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The Law Of Population
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Land And Artificial Instruments
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Varieties Of Economic Goods

Passive Capital Goods

Labor spends itself on materials, and these,
in their rawest state, are furnished by nature herself. They "ripen"
as the work goes on. Every touch that is put on them imparts to them
more of the utility which is the essence of wealth. They are
technically "goods," or concrete forms of wealth, from the moment when
they begin to acquire this utility, though for a time they are in an
unfinished state. The function of materials, raw or partly finished,
in the physical operation of industry is a passive one, since they
receive utility and do not impart it. The iron is passive under the
blows of the blacksmith's hammer; leather is passive under the action
of the shoemaker's sewing machine; a log is passive under the action
of the lumberman's saw, etc. The materials which are thus receiving
utilities under the producers' manipulations constitute a distinct
variety of capital goods, while the implements which help to impart
the utilities constitute another variety, and both kinds are present
in all stages of industrial evolution. Savages use raw materials and
tools for fashioning them.

Active Capital Goods

The hammer which fashions the iron, the awl
which pierces the leather, and the saw that cuts the log into boards
have an active function to perform. They do not receive utilities,
but impart them. They manipulate other things and are not themselves
manipulated; and except as unavoidable wear and tear injure or destroy
them, they are not themselves at all changed by the processes in which
they take part. They are the workman's active assistants in the
attacks that he makes on the resisting elements of nature. Passive
instruments, then, and active ones--things which receive utility, as
industry goes on, and those which impart utility--constitute the two
generic kinds of capital goods. What is commonly called "circulating
capital" is a permanent stock of passive capital goods; and, in like
manner, what is usually known as "fixed capital" is such a stock of
capital goods of the active kind. The materials and the unfinished
goods that are scattered through a modern mill and receiving utility
are what the manufacturer would at this moment identify if he were
asked to point out the things in which he has circulating capital
invested; while the mill, the machinery, the land, etc., which are
imparting utility, are what he can point to as now constituting his
fixed capital. At a later time there will be other goods of both kinds
in his possession, and these will at that time embody the two kinds of
capital. While a primitive man would have little occasion to use the
term capital goods, he would possess both varieties of the goods
which the term denotes.

Varieties of Active Capital Goods

Mere hand tools act as armatures
attached to the person of the worker, and they enable him effectively
to attack resisting substances. The hammer fortifies the blacksmith's
hand against the injuries it would suffer if he delivered blows with
his fist, and it multiplies the efficiency of the blows. Machines,
however, substitute themselves for the person of the worker and carry
the tool through its movements. A steam hammer, so called, is an
engine that gets power from a boiler and wields an armature, which is
the real hammer, much as a smith would do it, though with far greater
force and effect. Machines do rapidly and accurately what a manual
laborer would, without them, have to do slowly and imperfectly, by
carrying the armature in his own hand and moving it by his own
muscular strength. Tools and machines impart "form utility" to
materials. Vehicles which carry goods impart "place utility" to them
by putting them where they are more useful than they would be
elsewhere. Buildings protect goods and workers alike, and enable the
operation of transforming them to go on successfully. They also make
it possible to store goods at a time when they are not needed and take
them out for use when they are needed. In doing this, buildings help
to impart "time utility" to the merchandise that is put into them by
keeping them intact till the time comes when they will be useful.
Tools, machines, reservoirs of water, canals, roadways, buildings, and
even land itself are active capital goods, and are, for that reason,
component elements of that part of the permanent productive fund which
is known as fixed capital. They aid workers in their efforts to bring
materials into usable shapes, and this is as true of the hole in the
earth in which a savage stores provisions as it is of a fireproof
warehouse in a modern city.

Materials which are at first Passive and later pass into the Active

The hammer itself has to be made out of raw material, and,
while it is in the making, the material that enters into it is as
passive as anything else. While the ore is smelting and while the
steel is forging, the future hammer is in a preliminary stage of its
existence and is discharging a passive function. When it is completely
finished, its period of activity begins, and from this time on it
helps to manipulate other things. The materials which enter into
consumers' goods go through no such transition. The leather remains
passive till, in the form of a pair of shoes, it clothes its user's
feet; and at this point it ceases to be a capital good at all. The
steel of the hammer is first a passive good and later an active one.

