they minister or which they enhance. Böhm-Bawerk’s objection to this lacks validity. He says: “Any unbiased person can see how unfortunate this is. Without due cause it obliterates the very important distinction between the production of goods which satisfy want and their consumption. It christens, for example, the idler as a zealous producer, always thinking how he may produce the personal goods of satiety, of ease, of contentment, and so on.” It needs only to be replied to this that the idler in such case would be wrongly christened. The term “means of production” must be confined to objective means of producing a subjective state, not to subjective states, to Buddhistic dreams that unite the dreamer with Nirvana. The pleasure of basking in the sun is a fact of which economic theorists must take note; but that pleasure can be secured usually by the use of free goods, and thus is not an economic satisfaction. It becomes an economic satisfaction when it is conditioned on the control of some scarce material agent or can be secured only by effort. The test, then, of economic personal goods or satisfactions is dependence on either objective things or persons, or on reaction against the outer world by the man seeking the satisfaction. If the objection of Böhm-Bawerk is urged beyond the extreme and inapplicable example he has given, and is applied to the personal services of one man for another, it leads to the old and abandoned distinction between productive and unproductive labor. We do christen many men “as zealous producers because they are producing the personal goods of satiety,”—in other men. Such services must be counted as ephemeral forms of wealth, enjoyed or consumed at the moment of their production. This is no more obliterating the distinction between production and consumption than eating a hot cake fresh from the griddle obliterates that distinction. The two things are as logically separable in thought when they occur simultaneously as when a second or a decade intervenes. We have ceased to consider it essential to “productive” labor that it should be first embodied in material form, however fleeting. The same untenable distinction is adhered to almost universally in the case of the services of material goods.
• 64(3) This brings us to another objection to the distinction between social and private capital; namely, that it involves a wrong conception of the nature of income. I shall maintain that income must be looked upon as a series or group of satisfactions, not as a series or group of material things. Though scattered authority may be found for this view, it is at variance with the views alike of Böhm-Bawerk, of Clark, and of Fisher, as well as those of the great majority of economists, and requires explanation and defense. The thesis is that the economic goods which are “produced” either by human effort or by the material services of goods must, in their last analysis, be looked upon as satisfactions. Böhm-Bawerk notices this view as expressed by Roscher, and rejects it; yet the view is one peculiarly in harmony with the psychological treatment of value which Böhm-Bawerk favors. Indeed, it seems to me the view to which that value theory logically and inevitably leads. Roscher fails to apply this thought consistently, as Böhm-Bawerk rightly shows; and with that we will not concern ourselves. The view suggested looks upon all material goods as means of production or capital, their value being derived from the states of satisfaction to which they minister or which they enhance. Böhm-Bawerk’s objection to this lacks validity. He says: “Any unbiased person can see how unfortunate this is. Without due cause it obliterates the very important distinction between the production of goods which satisfy want and their consumption. It christens, for example, the idler as a zealous producer, always thinking how he may produce the personal goods of satiety, of ease, of contentment, and so on.” It needs only to be replied to this that the idler in such case would be wrongly christened. The term “means of production” must be confined to objective means of producing a subjective state, not to subjective states, to Buddhistic dreams that unite the dreamer with Nirvana. The pleasure of basking in the sun is a fact of which economic theorists must take note; but that pleasure can be secured usually by the use of free goods, and thus is not an economic satisfaction. It becomes an economic satisfaction when it is conditioned on the control of some scarce material agent or can be secured only by effort. The test, then, of economic personal goods or satisfactions is dependence on either objective things or persons, or on reaction against the outer world by the man seeking the satisfaction. If the objection of Böhm-Bawerk is urged beyond the extreme and inapplicable example he has given, and is applied to the personal services of one man for another, it leads to the old and abandoned distinction between productive and unproductive labor. We do christen many men “as zealous producers because they are producing the personal goods of satiety,”—in other men. Such services must be counted as ephemeral forms of wealth, enjoyed or consumed at the moment of their production. This is no more obliterating the distinction between production and consumption than eating a hot cake fresh from the griddle obliterates that distinction. The two things are as logically separable in thought when they occur simultaneously as when a second or a decade intervenes. We have ceased to consider it essential to “productive” labor that it should be first embodied in material form, however fleeting. The same untenable distinction is adhered to almost universally in the case of the services of material goods.
