Capital, Interest & Rent

Clark’s Reformulation of the Capital Concept

I. STATEMENT OF CLARK’S DOCTRINE

The eightieth anniversary of the birth of John Bates Clark, our honored master in social philosophy, calls renewed attention to those economic issues in the discussion of which he has had a most vital part.

As a humble contribution to the volume which his fellow economists here bring as token of their regard, I would essay to review Clark’s reformulation of the capital concept, and to trace its continuing influence upon economic opinion. No one can say what its total effect ultimately will be, but we may now form some judgment of its logic and of its aptness in practical discussion, and of the measure of acceptance which it has up to the present attained in America and England.

It is almost forty years since the publication of Clark’s monograph entitled Capital and Its Earnings.1 Hardly larger than a magazine article (merely 61 pages of text) it is yet one of the important milestones in the history of American economic theory, and likewise marks significantly new interests and a new stage of development in Clark’s own thought. He was then in his forty-second year and had, since the age of thirty, been contributing toward “the reformulating of certain leading principles of economic science,” through occasional magazine articles. These were “republished with varying amounts of revision and the discussion extended” in his first book, The Philosophy of Wealth, in 1885. While the work of that decade shows Clark to be, in his own words, “in revolt against the spirit of the old political economy,” unsatisfied with its “defective” premises and its “degraded conception” of human nature (mere selfishness), and discontented with the actual relation of “capital” (the employing class) with “labor” (the wage earning class), it gives no hint or warning of the author’s purpose to replace with a new conception the conventional notion of capital as an economic factor of production. That came in 1888 seemingly out of a clear sky.

Let us first restate, as briefly as we can, just what the thought was, and then seek to account for its appearance at that time. The more essential points in which Clark departed from the then prevalent views of capital may be reduced to five. He said:

(a)   The conventional capital concept is ambiguous, meaning both “pure” capital and concrete “capital goods.”

(b)   “Pure capital” is a fund of value.

(c)   Land in all its forms is a part of concrete capital.

(d)   All concrete goods yield rents.

(e)   All pure capital yields interest.

 

(a) Clark declared that economic science had and was using two unlike conceptions of capital, while believing that it had but one. Hence ambiguity, confusion, “logomachies.” Clark would frankly accept both concepts, clarify them, and distinguish them by somewhat different names. One is the abstract, the other is the concrete concept. The abstract conception, paradoxically, is the one “employed in business a hundred times where the concrete conception is employed once”;2 whereas “the actual practice of economic science has been to first define capital in the concrete, and then, in the problems connected with it, to tacitly substitute again and again the abstract conception.”

(b) Clark calls capital in the abstract sense “pure capital,” which is a “fund,” a “single entity” common to all the concrete forms of capital. This fund or entity is expressly declared to be “effective social utility,” but this mysterious notion is repeatedly spoken of more simply though somewhat puzzlingly as “the value that a business man invests” in the various instruments and materials he uses. This is the value conception of capital in contrast with the concrete goods conception as defined by the conventional definition of the older political economy.

(c) Clark classed as concrete capital not merely the artificial, humanly “produced means of production,” but all instruments and materials, including land and all other natural agents.

(d) Clark correspondingly widened the meaning and application of the term rent beyond that of the orthodox English economics, making it apply to the “sums earned by outward and material instruments of production” of any and every kind, i.e., the earnings of concrete capital. The rent law is universal.

(e) Clark called the earnings of “pure capital” interest, and he conceived of this as rent (value) expressed as a percentage of the value of the abstract capital. Thus interest, as Clark wished to express it, did not consist of uses, yields, earnings, or incomes other than those composing rents, but simply was rent, expressed as a price in relation to the price of the instruments that embody the fund.

That these ideas appeared at that time to be radical novelties in American and English economic theory, is evident. The vigor and incisiveness of their statement helped them to command immediate attention even from those who were not ready to accept them as true. It must have been obvious that their acceptance would involve sweeping changes in the structure of the then accepted theory of distribution, with its sharp division between (natural) land and (artificial) capital as factors of production, and between rent (of land) and interest (on capital) as forms of “earnings” or incomes. Clark himself began at once to shape and build a structure of distributive theory but faintly forecast in his earlier essays, and increasingly to this day these ideas have exercised an influence upon theoretical opinion.

2. POSSIBLE SOURCES; THE AMERICAN TRADITION

Ideas departing so far from prevalent opinion rarely if ever spring as pure inventions of the moment from one mind. Nor does a change in the content and direction of an individual’s thought, as marked as that of Clark at that time, occur without some influence from other thinkers or from environing conditions. But to trace such influences to their sources seems, in the case of Clark, at first unusually difficult. His literary style is didactic rather than polemical, and his thought seems to move along positive lines hardly at all conscious either of his forerunners or of hostile opinions, once he has formulated his own views. His writings give slight internal evidence of the sources of his thought. In the monograph in question the only references to the opinions of others are in minor matters, in three cases dissenting (from Ricardo, J. S. Mill and Sydney Webb) and in three approving (A. Smith, S. N. Patten, and Clark’s co-worker, Giddings). The sources or the starting points of Clark’s own thought must be sought more widely in the circumstances of his life and of his surroundings.