The Use of Capital Goods Universal

There is no doubt that capital
goods are used in the most primitive industry. Implements existed in
times too remote for tracing; and even if they had not been used, raw
material would have been indispensable. People living in an economic
stage so ultraprimitive as to use no mediate goods whatever could
sustain life only by plucking wild fruit or gathering fish or other
food stuff by hand, and so long as they could do this their industry
might conceivably consist in getting consumers' goods by labor only.
The rudest pick, shovel, or ax and the simplest hunting implement are
early types of what, in "capitalistic production," is represented by
mills with their intricate machines, ships, railroads, and the like.
Primitive industry has capital but is not highly capitalistic, since
labor and a little capital in simple forms are all that it requires.
These primitive capital goods are still essential.


It might seem that we have already described the nature of
capital, but we have not. We have described the kinds of goods of
which it consists. A sharp distinction is to be drawn between two ways
of treating capital goods, and only one of these ways affords a
treatment of capital properly so called. To attain that concept we
must think of goods as in some way constituting a stock which abides
as long as the business continues. And yet the things themselves
separately considered do not abide. Goods are perishable things; no
one lasts forever, and some last only a very short time. Raw materials
best serve their purpose when they are quickly transformed into usable
goods and taken out of the category of productive instruments. Tools
may last longer, but they ultimately wear out and have to be replaced.

How Capital Goods Originate and Perish

If you watch a particular
mediate good of the passive kind, say wood in a growing tree, you see
it beginning its career as an absolutely raw material, and then under
the hand of labor, aided by tools, receiving utility till it takes its
final form in some article for a consumer's use, say a dining table.
Little labor is applied to it during the first stage of the process,
that in which the tree is guarded and allowed to grow to a size that
fits it for conversion into lumber; but the cutting, carrying, sawing,
and fashioning are done by labor and tools, and under their
manipulations the wood "ripens" in the economic sense--that is, it
becomes quite fit for consumption. It is ready to serve a consumer as
a table, and, when this service begins, the wood that up to this point
has been a passive capital good, constantly receiving utilities, will
cease to be a capital good at all and begin slowly to wear out in the
service of its owner.[1]

[1] In the economic sense consumption is the utilization
rather than the destruction of the thing consumed, though
many things go rapidly to destruction in the process. Food is
destroyed in the moment of using; clothing perishes more
slowly by use, and furniture and dwellings more slowly still.
Some things that go gradually to destruction during the
process of utilization do not perish the more rapidly because
of it. A vase, a statue, or a picture is consumed, in the
economic sense, by a person's act of looking at it and
getting pleasure from it; but this does not hasten its
deterioration except as keeping such an ornament where it can
be seen exposes it to deterioration or accident. Climbing a
hill to get a view "consumes" the hill in a true sense, and
looking from the summit over a wide stretch of picturesque
country even consumes--that is, utilizes--the landscape; and
certainly this act does not injure the thing utilized. The
general fact, however, that goods for final use are, as a
rule, injured or destroyed either by the act of consumption
or by the exposures that are incidental to it, justifies the
use of this term to express the receiving of a service from
the usable article. It is a process in which the commodity
acts on men's sensibilities and, as a general rule, exhausts
itself while so doing. It is worth remembering that this
exhaustion of the good is not the essential part of
consumption. On the man's side that consists in deriving
benefits from the good, while on the side of the good itself
it consists in conferring benefit on the man--in doing him
good and not in doing itself harm.

