Chapter 61 APPENDIX V CAPITAL DEFINITIONS

Section 1. Industrial capital does not include the entire wealth of wage labour. In the fourth chapter of the second book, it has been said that economists can use the word capital in no other way than to conform to the general commercial customs (that is, commercial capital).Although the disadvantages of this usage are many, they are also obvious.For example, it forces us to think of yachts as capital rather than the yacht builder's car.If, therefore, he has been renting cars year round instead of sporadically, sells a yacht to a car manufacturer who has rented yachts, and buys a car for his own use; the result is that the total capital of the country has The reduction is one yacht and one car.Although nothing is destroyed, and although the savings remain the same, they themselves bring the same or even greater benefits to the parties and society than before.

Here too we cannot make use of the notion that capital is distinguished from other forms of wealth by virtue of its special power to wage labour.For in fact, when yachts and carts are in the hands of merchants, and thus count as capital, less labor is employed than when they are not in private hands, by an amount equal to the labor of rowing and driving.Replacing private kitchens (where nothing counts as capital) by taverns and bakeries (where all equipment counts as capital), the employment of labor will not increase, but only decrease.Workers may perhaps enjoy more personal freedom under corporate employers, but they receive less material benefits and wages relative to the work they do than under the looser regime of private employers.

These disadvantages, however, are generally neglected; and several reasons combine to give this use of capital the vogue.One reason for this is that the relations between private employers and employees rarely involve strategic and tactical conflicting actions between employers and workers, or what is commonly called labor and capital.This point was emphasized by Marx and his followers.They openly shift the definition of capital on this; they assert that only those means of production are capital which are appropriated by someone (or group of people), generally by employing the labor of a third used to produce things for the enjoyment of others; thus the owner of the means of production has the opportunity to plunder or exploit others.

Secondly, this use of the word capital is convenient both in the money market and in the labor market.Merchant capital is usually connected with credit.If a man can see a good opportunity of employing capital, he does not hesitate to borrow in order to increase the capital at his disposal.For this purpose he can put his own business capital as security through ordinary commercial procedures, which is easier and easier than putting forward his utensils or personal vehicles.Finally, someone carefully calculates the capital accounts of his business, and he, of course, adds depreciation so as to keep his capital immobile.Of course a man who has been renting a car for years can buy a car for the selling price of a railroad stock which pays much less interest than he has paid for the rent.If he accumulates his annual income until the car wears out, this income will be more than enough to buy him a new car.Thus his total capital must be increased by this movement.However, he may not do so, and if the car is owned by a businessman, he can compensate for it through normal business practices.

SECTION II The futility of the debate about the relative importance of the two main qualities, predictability and productivity. Let us look at the definition of capital from the point of view of society.It has been pointed out that the only strictly logical position is that taken by most of those writers who formulate economics mathematically, which equates "social capital" with "social wealth"; although this approach deprives them of a useful term .But whatever definition a scholar adopts at the outset, he finds that the various elements which he includes in that definition enter in different ways into the various connected problems with which he has to deal.Therefore, if his definition claims to be precise, he must supplement it with an explanation of the relation of the elements of capital to the problem in question; and this explanation is in essence very similar to that of other scholars.Thus, the final result tends to be consistent; and the reader may arrive at quite the same conclusion no matter what route he takes, although it may be more difficult to see the essential unity hidden under the differences in form and diction.The initial disagreement turned out to be less harmful than supposed.

Moreover, economists of all generations and countries have defined capital in the same vein, albeit in different terms.Indeed, some economists focus on the "productivity" of capital, while others focus on the "predictability" of capital.While these shortcomings are Achilles' heels of precise classification, that's only a side issue.Things about human behavior can never be precisely classified on any scientific principle.Precise tables can be drawn up of those things which are included in certain classes for the reference of police officers or customs officers, but such tables are also manifestly artificial.It is the spirit of economic tradition, not its letter, that we should carefully preserve.As we pointed out at the end of Book II, Chapter 4, no intelligent scholar has ever forgotten the productive, or predictive, side.But some people focused on one aspect, while others focused on another aspect.In any case it is difficult to draw a definite dividing line.