The first possibility might seem to be close at hand in the fact that Clark was an American. A scholarly study has recently shown3 that with few exceptions writers on economics in the United States from Raymond in 1820 to Perry in 1877 (including Phillips, Wayland, Vethake, M. Wilson, Cardoza, Tucker, Carey, and Amasa Walker) defined capital as privately owned means of production, emphasized its valuation or price aspect, and included land among the concrete goods in which this value was embodied. Some of the exceptions serve to prove the rule, for these exceptions were men of English training or faithful disciples drawing their ideas directly from Ricardian text books. Such unorthodox views arose naturally in America where were lacking the artificial feudal limitations upon the sale of land, and where landholders were not marked off socially from capitalist merchants as a separate class. Here land was readily bought and sold and was from the earliest settlement the chief object of investment with a view to speculative profit. This environment had prompted one American writer after another (apparently without mutual influence) to develop conceptions radically different from those of the English school. It might have likewise prompted Clark quite independently to his very similar thought. And there were particular circumstances at the time Clark was writing, namely, the active discussion of Henry George’s single tax proposal, which undoubtedly had directed Clark’s attention strongly to this problem of the capital concept. Of this, more later.

But if Clark got this thought either directly or indirectly from American economists, it is not evident in his writings. The generation of young economists who in the seventies and early eighties brought a new spirit into American economic studies, did not develop the indigenous traditions, but unfortunately neglected them and turned to Germany for the new sources of their inspiration. At the same time there was in some quarters (e.g., Dunbar, Macvane, Laughlin, Sumner) a reactionary movement toward a new affirmation of Ricardian “orthodoxy” as reformulated in the work of J. S. Mill. Even Francis A. Walker did not develop his father Amasa’s more original American treatment, but built his scheme of distributive theory on the older foundations of “land, labor and capital.” There was thus, in the thinking of both the rival schools of thought of that time, a lack of reality and of rootage in the solid earth of our own economic conditions. American economic theorizing suffered then and still suffers from this defect. Clark’s reformation of the capital concept, though couched in excessively abstract phrases, was the most vital attempt made in that period to find that reality. It was a new and distinct declaration of independence for American economic thinking.

3. TRACES OF GERMAN ECONOMIC PHILOSOPHY

Almost equally lacking in Clark’s writings are any suggestions that the ideas now under discussion were derived from German sources; but that such is the case can hardly be doubted in view of all the circumstances. Clark was a student in Germany in 1876-1877 and was for a considerable period at Heidelberg under Karl Knies. Clark’s writings in the first ten years after his return, mostly embodied in his Philosophy of Wealth, evidence the deep influence of the ideas of the historical school and of the economic-ethical doctrines then current in Germany. Knies himself had published in 1873 Das Geld subtitled also “a discussion of capital”; a second, enlarged edition of this was dated 1885. In this work appears a conception of capital strikingly like the one of Clark which we are examining. This conception had become traditional in German economics after the original work of Professor F. B. W. Hermann4 first began to exercise an influence upon German thought. Hermann based his capital concept on property,—though it cannot be said that he succeeded in clearly distinguishing the thought of the value of property from the thought of the concrete goods. He included not only land within the concept of capital, but also immaterial goods or legal rights to income, even though the claims were upon persons and to services, and not to material goods. Probably the greatest change made by Hermann was to extend the definition of capital beyond artificial, produced, goods and to include as capital anything (or at least its value) that is the durable foundation of a use that has value.

Very similar ideas were developed by Carl Rodbertus in the thirties and forties, most significant because of the great influ-ence they exercised upon later thinkers in the period of developing German state socialism after 1870. Especially Adolf Wagner acknowledged his profound indebtedness to Rod-bertus.5 To Wagner is due the much wider circulation and influence in the last quarter of a century of these ideas which he restated and endorsed.6 Wagner credits Rodbertus with “the essential distinction between capital in the purely economic sense as any stock of material agents and means of production, and capital in the historico-legal sense as capital-possessions.” He cites the statement of Knies that political economy uses capital in two senses, as concrete means of production, and as a stock of goods acquired by an owner. Both Wagner and Knies recognize the double meaning of capital as a tool in economic processes (technological sense) and as a source of private income (acquisitive sense), the distinction on which so much of the thought of Thorstein Vehlen as well as of Karl Marx, seems to have been based. When Knies says approvingly that what has been called capital is “fundamentally nothing but a mere abstraction,”7 the expression might be the original of Clark’s “entity,” “this abstract conception of capital.”8

Clark, in common with all other Americans pursuing graduate economic studies in Germany, must have become familiar with these ideas. Yet why did no trace of them ever appear in the writings of other students returning from Germany, or even in Clark’s writings, until 1888? Is not the explanation to be found in the fact that Americans went abroad with minds already cast in the mold of the Ricardian-Mill “orthodox” scheme of distributive theory, and these concepts persisted. It was possible for these students to acquire a zeal for displacing (or for supplementing) deductive methods with historical studies, and in favor of state activity vs. laissez-faire, without any essential change in the old conceptions of the economic factors and shares in distribution. This is well illustrated by H. C. Adams, R. T. Ely, and many others besides Clark. The more difficult question to answer is: Why did Clark ever, and why did he alone, break through this crust of conventional ideas, and in 1888 advance the views, received as complete novelties, with which his name has ever since been linked.

The important eras of human thought, we are assured by philosophers, rarely, if ever, are initiated by entirely new ideas, but by the rediscovery and restatement of old ones. Therein consists the more effective originality. It has been said, perhaps extremely, that the first time a new thought is expressed or an invention is made, the world simply pays no attention to it. Not until it is repeated independently and rediscovered a hundred times, and then only under peculiarly favoring conditions, does the world look up and say: yes, there is something in it, but nothing original—indeed it is very old. Until the world has received an idea in this way, its rediscovery for the hundredth time is as original as its discovery the first time, and its mere restatement by one aware of its earlier origin and rejection, calls, for that very reason, for as great vigor of thought, and for faith and conviction.