The Transition of Goods from one State to Another

The beginning of
its service in the purchaser's dining room takes the wood of the table
out of the category of producers' goods; but there is some raw
material that is never destined to emerge from that category and enter
another. Its last state of existence as a good will be that in which
it is embodied, not in an article for consumers' use, but in an active
tool. Our tree might have furnished some of its wood for a
wheelbarrow, and if so, that part of it would have been a capital good
until it ceased to be an economic good at all. If we watch it as it
grows toward its economic maturity, we see it sawed, planed, and
otherwise fashioned under the laborer's hand, and maintaining during
all this time its passive attitude, just as does the wood that is
destined to constitute a table. When the wheelbarrow is completed, it
does not, like the table, begin to minister directly to consumers'
wants, but begins actively to aid some laborer in a further productive
operation. It carries mortar to the wall of an unfinished building and
is thus taken out of the list of passive goods--recipients of
utility--and is ranged with other active tools which impart utility.
The same thing is true of the steel that is destined to compose the
head of a modern woodman's ax or the stone that is in process of
fashioning into the rude hatchet of some primitive savage. As raw or
partly wrought material it is a passive capital good; later it becomes
an instrument of the active sort.

The Ultimate Perishability of all Kinds of Goods artificially

In the end both kinds of material will cease to be capital
goods. The raw stuff that goes into food, clothing, furnishings, or
the like will become consumers' goods, while the raw material of tools
will, in its final form, the tools themselves, have one more lease of
life as capital goods. In the end, however, as wheelbarrows, axes,
hatchets, and the whole long list of active implements are used up,
they cease to be capital goods because they cease to be economic goods
at all. They are as truly ordained to be ultimately used up as are
food and clothing, and this is true of the most durable things that
are artificially made. Walls, roadways, bridges, and buildings slowly
deteriorate till the time comes when for productive purposes their
room is worth more than their company.

Why the Perishability of Capital Goods does not put Capital out of

Perishability is the most striking trait of capital
goods. Each particular one comes and goes, but there is always a stock
of them on hand; for when one is on the point of going, another is
ready to take its place and keep up the succession. New tools replace
old tools; new materials replace those that are finished and
withdrawn, and so it comes about that a stock of such things abides
forever. Not one of the individual instruments is permanent, for each
one only does its part in keeping up an endless procession. It is the
procession that is always there--a moving series of individual goods,
not one of which has more than a transient economic career. Each one
helps to keep up the supply of permanent capital just as each man,
taking his turn in an endless succession of laborers, serves during
his brief life to keep up the permanent force of laboring humanity.
Men come and go, but "labor"--a mass of working humanity--abides; and
so capital goods come and go, but a stock of them abides, kept up by
perpetual replacement. We may trace the career of any single
instrument from a beginning to an end; but we may, on the other hand,
cease to look at any instruments that we single out and identify and
look rather at the procession of them; and if we do this, we look at a
body which never wastes away, though the things that compose it are,
separately considered, forever wasting.

There are many kinds of transient things which, by the same process of
renewal, constitute permanent entities. Composing a human body at this
moment are certain tissues that can be separately identified; and if
we watch any one of them, we shall see it going in a short time to
destruction. Yet the body lasts while life continues. Indeed, the
evidence of the life itself is the discarding and replacing of the
tissues. A living body is a durable thing, though the particular
tissues that at any one time compose it are not so. In a like way
drops of water make a river, and this is a permanent thing, however
rapidly its composition changes. The waterfall that drives the
machinery of a mill is permanent, though no particular particle of
water remains in it for more than a moment. Society is permanent,
though the men who compose it are short-lived. In an exactly similar
way a body of capital goods is maintained as a perpetual
instrumentality of production. This is capital properly so called.
It is, as it were, a quasi-living body, perpetuated by the constant
replacement of the component parts, which are destroyed as its normal
activities go on.

The Difference between Capital Goods and Capital Summarized

distinction between capital goods, on the one hand, and capital, on
the other, is, then, like that between particular tissues and a living
body, or like that between particular particles of water in the river
and the river that flows forever. We can single out and watch certain
drops of the water as they flow from a spring, and we can trace them
through their brief careers, and say truly that the river is composed
of fickle and transient stuff; but we cannot say that the river is
transient. That is perpetuated by the renewing of the supply of water
as the original drops disappear. We can mentally watch a particular
man, as he enters the social force of workmen, labors for a time, and
drops out of the line, and can see that society is composed of
transient material; but society itself is an abiding thing. So we can
study a particular bit of ore or wool or leather or a particular
hammer or spindle or sewing machine, and in those cases we shall be
studying capital goods and finding how perishable they are; but we
shall also see that a stock of them always abides as the capital of
economic society. We can cease to look at individual things and study
the permanent fund of productive wealth, which is made up of goods
like ore, wool, leather, hammers, spindles, and sewing machines. The
identity of the things which make up this stock is forever changing.
The same list of things we shall never find in the stock on any two
dates, but a supply of similar things forever abides. Capital is this
permanent fund of productive goods, the identity of whose component
elements is forever changing. Capital goods are the shifting component
parts of this permanent aggregate. They are the particular
instruments that, each during its own brief economic lifetime, take
their places in the endless procession of things which in its entirety
is an abiding productive agent--the co-worker of labor and its
perpetual assistant in creating consumers' wealth.