• 65(4) This view makes possible the correction in the concepts of private and social capital of another fault which calls for our fourth and last objection to this part of the almost universally accepted treatment. The fault is this. Interest is looked upon as connected with a special class of goods: it must be recognized to be connected with everything of value. The value of anything is built up on its uses or services to men. Wherever there is a postponed use, that use is subject to a discount. Its present worth is less than its worth will be at maturity. Consider the case of consumption goods. In the orthodox view a bushel of apples, kept by the grocer from fall till spring, is capital, and normally shows economic interest in enhanced value. Bought in the fall and stored in the cellar by the housewife, it is a consumption good; and economic interest is absent. But that early purchase can only be rationally explained as we take account of the increment of value on the apples thus stored, and this is economic interest. Larger purchases in advance effect, of course, economy of labor, and bring an additional motive to make them; but this is not saying that the whole saving is wages, and that no interest is gained.
• 66Our conclusion, then, is that the distinction between social (or productive) and private (or acquisitive) capital rests on illogical grounds. Böhm-Bawerk thinks it a great advantage that “not withstanding the material difference there is between capital, the factor of production, and capital, the source of interest, it is not necessary in [his] reading to make two conceptions of capital that are entirely foreign to one another.” We must assert on the other hand that the two conceptions he has given us are so largely foreign to one another that, instead of an advantage, it is a source of much confusion that they are called by the same name, as every careful reader of Böhm-Bawerk’s work must have noted. For example, he defines capital at the beginning of his discussion as “nothing but the complex of intermediate products which appear on the several stages of the roundabout journey.” By this he evidently means his social capital; and he then proceeds to show that “capital in general”—that is, private capital—is something more than such a complex. The reader is frequently in doubt which one of these different concepts is designated when the word “capital” is used. A great advantage will be gained when, dropping unessential distinctions, we are able to save the term from double meanings.
• 67Our conclusion, then, is that the distinction between social (or productive) and private (or acquisitive) capital rests on illogical grounds. Böhm-Bawerk thinks it a great advantage that “not withstanding the material difference there is between capital, the factor of production, and capital, the source of interest, it is not necessary in [his] reading to make two conceptions of capital that are entirely foreign to one another.” We must assert on the other hand that the two conceptions he has given us are so largely foreign to one another that, instead of an advantage, it is a source of much confusion that they are called by the same name, as every careful reader of Böhm-Bawerk’s work must have noted. For example, he defines capital at the beginning of his discussion as “nothing but the complex of intermediate products which appear on the several stages of the roundabout journey.” By this he evidently means his social capital; and he then proceeds to show that “capital in general”—that is, private capital—is something more than such a complex. The reader is frequently in doubt which one of these different concepts is designated when the word “capital” is used. A great advantage will be gained when, dropping unessential distinctions, we are able to save the term from double meanings.
• 68Our conclusion, then, is that the distinction between social (or productive) and private (or acquisitive) capital rests on illogical grounds. Böhm-Bawerk thinks it a great advantage that “not withstanding the material difference there is between capital, the factor of production, and capital, the source of interest, it is not necessary in [his] reading to make two conceptions of capital that are entirely foreign to one another.” We must assert on the other hand that the two conceptions he has given us are so largely foreign to one another that, instead of an advantage, it is a source of much confusion that they are called by the same name, as every careful reader of Böhm-Bawerk’s work must have noted. For example, he defines capital at the beginning of his discussion as “nothing but the complex of intermediate products which appear on the several stages of the roundabout journey.” By this he evidently means his social capital; and he then proceeds to show that “capital in general”—that is, private capital—is something more than such a complex. The reader is frequently in doubt which one of these different concepts is designated when the word “capital” is used. A great advantage will be gained when, dropping unessential distinctions, we are able to save the term from double meanings.
• 69Usage does not apply the term “interest” to the income from land.
• 70He concludes that “it is most convenient to keep land quite distinct from other kinds of productive wealth,” and that “there is a considerable balance in favor of defining capital as the ‘produced means of acquisition, ’ and against the inclusion of land.”