4. EFFECTS OF THE SINGLE TAX AGITATION

The probable source from which immediate stimulation came to Clark was the contemporary single tax discussion. Started in 1879 by the publication of Henry George’s book on Progress and Poverty, it gained within a few years the most remarkable vogue in popular interest. It attracted at once the attention of leading economists. Professor W. G. Sumner attacked it in 1881 in magazine articles.9 Professor Francis A. Walker, who seems to have been stirred to indignant protest particularly by George’s proposal to confiscate land values, made it the subject of a series of lectures at Harvard in 1883, published under the title of Land and Its Rent. But Clark, until after the publication of his first book The Philosophy of Wealth,10 and apparently until 1888, gave it no mention in his published writings. The chief theoretical pillar of George’s doctrine was the Ricardian rent theory, and Walker, even while assailing George, had avowed himself to be “a Ricardian of the Ricardians,” declaring that “Ricardo’s rent doctrine can no more be impugned than the sun in heaven.”11 He would have none of Bastiat and Carey, who had sought to reduce the origin of all land values to labor. Yet Walker somewhat unconventionally treated capital in the aspect of value as “a capital sum” to be invested12 as well in land, “in the soil,” as in agricultural improvements, and not as any particular group or kind of economic agents. No formal definition of capital in the old terms of “produced” means of production appears, yet Walker is not conscious of any departure from “the general body of orthodox economic doctrines,” the “validity” of which he thinks he is merely confirming.13

Events were just at that time crowding each other fast in the single tax propaganda. Progress and Poverty was translated into many languages and was said to have had a larger sale than any other book ever written by an American. In 1886 George was nominated and ran for the mayoralty of New York City, and of the three candidates he polled the second-highest number of votes. In 1887 George was a candidate for the Secretaryship of New York State but was defeated. No other economic subject at the time was comparable in importance in the public eye with the doctrine of Progress and Poverty.

At this moment Clark stepped into the arena of discussion armed with a new weapon, a valuation, or investment, concept of capital. His little monograph wears the mien of pure theory, and lingers for a time as its author himself says “in a region of abstract thought.” But having in mind the circumstances just described, one can hardly fail to see on almost every page reflections of the contemporary single-tax discussion. In the brief preface is expressed the hope that “it may be found that these principles settle questions of agrarian socialism.” Repeatedly the discussion turns to “the capital that vests itself in land,” declared to be “a form of investment neither more nor less lucrative than others.” On the ethics of confiscation Clark concludes that morally as well as legally “pure capital when invested in land, has the same rights that elsewhere belong to it.” And as to confiscating all land values by the single tax, he exclaims: “would it be robbery? No; it would be the quintessence of robbery.”

Two years later at the “Single Tax debate” at Saratoga, Clark developed in a very interesting way his ideas of pure capital as seeking investment in whatever form the State has said it may take. He sees it as a policy of expediency for the public welfare in the long run. The State “has said that it [capital] may go into land. For ends of its own it has so decided; and the ends are good.”

But Clark felt that he had got hold of a deeper truth, more than a mere argument on a current issue. This monograph represents in most respects a completely new start toward a systematic theory of distribution which has little in common with his views in The Philosophy of Wealth, excepting “effective utility” (the marginal principle). It is needless to restate the argument of this well-nigh classical essay. Though brief, it is rich in ideas, and any one who has not read it will be well repaid by its careful study.

But read to-day, even by the most friendly critic, the argument reveals certain defects, partly arising out of its original polemical impulse, and partly due to the influence of the older conceptions upon Clark’s thought. As to the latter, traces of the labor theory of value remain in the confusion between the process of evaluating “concrete instruments,” including natural land, and the “personal sacrifices incurred in the service of society” in bringing concrete instruments into existence. When “the fruit of twenty years of labor” is exchanged for a piece of unimproved land, the value in the land is declared to embody “the fruit of personal sacrifice” of the buyer.14 But whence came the value of the land before it was sold? Again, though including the most imperishable land among the things which embody pure capital, Clark sees the “concrete forms of capital” as constantly vanishing. “The bodily tissue of capital lives by destruction and re-placement.” In truth, Clark had not developed a consistent capitalization concept, or made a clear distinction between, on the one hand, technical production as the source and origin of what he called “capital goods,” and, on the other hand, financial valuation of rights, incomes, claims (to land and also to personal services, good will, privileges, etc., as well as to “artificial” concrete goods) as a source of his “pure capital.”

Nevertheless, his great achievements in this matter were that he brought out into the open the old ambiguity between “capital value” and certain concrete things called capital, and that he presented “capital” as essentially an investment concept; and that he gave a broader reading to the idea of rent. These notions have been apples of discord, and even yet professional opinions have not attained to unity upon them. It is of interest to observe the position taken toward the value concept of capital by some representative economists.

5. THE MORE CONSERVATIVE VIEWS

Böhm-Bawerk’s conclusions on the capital concept were surprisingly old-fashioned. Beginning with a new conception of the so-called “interest problem” as that of differences of the value of goods because of time, he wrecked his attempt at the very first by his conception of capital (goods) as limited to produced means of production. For if, as he believed, “capital” and interest are coextensive facts, he cannot explain with such a capital concept the manifold time differences that appear everywhere, in land uses, legal rights, financial incomes, human services, etc. On no other point did Böhm-Bawerk differ with Clark so categorically as on this; he would have none of the valuation concept of capital.15 Not even the most conservative of his contemporary neo-Ricardians were so uncompromising on this point. Yet not for a single page does he succeed in avoiding the valuation concept of capital when once he begins to use one. His capital is always an investment sum, expressed as so many kronen, pounds sterling, or dollars.