The Business Man's View of Capital

It is as such an abiding entity
that a business man regards capital. He describes it nearly always as
a sum of money. Thus the capital of a manufacturer is "a million
dollars" because a stock of instruments worth that amount is kept
intact in his possession. It is not allowed to waste away, however
much the constituent parts of it may shift. The waste and renewal
which business entails leave the equivalent of the million dollars
always on hand, though never in the literal shape of money. A stock of
shifting goods always worth a million dollars is, by a figure of
speech, described as a million dollars "invested in the goods."[2]

[2] We here put out of sight all questions connected with the
changing purchasing power of money. This is, in ordinary
times, the business man's habit. He considers his capital
intact if the number of dollars invested originally in his
business still appears on his inventory as representing the
net surplus of his assets over his liabilities. If a currency
were undergoing rapid inflation, a fixed amount of invested
money would represent a shrinking stock of capital goods.
This stock would last always, but would grow smaller by a
true standard of measurement. All that we are at present
interested in knowing is that practical usage treats capital
as a permanent fund of productive wealth, and most
conveniently describes it as a fixed amount of money
"invested" in goods of a productive kind. What is thought of
as "money" abides. Of course the practical man does not
regard it as actually composed of currency.

The Chief Attribute of Capital

A chief attribute of capital,
properly so called, is permanence. If a man's productive fund does not
last, he is impoverished. The farmer keeps on hand a more or less
constant supply of the implements he has to use. He takes a part of
the proceeds of the sale of his crops, puts it into the shape of
implements and materials, and in this way keeps an amount of them on
hand as the auxiliary capital of agriculture. Particular goods are not
constant, but the sum of money or quantum of wealth "invested" in the
moving procession of them is so. At any one instant the capital is
composed of particular instruments which can be sought out and
identified, but at no two instants are the goods the same.

The Reasons for describing Capital as a Sum of Money

This fact
explains the general practice of describing capital in terms of money.
The manufacturer just referred to will speak of his capital as "a
million dollars" and consider that sum as a "permanent investment"
because he knows that while the goods that now represent that value
will soon pass from him, the "dollars"--that is, the value which is
equivalent to the dollars--will abide. There is, moreover, no failure
on his part to discriminate between his capital and literal money, for
he knows in what his productive fund consists, and is fully aware that
only the minutest part of it is in the shape of actual currency.

Instruments of production compose the fund, but the dollars serve to
describe it. They indicate the amount and the abiding quality of it,
since they describe what he has invested or embodied in the shifting
things and can, by a fair sale, get out of them.