• 71Of this formidable list it must be said that not a reason given, considered singly, is free from flaw, some are quite mistaken, and collectively they are not conclusive. The worth of 1 is destroyed for purposes of definition by the limitation “for the most part.” It is not that a definition may not be based on a difference in degree, where qualities grade off from one extreme to another; and, if something of importance depends on the degree, it may often be expedient to draw a line of division more or less arbitrarily somewhere. Here, however, it is not so. Things, like houses, ditches, trees, that are as firmly fixed as the soil itself and whose value would be quite lost if they were moved, are, without a question, included in capital. Turning to the other part of the statement, that land is immovable, it is found quite as untrue. Parts of land are shifting from day to day. It is usual for those who follow this definition to consider that a thing ceases to be land and becomes capital the instant it is moved by man’s agency or effort; but to appeal to this to prove the point is to confound “unmoved” with “immovable.” No matter is immovable. To say that “land” means something that has not been moved by man begs the question, and this is evidently an un-tenable definition of nature or material agents. Some writers who have followed out such reasoning have been led to narrow the essential concept of land down to mere situation, or, differently expressed, to the “geometric relations in which any part of it stands to other parts. This is a very different idea from the one here defended by Böhm-Bawerk, and would not be consistent with some of the other reasons of this list. Reason 1 in the list appears to be an illogical use of reason 2, it being falsely assumed that results of labor are necessarily movable in the relative sense in which we can use that term of material things, and that gifts of nature are immovable. No such parallelism exists, and the two reasons are often in conflict.
• 72Of this formidable list it must be said that not a reason given, considered singly, is free from flaw, some are quite mistaken, and collectively they are not conclusive. The worth of 1 is destroyed for purposes of definition by the limitation “for the most part.” It is not that a definition may not be based on a difference in degree, where qualities grade off from one extreme to another; and, if something of importance depends on the degree, it may often be expedient to draw a line of division more or less arbitrarily somewhere. Here, however, it is not so. Things, like houses, ditches, trees, that are as firmly fixed as the soil itself and whose value would be quite lost if they were moved, are, without a question, included in capital. Turning to the other part of the statement, that land is immovable, it is found quite as untrue. Parts of land are shifting from day to day. It is usual for those who follow this definition to consider that a thing ceases to be land and becomes capital the instant it is moved by man’s agency or effort; but to appeal to this to prove the point is to confound “unmoved” with “immovable.” No matter is immovable. To say that “land” means something that has not been moved by man begs the question, and this is evidently an un-tenable definition of nature or material agents. Some writers who have followed out such reasoning have been led to narrow the essential concept of land down to mere situation, or, differently expressed, to the “geometric relations in which any part of it stands to other parts. This is a very different idea from the one here defended by Böhm-Bawerk, and would not be consistent with some of the other reasons of this list. Reason 1 in the list appears to be an illogical use of reason 2, it being falsely assumed that results of labor are necessarily movable in the relative sense in which we can use that term of material things, and that gifts of nature are immovable. No such parallelism exists, and the two reasons are often in conflict.
• 73In 6 and 7 appeal is made to differences in economic nature. In reason 6 there is again the fallacy of thinking of land as a field used for agriculture. It must be said, first, that land, in the sense of the word under discussion,—i.e., natural agents—is an indispensable gent of the milling industry, carpentry, and every other art, as well as of agriculture. To call land the “special” agent of agriculture because that part of land which consists of fertile soil is necessary for plant life is to make a very crude distinction, based on no logical principle. At most a difference of degree only is involved, in that a larger area is usually needed to produce a given value of food than is needed to produce that value of other things; but the reverse is frequently true. Secondly, it may be said that “the important peculiarities” (the chief of which no doubt is thought of as the law of diminishing returns) here attributed to agriculture are in no way peculiar to it. The belief that they are rests largely on the basis of a false terminology. As to 7, likewise, we have a begging of the question; for the differences in our ways of regarding interest and rent are primarily due to the terminology whose correctness is under discussion. Finally, it must be noted that, when Böhm-Bawerk comes to explain interest from durable goods, he refutes the statement that income from land differs in many ways from income from capital, and, “obeys many distinct laws of its own.” He then finds that the two incomes “have one common final cause.” “Land rent is nothing but a special case of interest obtained from durable goods.”
• 74We will note later his abandonment of this idea, calling the rent of land “interest” (Positive Theory, 355) and ascribing interest to all consumption goods, even those not included in capital. Ibid., 350.
• 75Positive Theory, p. 24, ff.
• 76Ibid., p. 42, ff.
• 77Ibid., p. 27.
• 78Ibid., p. 31, ff.
• 79Positive Theory, pp. 43-59.
• 80Ibid., p. 31.