Professor Taussig devoted large space in his text to the discussion of the capital concept, returning to it again and again, evidently troubled and more or less impressed by nearly every count in the newer criticism on this subject. It seems a just characterization to say that Taussig’s general conclusions and position resemble somewhat those of Marshall, outlined below, but show certain significant differences. First, he is somewhat more definitely conscious that the adoption of the valuation concept involves a radical break with the older doctrines. Secondly, he therefore more explicitly (though with various concessions and doubts) adheres to the older formal definition of capital in terms of concrete goods, and to the older idea of the two-fold division of the “instruments of production and the different sorts of return to their owners” (i.e., land and capital, rent and interest, respectively).16 Third, he, much more explicitly than Marshall, reaffirms a pretty bald labor-theory-of-value to account for the origin and distinctiveness of capital (concrete),17 conceived of as “artificial” in contrast with land as “natural.” In accord with this thought, he (probably unique in this regard) denies “productivity” alike to capital and to land, and thinks labor alone can properly be said to be productive, more so to be sure if applied “through the use of tools” than without them, more applied “on some land . . . than on other land,” but in any case it is always labor alone that has “productivity.”18 Fourth, far more than Marshall, he struggles to escape from the meshes of the inevitable valuation concept. He sees, as Marshall did not, that he is being trapped into a repudiation of the older views. He was forced to recognize that “the ordinary business method of measurement” of capital is “in terms of value.” He confesses that the old distinctions between rent and interest “find no response in the world of affairs.”19 Earlier20 he had recognized that it was “often convenient to measure and record capital in terms of value and price,—as so much money,” and he had even issued fair warning that he would “sometimes” so far conform “to everyday terminology” as to speak of capital in terms of its “value or price.” (Of course, he always does express capital in those terms whenever he discusses investment of capital and interest as a rate per cent of return—no one can do otherwise.) Yet he explicitly rejects the “valuation principle”21 and indicates what he thinks are its absurdities.22

Professor Seager, a colleague of Clark’s at Columbia, acknowledges in the preface of his text his indebtedness to writers so far apart as Böhm-Bawerk, J. B. Clark and Alfred Marshall, and his treatment of this particular question betrays some of the discordant results. He seems to accept both the old view and in part that of Clark. He defines capital as “the product of past industry used as aids to further production.”23 Yet he cites, apparently with approval, the business man’s use of capital as “the complex of capital goods, used in connection with each branch of production, measured in terms of money,”24 a valuation investment concept. But he does not, as did Clark, include land among “capital goods”; these are purely artificial things, “products of past industry,”25 thus plainly differing with the business usage cited. Seager was insistent on keeping sharply distinct the two classes of concrete goods (land and capital goods) which represent “man’s part in production and nature’s part.”26 Soon, however, Seager is found talking about buying land, quite in the sense in which the business man speaks of the purchase of other goods, as an “investment” involving the “capitalization of rents.”27

6. MARSHALL’S ECLECTIC CAPITAL CONCEPT

In the first edition of his Principles (1890), Alfred Marshall was well aware of the issue before us, and gave it a good deal of attention. He showed acquaintance with J. B. Clark’s work of two years earlier,28 with Böhm-Bawerk, Newcomb,29 and the several German economists above named, who contrasted capital as ownership and as means of production.30 Marshall listed with approval a veritable catalog of definitions mutually inconsistent, but admitted that the divergent usage “has been a great stumbling block to many readers” and “appears to land the science in confusion.” He comforts himself, however, with the thought that “the difficulty is much less serious than it seems at first sight.”31 The plan by which he hopes to minimize the confusion, if not avoid it, is to adopt two standard definitions, one each for individual and social capital respectively (apparently following Böhm-Bawerk), and then (apparently forgetting that he himself has two) “to supplement his standard definition by an explanation of the bearing of each of several elements of capital on the point at issue.” His definition of individual capital is “that portion of a person’s external goods by which he obtains his livelihood”; and of social capital is “those things made by man, by which the society in question obtains its livelihood.” The latter consists, first, of goods in a form to satisfy wants directly (“consumption capital”) and, secondly, of production goods (“auxiliary capital.”) He recognizes that individual capital “is most commonly taken to include land and other free gifts of nature,” but this is to be left “to be decided by an interpretation clause in the context wherever there is room for misunderstanding on the point.” He evidently here thinks of “capital” (either individual or social) as consisting of concrete goods rather than of their value or the purchasing power they embody; and both his “standard definitions” make capital consist of the external goods themselves. Later, in a chapter headed “The growth of wealth,”32 he discusses it as if it were identical with “the accumulation of capital” and to “the annual investment of wealth.” It is almost needless to say that when he comes to discuss capital in business, it is in terms of investment and its monetary expression, while interest or earnings are percentages of a principal sum.33

In the successive revisions of his text, terminating with the 8th (1920) Marshall’s discussion of this subject steadily increased in length and elaboration without gaining in clarity and consistency. On the whole, though, the change is in the direction of a greater preference for, and emphasis upon the individual concept (and its valuation expression) as compared with the social concept. The individual concept is now cited in the index as the “standard use” of the term,34 and appears with this comment: “This definition of capital from the individual or business point of view is firmly established in ordinary usage; and it will be assumed throughout the present treatise whenever we are discussing problems relating to business in general.” He concludes this chapter with admonitions to economists to “forego the aid of a complete set of technical terms,” and not to assign “a rigid exact use to a word” as this “confuses business men”—astonishing counsel to budding would-be scientists.