Why Abstract Terms are used in popularly describing Capital

certain connections money is, in unintelligent thinking, confused with
real capital in ways that we should guard against. In avoiding such
errors we need to be even more careful that we do not miss the truth
that is at the basis of the common mode of describing capital. A
permanent fund that is spoken of as a million dollars invested in a
business does not suggest to any one a literal pile of a million
silver or paper dollars or of a hundred thousand gold eagles. It
suggests what is actually in the business, a procession of things each
of which comes into the man's possession and then leaves him, and
helps him to keep the constant stock of goods that at any time is a
potential million of dollars. A permanent body of any kind, if it is
made up of shifting tissues, is commonly described by the use of an
abstract term. A waterfall, made as it is of rapidly changing drops of
water, is spoken of as a "water power," since the power is the abiding
thing. An endless series of living human beings is described as
"humanity," since that remains through all personal changes. An
endless series of workingmen is described as "labor," and we study the
"wages of labor," the "relations of labor to capital," etc., because
these are permanent relations. Men come and go, but labor continues
and is the source of a permanent income. It is actually the fact that
in speaking of the "labor problem" or the "relation of capital and
labor" we usually think of "labor in the abstract," as we might term
it; but this is very far from implying that we consider a series of
generations of actual workingmen as an abstraction. We may, using
terms in a like way, speak of the problem of interest as concerning
"capital in the abstract"; but this is far from meaning that we
consider an endless series of material instruments of industry an
abstraction. We describe these real things by the use of an abstract
term, just as we describe a thousand other realities. A "fund," a
"value," a "permanent quantum of wealth," is capital; but with the
abstract notion the mind always merges the thought of the concrete
entity. It is the tools of industry that, in their endless march,
come into and go out of the industrial field that we think of even
when we use the abstract term. This term, however, saves us from the
danger of thinking merely of particular tools that we can identify and
trace to their final destruction when we form the concept of capital.

The Importance of discriminating between the Concept of Capital Goods
and that of Capital

Very great is the importance of keeping sharply
distinct the two concepts of productive wealth of which one is
described by the term capital goods and the other by the term
capital. In the one case we think of a particular thing which we
identify, keep in mind, and watch as it goes through its
transformations, does its final work, and perishes. The brilliant
studies of Professor Boehm-Bawerk are based on the idea that such a
tracing of the biography of a particular instrument is the true way to
solve the problem of interest. Yet the very term interest itself
suggests the existence of what we have defined as permanent
capital--an abiding fund or sum of wealth that every year yields as an
income a certain percentage of itself. The "hundred dollars" yields
five dollars; that is, the fund yields a twentieth of the amount
which, amid all the changes of its constituent parts, it continues to
embody. It is true, indeed, that a study of all capital goods which
have existed or will exist, with due attention to their relations to
each other, would reveal the fact that they maintain such an endless
procession as has been here described, and it would thus bring before
the mind such a concept of capital as the business man has and
describes by the monetary form of expression. By making a synthetic
study of capital goods in general, and not separate studies of
particular goods as they come and go, we can obtain a grand resultant
of the action of all of them, which is nothing less than permanent
capital doing its continuous work. Such a comprehensive study of
capital goods, if it is carried far enough, becomes a study of the
abiding entity, capital. Allowing ourselves, however, to put the
abiding entity out of sight and merely to trace the origin, growth,
and productive action of separate instruments of production would be
disastrous. The undying body in which the particular things are
tissues absolutely needs to come into view. The very mention of a
problem of interest--of the percentage of itself that a fund of a
given amount can annually earn--puts before us at once the permanent
entity, capital, and the problems relating to it.[3]

[3] Consumers' goods may be regarded in the two distinct
ways in which it is necessary to regard capital goods. We may
look at particular articles for consumption, as they begin
their careers by ministering to their owners' needs, and
follow them as they wear out and finally perish. This gives a
conception of them which is analogous to the conception of
capital goods rather than to that of capital. On the other
hand, we may look at the permanent stock of usable articles,
which is maintained by the constant coming of new ones to
replace those which are worn out, and in this way we get a
conception of permanent consumers' wealth. The flow of
finished goods from the shops to the users offsetting the
concurrent destruction of such articles in the users' hands,
has the effect of maintaining a permanent fund of consumers'
wealth consisting of perishable goods the identity of which
is always changing; and this fund is analogous to permanent
capital as we have defined it. Professor C. A. Tuttle has
advocated the use of the generic term wealth to denote the
two continuing funds which we have here termed, on the one
hand, capital, and, on the other hand, the permanent stock of
consumers' wealth. We have preferred to use the term wealth
in a sense that is generic enough to include both capital and
capital goods, and both the permanent stock of consumers'
goods and the particular articles that, in turn, compose it.
Wealth consists of effectively useful concrete things
regarded either as particular articles that can be identified
and watched till they perish in the using, or as an abiding
stock of articles of this genus, each one of which has in
itself only a transient existence. See an article on "The
Wealth Concept," by Professor Charles A. Tuttle, in the
Annals of the American Academy of Political and Social
Science, for April, 1891, and other articles by the same