Let us look, then, at the conception of capital as the accumulation of various things which are the result of human labor and sacrifice, and which are employed chiefly for future benefits rather than present benefits.The concept itself is clear, but it does not allow us to make a definite classification; just as the concept of length is clear, but it does not enable us to divide long walls from short walls except by using an arbitrary ruler. When the Savage gathers twigs to protect him for the night, he shows a certain foresight.The more foresight he shows if he pitches a tent out of poles and hides, the more foresight he shows if he builds a log cabin.Civilized man shows increasing foresight when he replaces a log cabin with a solid building of brick or stone.Wherever a line may be drawn to distinguish those things, they are produced for future gratification rather than present gratification.But such boundaries are also artificial and unstable.Those who seek such a line find their position precarious, and unless they include the whole accumulated wealth as capital, they cannot attain a firm footing.

This logical result was arrived at by a number of French economists who, in the direction indicated by the Physiocrats, used the term capital to include the whole of accumulated wealth, that is, the total excess of production over consumption, which usage Roughly the same meaning as Adam Smith and his immediate successors used the term stock.While in recent years they have had a marked tendency to use the word capital in a narrowly British sense, at the same time some sophisticated thinkers in Germany and England have stuck to the formerly broad French definition.This is particularly evident in those scholars who, like Tuguet, like to use the mathematical method of thinking; the most famous of them are Professors Herman, Jevons, Walras and Pareto and Fisher.Professor Fisher's book is well argued and insightful, favoring a broad definition of the term capital.Viewed from an abstract mathematical point of view, his argument is indisputable.But he seems to have given little thought to the need for a realistic discussion that fits the language of the market; he also seems to have ignored Bagehot's warning "to express the different meanings of complex things with a limited vocabulary that is fixed in use."

The third section continues. Regardless of whether in the UK or other countries, when giving a strict definition of capital, most of them focus on its productivity, while neglecting the predictability of capital.They regard social capital as the accumulation of means of production or means of production.But this general concept has been interpreted differently. According to the former English tradition, capital consists of those things which assist or sustain labor in production, or, as it has been said lately, of those things without which production cannot proceed with the same efficiency, but which are not gifts of nature. Taste.It is from this point of view that the above-mentioned distinction between consumption capital and auxiliary capital is made.

This view of capital is provided by the affairs of the labor market.But it's never quite consistent.For it counts as capital wage-capital, or so-called remuneration-capital, everything that employers furnish, directly or indirectly, to pay labourers; but it excludes as capital anything that they themselves, or builders, engineers, and other freelancers, require for their subsistence.And to be consistent, it must include the necessities required by all classes of labor to maintain efficiency; and exclude the luxuries of the manual labor class and other laborers.However, if this logical conclusion had been reached in the past, it might have played a less prominent role in discussions of industrial relations.

But in certain countries, especially in Germany and Austria, there is a tendency to confine capital (capital from the social point of view) to auxiliary or instrumental capital.The argument is that, in order to keep production and consumption sharply separated, everything that does not go directly into consumption should be considered a means of production.But there seems to be no good reason why a thing should not be viewed with a double qualification. The second argument is that things which serve man not directly, but through the part they play in the production of other things for man's use, form a neat class; because their value From the value of those things they help to produce.There is much to be said for naming such a thing, but it is doubtful whether it can be called capital; it is also doubtful whether it is as rigorous as it first appears. We may, for example, define implements so as to include trolleys and other things which derive their value from the service they render to man; They are tools, and their services are directly embodied in the objects.The former definition brings this usage of the term quite close to the usage described in the previous section, and has the disadvantage of being vague; the latter definition is somewhat clearer, but seems to make an artificial distinction that does not exist, and The old definition of productive labour, too, is unsuitable for scientific use. The conclusion is that, from an abstract point of view, the definition of France advocated by Professor Fisher and others is invincible.A man's coat is the accumulation of past toil and sacrifice, a means of providing him with future satisfaction, just as a factory: both afford him direct protection from the elements.But if we seek a definition of real economics that is consistent with the market, then we must carefully consider the total amount of those things in the market that are considered capital but do not fall within the scope of intermediate goods.When in doubt, it is best to rely on tradition.Because of these considerations, we give capital a double definition as mentioned above from the viewpoint of enterprise and society.