Marshall’s view as to the relation of land to capital is not easy to fix, but on the whole it seems to be that land is among the (concrete) things comprising individual but not social capital. E.g., he says: “This illustrates the fact that land from the point of view of the individual cultivator is simply one form of capital.”35 Speaking more generally of manufacturers and traders as well as of farmers he says: “It is to be remembered that land is but a particular form of capital from the point of view of the individual producer.”36 Though Marshall here distinctly excluded land from capital from the social point of view;37 nevertheless, only three pages later, still speaking of the social point of view, he says: “In purely abstract, and especially in mathematical, reasoning the terms Capital and Wealth are used as synonymous almost perforce, except that ‘land’ proper may for some purposes be omitted from capital.” Are we to understand then, that for most purposes, land is by Marshall included in capital, at least land “proper,” whatever that may mean, which here seems to mean “in the scientific sense,” if it means anything?

The reader must take his choice among these contradictions, for his bewilderment will only be enhanced by further search amid the mazes of Marshall’s tome. But, though Marshall’s formal definitions of capital run in terms of concrete agents, there is no doubt that whenever he comes to discuss individual capital in problems relating to business in general he resorts to a valuation concept. The resources of an individual “are in the form of general purchasing power.”38 He declares that the idea of interest is strictly applicable only to fluid capital, evidently meaning readily available purchasing power. “The rate of interest is a ratio and the two things which it connects are both sums of money.”39 Thus it appears that after many contradictory assertions and formal definitions that reaffirm the older Ricardian scheme, Marshall really uses capital in nearly all his discussions of price and of business problems in his later editions as an individual (acquisitive) concept, expressed in (market) valuation terms. Yet unsuspecting students still are led to seek in Marshall a source of theoretical illumination instead of a smoke cloud.

7. THE YALE ECONOMISTS

The influence of Clark’s views of capital showed itself at Yale within the following decade in the writings of A. T. Hadley and of his younger colleague, Irving Fisher. Hadley published in 189540 a noteworthy article marked by an insight and a clarity in nearly every feature in advance of its date, and by a realism in advance of Clark’s abstraction of an entity of pure capital. Hadley recognized both the broad social and the narrow individual conception of wealth, and the broad and the narrow conception of capital. “Individual wealth is more accurately designated as property.” “The capital of an individual is more accurately designated as an investment.” “A title to property is not necessarily productive as held by Clark.” Here Hadley briefly, but in essence, anticipated what Veblen (and in part Davenport) developed many years later regarding the contrast between acquisition and production, while avoiding Veblen’s exaggeration of the contrast and his caricature of the profit motive. Hadley’s text Economics published the next year, reproduced in its first chapter (on Public and Private Wealth) the substance of this article, but with certain additions (unfortunate, in our view) involving, as Hadley says,41 “a combination of the ideas of Knies and Newcomb,” but for which he acknowledges his chief indebtedness to be due to his colleague, Dr. Irving Fisher.

The essential addition due to Fisher was a distinction between capital and income as “modes of measuring” which Hadley had come to believe “is almost as important as the distinction between public and private wealth”42 which he had presented in his essay of the year before. This new distinction is, however, certainly more than a mere detail; it introduces into Hadley’s earlier clear and simple thought of capital as the value of rights of individual ownership, a different idea of a stock of wealth43 as contrasted with a flow of wealth. The latter was pretty clearly Fisher’s own idea at that time, as appeared in his contemporary articles.44 In these Fisher presented this distinction between a “stock,” or a “fund,” and a “flow,” or a “stream,” as the one essential test of capital, as he conceived it. He is intent (not as was Hadley) on distinguishing capital as valuation from wealth as objects (for he thinks of both simply as material) but in distinguishing income as a flow of things from wealth as a fund, reservoir or stock of things. There is not a hint in Fisher’s definitions that capital consists of “rights” expressed in terms of monetary valuation, or financially, or of its being a sum of purchasing power, a business investment concept. Fisher specifically objects to Clark’s expression of the amount of true capital in terms of price, instead of by physical measurements. However, as soon as he attempts to discuss the percentage rate of flow, he assumes the measurement of both stocks and streams in monetary terms, for in no other way could a percentage appear. Fisher’s contrast was that between a stock and a stream of the “very same commodities.”45 The present writer soon afterward46 sought to show that this view was untenable in that it overlooked the durative nature of many of the objects comprised in Fisher’s material “capital,” and involved the erroneous assumption that all indirect agents eventually appear in substance as direct (enjoyable) goods. However, when Fisher next expounded his definition, though he referred in no way to this criticism, he introduced alongside of the old distinction a new one designed to obviate the difficulty with the unfortunate result that his unified conception is converted into the dualistic conception already foreshadowed by Hadley. This is the passage:47

Capital is a fund and income a flow. This difference between capital and income is, however, not the only one. There is another important difference, namely, that capital is wealth, and income is the service of wealth. We have, therefore, the following definitions: A stock of wealth existing at an instant of time is called capital. A flow of services through a period of time is called income.