Labor as a Permanent Entity

The term labor is sometimes used to
describe a permanent aggregation of laborers no one of whom lives and
works through more than a brief period. Labor is thus analogous to
capital and laborers to capital goods. A permanent working force is
composed of perishable beings as a permanent producing fund is
composed of perishable goods. Both are commonly described by the use
of abstract terms, but both are in reality concrete things; and
actually to reduce either to a mere abstraction would be to put a
material entity out of existence. We instinctively speak of a value--a
given number of dollars--in describing a man's capital, but it is
dollars "invested in" productive instruments; and we instinctively
speak of labor when we mean an abiding force of workingmen. Neither
capital nor labor is like an immaterial soul that can live apart from
its body. Each consists of a permanent body with a shifting
composition. A permanent sum, on the one hand, a permanent amount of
working energy, on the other, are always present, but they are in
goods and men respectively. Each may well be described by the use of
an abstract term, and in practical life it commonly is so; but it is a
concrete reality.

Peculiarity of Land as a Capital Good

One reservation needs
to be made when we call capital goods perishable. If we include
land under this term, we must make it an exception to the rule
of destructibility. It is the only thing that does not go out of
existence in the using. It is not a produced good at all and does not
stand, like other goods, in an intermediate position between labor and
the gratification that labor is intended to produce. Work did not
create it and using will not end it. It will be called, in our study,
a capital good, for it is a form of wealth which produces other
wealth. It enters into the permanent productive fund that society is

Differences between Land and Other Capital Goods Important in
Economic Dynamics

It is in a later part of the study which deals
with economic changes--the part which we shall call Economic
Dynamics--that the differences between land and artificially made
goods become prominent, and these differences will receive due
emphasis in their proper place. In studying the law which would govern
economic society if no essential economic changes were taking
place,--in reducing society, as it were, to a static state,--we find
that there is a certain set of characteristics which land shares with
those capital goods which are the products of human industry. In
static studies it is best to group the productive instruments which
men make with the one unmade good which nature furnishes and to
recognize that together they embody the permanent fund of productive

[4] What is commonly termed land contains elements which
perish in the using. Such are deposits of coal, ores, or oil,
and those ingredients of loam which are exhausted by tillage.
Such elements of the soil are not land in the economic sense.
How they should be regarded will be shown in a later chapter.

Mobility an Attribute of Capital

Even in a static society capital
would be permanent, while particular capital goods would be
perishable. In dynamic studies another quality of capital, as
distinguished from capital goods, comes into the foreground, namely,
mobility. It is the power to move without loss from one industry to
another. Goods cannot be thus moved with any freedom. A loom cannot be
taken out of a woolen mill and made to do duty in a carpenter's shop,
nor can a circular saw be made available in weaving. When the loom
wears out and needs replacement, it is in the owner's power to procure
either another loom or a circular saw, and if he chooses the latter
alternative, he causes capital to move into the woodworking business.
A whaling ship would not be useful as a cotton mill; but much capital
that was once invested in the whale fishery of New England has since
found its way into manufacturing. The transfer can often be made
without waste. If the earnings of an instrument have sufficed to
replace it with another that is like it, they may suffice for
producing an instrument that is unlike it. Waste, if it occurs,
results from a failure of the original instrument to earn the fund for
replacement. Capital which thus abides but passes from one employment
to another is a body the identity and the character of whose component
parts change. The transfer of capital from one industry to another is
a dynamic phenomenon which is later to be considered. What is here
important is the fact that it is in the main accomplished without
entailing transfers of capital goods. An instrument wears itself out
in one industry, and instead of being succeeded by a like instrument
in the same industry, it is succeeded by one of a different kind which
is used in a different branch of production. Goods have not moved from
one branch to another, but capital has done so.

How Capital itself may be Destroyed

When we speak of capital as
permanent, we mean that using does not destroy it as it destroys the
tissues of which it is composed. Fires, earthquakes, and business
disasters put parts of it out of existence and affect the volume of
the fund as a whole; but production itself leaves it intact. It is
this very production which destroys capital goods and makes it
necessary to replace them.

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Previous: Wealth And Its Origin

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