• 81Ibid., p. 38.
• 82Positive Theory, p. 59.
• 83Ibid., p. 60.
• 84Ibid., Preface, p. xxiii.
• 85E.g., Horace White on “Böhm-Bawerk on Capital,” Political Science Quarterly, vii. 133-148; General Walker, “Böhm-Bawerk’s Theory of Interest,” in Quarterly Journal of Economics, vi. 399-416.
• 86“The Genesis of Capital,” YaleReview, ii. 302-315; “The Origin of Interest,” Quarterly Journal of Economics, ix. 257.
• 87Publications of American Economic Association, iii. (1888).
• 88Positive Theory, pp. 33, 34.
• 89Yale Review, ix. 307.
• 90Publications of American Economic Association, iii. 91.
• 91YaleReview, ii. 308.
• 92Quarterly Journal of Economics, ix. 257.
• 93Quarterly Journal of Economics, ix. 116.
• 94Ibid., 380.
• 95Ibid., 263.
• 96Positive Theory, pp. 17-23.
• 97Quarterly Journal of Economics, ix. 258.
• 98Yale Review, ii. 304.
• 99A fuller discussion of this point is given later, p. 49.
• 100Yale Review, ii. 307.
• 101Publications of American Economic Association, iii. 95, 112.
• 102Yale Review, ii. 309.
• 103Ibid., 303, 304.
• 104Yale Review, ii. 309.1 must dissent from Clark’s opinion that the term “abstinence” is, in the discussion of value theories, to be applied only to the first act of saving. See this view in Quarterly Journal, ix. 260, 261. In a more useful sense it is a power of choice that is continuously present during the foregoing of the right to consume wealth, at every moment during which a man could convert the principal of interest-bearing capital into a source of present enjoyment.
• 105This point is treated more fully later, p. 57.
• 106Yale Review, ii. 309.
• 107Ibid., 312.
• 108This has already been observed by Fisher, Economic Journal, vi. 530.
• 109Yale Review, ii. 309.
• 110See further on this, infra, pp. 44-45.
• 111Quarterly Journal of Economics, ix. 124, 125.
• 112Yale Review, ii. 312.
• 113This is a somewhat different presentation of Böhm-Bawerk’s argument in Quarterly Journal of Economics, ix. 125-128.
• 114Yale Review, ii. 310, 311.
• 115Böhm-Bawerk appears to have very much the same conception of products ripening into consumption goods, in his circles of production periods. See Positive Theory, 93, 106-108.
• 116Yale Review, ix. 312.
• 117Yale Review, ii. 307.
• 118Ibid.
• 119Publications of American Economic Association, iii. 11.
• 120Yale Review, ii. 308.
• 121Quarterly Journal of Economics, ix. 275.
• 122This article was in the editor’s hands before the appearance of Professor Clark’s latest work, The Distribution of Wealth. The views of the author on the capital concept there expressed show no essential change from those here examined, and the criticism stands as first written.
• 123In three articles, Economic Journal, vi. 509; vii. 199, 511 (189697.)
• 124Ibid., vi. 513.
• 125Ibid., p. 514.
• 126Economic Journal, vi. 515.
• 127Ibid., p. 530.
• 128E.g., at the very outset, Economic Journal, vi. 515.
• 129See as to Clark, supra, p. 43.
• 130Economic Journal, vi. 514, ff.
• 131Economic Journal, vi. 534.
• 132Supra, p. 39.
• 133Quarterly Journal of Economics, ix. 253.
• 134Especially in Positive Theory, 339-349.
• 135I should add, if the income is estimated as a percentage of the capital value.
• 136Positive Theory, p. 44.
• 137Ibid., p. 45.
• 138Here we develop some of the thoughtful suggestions of Fisher, though differing with his view in ways already suggested. See Economic Journal, vii. 525.
• 139Positive Theory, p. 40.
• 140Ibid., p. 61. He says here, flatly contradicting his own words just quoted: “Substantially, [the conception of social capital] is a quite independent conception. In every essential respect (in definition, in scientific employment, and in scope) it stands on entirely independent principles.”
• 141Ibid., p. 22.
• 142Positive Theory, pp. 55, 56.
• 143Ibid., p. 56.
• 144Commons, Distribution of Wealth, p. 29.
• 145Marshall, 2d ed., p. 198.
• 146Positive Theory, pp. 339-357.