Now it must be said of these dualistic definitions that they are quite useless for the purpose in view. Fisher’s own work on capital and income deals mainly with financial conceptions untouched in these definitions, incomes as price-quanta, discounted and summed up in capital (also a price quantum) conceived of as the present worth of claims to future monetary incomes, no matter whence or how derived (even from intangible rights). And the definitions are at least in part tautological, for while it would be logically possible (even though theoretically useless) to have a fund of wealth (material goods) and to contrast it with a flow of the same goods, it is not possible to conceive of a literal stock of services at an instant of time; it is possible only to conceive of their present worth as a financial fund at an instant of time. Services (taken in the sense of uses either of wealth or of human beings) may conceivably be delayed or hastened, but they are in their very nature a flow; they cannot be heaped up and constitute a. stock of services. They can at most, as they occur, be “incorporated” in durable forms of wealth. If this is so, then why this elaborate contrast between a flow of services and a fund of something quite different? It is the vestigial remains of the older conception that Fisher has been obliged to discard.

The idea of a “fund” as a financial sum, estimate, or valuation, at an instant of time, has become confused with the idea of a “fund” as a heap or store of physical goods existing at an instant of time. The phrases of Fisher’s definitions form a superficial, verbal bond of connection between the old conception and the new one, while in fact the essential distinction has become that not between income as a flow and capital as a fund (of the “very same” material things) but that between a valuation of services (incomes) when accruing separately throughout time and the valuation of those same services when discounted and summed up at an instant of time. Capitalization thus does involve a comparison of a financial fund (the single present worth) and a flow (a series of future worths) of the very same things, namely, valuations of services. Only through the common element, valuation, do capital as a valuation fund and income as a valuation flow become comparable.48

The text of Fairchild, Furniss and Buck, emanating from Yale, starts in the old paths, formally defining capital as a third factor of production, produced instruments of production. The tool, the indirect agent, seems to be the typical capital in mind in the historical survey, and the older definitions are repeated.49 “Land, labor and capital” are presented in the familiar roles of the three factors of production.50 But the first time that there is any real occasion to use the capital concept, a simple footnote makes kindling wood of these museum pieces and the reader is informed that “In the present discussion we shall use the term capital including land as well as man-made instruments. The term is generally so used in discussions of investments.”51 Thereafter capital appears as a fund of value, an investment fund, expressed in terms of dollars. Yet from time to time the discarded notion of the difference between land and man-made capital instruments is weakly reechoed.52 The treatment of interest and capital seems pretty nearly in accord with that of Fisher.

8. OTHER REPRESENTATIVE OPINIONS

Professor Seligman, a colleague of Clark’s at Columbia, took an advanced position on the concept of value, as well as on the various related questions of rent, capitalization, etc. He declares repeatedly: “capital is capitalized income,”53 and makes use almost exclusively of a valuation concept in that sense. Professor J. R. Turner too makes use54 consistently of an advanced valuation concept of capital. These views and those of the writer55 are in large measure in accord.

Ely as early as 189356 began with a dual capital concept as “every product which is used or held for the purpose of producing or acquiring wealth,” but almost immediately speaks of capital from the individual standpoint as “any economic good” (not merely products) held “for the purpose of gaining wealth.” Later editions, though repeating old definitions, give increasing emphasis to the individual, valuation conception, which finally becomes the only one actually used. “The business world . . . speaks of the total investment—the amount of money ‘tied up’ in a business unit—as its capital. This is the better and more common usage.”57

Professor Fred M. Taylor58 speaks approvingly of “one new way of conceiving of capital” as a “fund of value . . . rather than things themselves”; and adds: “Even those who doubt the soundness of this distinction are almost compelled to use it more or less on account of the ambiguities in which current controversies have involved the word capital.”

Professor Bye59 in his formal definition follows Fisher: “a stock of wealth in existence at a given time,” including land as “natural capital,” and “intangible property rights or titles to wealth as a part” of an individual’s capital. He thus glides in-sensibly into the value conception of “net property rights,” “net worths,” etc.60 Still the ghosts of the older conceptions of “natural” land and “produced” capital haunt almost every paragraph of the later chapter entitled “Income from artificial capital.”

Professor O. F. Boucke61 endeavors to give impartial recognition to the two different main concepts (besides several minor variations), capital “as technical aids used in production, or as any source whatsoever of incomes.”62 The latter idea is later expressed as “a sum of money or its equivalent,” a “capital value” concept which includes such things as the “value of patents or copyrights, or of personal reputations,” etc.63 Thereafter, whenever capital is referred to in connection with credit, interest, or any sort of business problems, this value concept seems to be the one preferred.

Professor L. D. Edie64 likewise starts by repeating the older definitions and distinctions based on the concrete goods notion, noticing, only to chide, the business man’s thought of his business capital as money, or as “borrowed money on credit.”65 But he cannot long escape recognizing “capital values,” and “capital is, from this viewpoint, not merely a mass of physical goods, but this plus a mass of property rights, good will, and other intangible assets.” He adds: “To be realistic, our use of the term capital must harmonize with prevailing business facts” and declares that, “This modern view is amplified later in the present chapter.”66 A peculiarity of this author’s view is that he seems to admit the valuation concept of capital only under the corporate form of organization.

9. CLARK’S MESSAGE STILL VITAL

It would be too great a task to pursue our inquiries further into the mass of recent business texts that touch upon this subject. It is a paradox that the more emphatically an author professes to have written for students of business, the more remote from actual business usage his conception of capital is likely to be. How long must it continue to be a sort of ritual for the writer of economic text books to at first repeat piously old definitions from which all vital meaning has departed (if they ever had any) only to throw them aside later when the time comes to use them. Must every year the minds of thousands of beginning students of economics be crammed with this useless intellectual lumber? In what other field of study could such a practice continue? The way to consistency and clearness has been clearly shown by the labors of the past generation. Ambiguity must be banished from economic terminology. Wealth and capital are not the same or even related as genus and species. Capital is essentially an individual acquisitive, financial, investment ownership concept. It is not coextensive with wealth as physical objects, but rather with legal rights as claims to uses and incomes. It is or should be a concept relating unequivocably to private property and to the existing price system. Social capital is but a mischievous name for national wealth. The so-called, misnamed, “interest problem” is not to be conceived of as correlated with a narrow class of artificial goods but rather as the time-value element permeating all cases of valuation of groups of uses differing in time. The admission of these and a number of logically related truths is partially, haltingly, inconsistently implied in much of the current treatment of the fundamentals. When will it be made frankly and clearly? When will the dead hand of Ricardianism be lifted from our economic texts?

John Bates Clark in his young manhood struck straight and telling blows for a newer, truer and more realistic conception of distributive theory. He did not attain an ultimate goal, but he advanced in the right direction, showing the way to us. The sincerest tribute that we, and that men of younger generations, can render to him is to seek and to find the truths implicit in the work of the notable era of which he was so large a part.

NOTES

67 May, 1883, in Publications of the Amer. Econ. Asso., Vol. III, No. 2.

68 Op. cit., pp. 11-12.

69 J. R. Turner, The Ricardian Rent Theory in Early American Economics, 1921.

70 Staatswirtschaftliche Untersuchungen, etc., Munich, 1832.

71 The ideas of Rodbertus on capital are scattered throughout his writings, but perhaps more systematically presented in his work Das Kapital, written 1850-51 but published first in 1885 by A. Wagner and T. Kozak. (Known to the writer only in the French translation, Paris, 1904.)

72 See Wagner’s Grundlegung, 3rd. ed., 1892, p. 307 ff.

73 Knies, op. cit., p. 43.

74 Clark, op. cit., p. 11.

75 See Dr. A. N. Young, The Single Tax Movement in the United States (1916), passim. Prof. R. T. Ely noticed it in his Recent American Socialism in 1885.

76 Largely a republication of a series of articles the publication of which was begun ten years earlier. See preface to first edition.

77 Op. cit, p. 86.

78 E.g., op. cit., pp. 33, 34.

79 Op. cit, p. 86.

80 Op. cit., pp. 55, 66.

81 See the discussion, Quarterly Journal of Economics (1895-1896), Vol. 9 (Clark), p. 238; (Böhm-Bawerk), pp. 113, 235, 380; Vol. 10 (Clark), p. 98, (Böhm-Bawerk), p. 121.

82 Principles of Economics, 1st ed., 1911, Vol. 2, p. 115.

83 E.g., Vol. 1, pp. 72, 75; Vol. 2, p. 119ff.

84 Ibid., Vol. 2, pp. 5-8, 58.

85 Ibid., Vol. 2, p. 118.

86 Vol. 1, pp. 84, 85.

87 Ibid., pp. 121-123.

88 In part his objections result from his not seeing the full import of the principle; however, his objection to Professor Irving Fisher’s view of capitalizing human beings is in my judgment well taken. The reference to my text at this point in the 3rd edition (1921) is misleading. (Vol. 2, p. 126)

89 Introduction to Economics (1904), p. 108.

90 Ibid., p. 126, and, in revised form, Principles of Economics (1913), p. 14.

91 Principles, p. 148.

92 Ibid., p. 149.

93 Ibid., p. 239.

94 E.g., note p. 615; and specific reference to Capital and its Earnings in note, p. 492.

95 Ibid., p. 137.

96 Ibid., pp. 135-136.

97 Ibid., p. 133.

98 Ibid., p. 284.

99 Ibid., pp. 513, 620 ff., 635, 648, etc.

100 8th ed., p. 72. But still, in his last word on the subject (p. 790), Marshall justifies his own adoption of “the two-fold definition of capital.”

101. Ibid., p. 170.

102 Ibid., pp. 430-431. Also p. 535 et passim.

103 Ibid., p. 78.

104 E.g., ibid., p. 411.

105 Ibid., p. 412.

106 Yale Review, Vol. 4, pp. 156-170, “Misunderstandings about economic terms.”

107 In a footnote, p. 5.

108 It would be a more accurate description of this distinction to say, using Hadley’s own phrases: between public wealth as the sum of the “means of enjoyment” or “means of happiness,” in existence, and private capital as the value of individual property rights.

109 Material objects by Fisher’s definition, Nature of Capital and Income, p. 3.

110 Economic Journal, Vols. 6 and 7, 1896, 1897. A number of references to J. B. Clark’s ideas occur in the three articles.

111 Op. cit., Vol. 6 (1896), p. 514.

112 See Quarterly Journal of Economics, Vol. 15 (1900), p. 19.

113 The Nature of Capital and Income (1906), p. 52. Italics in the original.

114 The thought is hardly to be avoided that some of the peculiar ideas regarding savings and income to which Fisher has adhered so uniquely despite criticism are traceable to this confusion of definitions. We refer especially to his reiterated proposition that “savings are not income.” As a financial fact, there can be no saving and addition to capital value until there is first a property right to an income calculable in monetary terms (a financial present worth) to be saved. Hence to deny that monetary savings are monetary income is in simple common sense to deny a fait accompli; it is to assume the existence of the effect before its cause.

115 Elementary Economics (1926), Vol. 1, p. 32 ff.

116 Ibid., p. 40.

117 Ibid., Vol. 1, p. 355.

118 E.g., Vol. 2, pp. 163 and 189.

119 Principles of Economics (1905), see pp. 17, and ch. xiv, p. 204, on “The Capitalization of Value.”

120 Introduction to Economics, 1919.

121 As developed in various places; see, among other, Quarterly Journal of Economics, Vol. 15(1900), pp. 1-45, “Recent Discussion of the Capital Concept”; “The Relations between Rent and Interest,” paper read at the New Orleans meeting, with discussion, Publications of the American Economic Association, 3rd series (1904), Vol. 5, pp. 176-240; The Principles of Economics (1904); American Economic Review, Vol. 4 (1914), pp. 68-92; Economic Principles (1915), p. 267: “Capital is a person’s investment power as expressed in terms of money, being a person’s property rights to income, estimated, as to amount, with reference to market conditions.” The definitions given in the references dating 1900 to 1904 followed in part Clark’s and Fisher’s leads in conceiving of capital more nearly as the valuation expression merely of (material) wealth. In developing after 1904 a more adequate capitalization and “interest” theory, the writer returned with clearer convictions to the conception of capital that he had glimpsed before 1900.

122 Outlines of Economics.

123 Outlines of Economics, 4th revised edition (1923), p. 206; see also p. 103 et passim.

124 Principles (1913), p. 69.

125 R. T. Bye, Principles of Economics, 1924.

126 Op. cit., p. 24.

127 Principles of Economics, 2 Vols., 1925. Ref. to Vol I.

128 Op. cit., p. 95. These ideas are more elaborately set forth, pp. 370-376.

129 Ibid., p. 381.

130 Economics, 1926.

131 Op. cit., p. 247 ff.; also p. 254.

132 Ibid., p. 255.

• 1We 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.
• 2Positive Theory, p. 24, ff.
• 3Ibid., p. 42, ff.
• 4Ibid., p. 27.
• 5Ibid., p. 31, ff.
• 6Positive Theory, pp. 43-59.
• 7Ibid., p. 31.
• 8Ibid., p. 38.
• 9Positive Theory, p. 59.
• 10Ibid., p. 60.
• 11Ibid., Preface, p. xxiii.
• 12E.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.
• 13“The Genesis of Capital,” YaleReview, ii. 302-315; “The Origin of Interest,” Quarterly Journal of Economics, ix. 257.
• 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.
• 67Böhm-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.
• 68Böhm-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.
• 69Böhm-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.
• 70Böhm-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.
• 71Böhm-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.
• 72Böhm-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.
• 73Among 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.
• 74Of 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.
• 75What 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.”
• 76What 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.”
• 77What 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.”
• 78The 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.
• 79This 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.
• 80Publications of American Economic Association, iii. (1888).
• 81Positive Theory, pp. 33, 34.
• 82Yale Review, ix. 307.
• 83Publications of American Economic Association, iii. 91.
• 84YaleReview, ii. 308.
• 85Quarterly Journal of Economics, ix. 257.
• 86Quarterly Journal of Economics, ix. 116.
• 87Ibid., 380.
• 88Ibid., 263.
• 89Positive Theory, pp. 17-23.
• 90Quarterly Journal of Economics, ix. 258.
• 91Yale Review, ii. 304.
• 92A fuller discussion of this point is given later, p. 49.
• 93Yale Review, ii. 307.
• 94Publications of American Economic Association, iii. 95, 112.
• 95Yale Review, ii. 309.
• 96Ibid., 303, 304.
• 97Yale 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.
• 98This point is treated more fully later, p. 57.
• 99Yale Review, ii. 309.
• 100Ibid., 312.
• 101This has already been observed by Fisher, Economic Journal, vi. 530.
• 102Yale Review, ii. 309.
• 103See further on this, infra, pp. 44-45.
• 104Quarterly Journal of Economics, ix. 124, 125.
• 105Yale Review, ii. 312.
• 106This is a somewhat different presentation of Böhm-Bawerk’s argument in Quarterly Journal of Economics, ix. 125-128.
• 107Yale Review, ii. 310, 311.
• 108Böhm-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.
• 109Yale Review, ix. 312.
• 110Yale Review, ii. 307.
• 111Ibid.
• 112Publications of American Economic Association, iii. 11.
• 113Yale Review, ii. 308.
• 114Quarterly Journal of Economics, ix. 275.
• 115This 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.
• 116In three articles, Economic Journal, vi. 509; vii. 199, 511 (189697.)
• 117Ibid., vi. 513.
• 118Ibid., p. 514.
• 119Economic Journal, vi. 515.
• 120Ibid., p. 530.
• 121E.g., at the very outset, Economic Journal, vi. 515.
• 122See as to Clark, supra, p. 43.
• 123Economic Journal, vi. 514, ff.
• 124Economic Journal, vi. 534.
• 125Supra, p. 39.
• 126Quarterly Journal of Economics, ix. 253.
• 127Especially in Positive Theory, 339-349.
• 128I should add, if the income is estimated as a percentage of the capital value.
• 129Positive Theory, p. 44.
• 130Ibid., p. 45.
• 131Here we develop some of the thoughtful suggestions of Fisher, though differing with his view in ways already suggested. See Economic Journal, vii. 525.
• 132Positive Theory, p. 40.