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Volume 11, 1878
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Art. I.—On some of the Terms used in Political Economy.

[Read before the Wellington Philosophical Society, 13th July, 1878.]

Political Economy has been very unfortunate in its nomenclature, which has been drawn from the vocabulary of the mercantile world, every word of which, besides its direct notation, connotes more or less distinctly some economic doctrine. In spite of definitions, the secondary meanings of the several words have influenced the thoughts and teaching of political economists.

The object of this paper is to examine some of the principal terms in general use, and their definitions as given in Mill's “Principles of Political Economy,” which is almost universally accepted as the best exponent of modern thought on the subject. I hope to be able to suggest others, which will not be so liable as those given by Mill to confuse the thoughts by suggesting a secondary meaning not included in the definition itself. Even should I not succeed my labour will not be thrown away, as it is always useful to look at scientific problems from more than one point of view.

Wealth.

Mill defines wealth to be “all useful or agreeable things which possess exchangeable value.” To this definition it may fairly be objected that exchangeable value is a merely accidental quality of some things useful or agreeable, and should not, therefore, be treated as essential. Robinson Crusoe's cave and garden were just as much wealth as if be had been able to exchange them for other things. Exchangeable value is, it is true, a

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very important quality in connection with the distribution of wealth, and should, therefore, be accurately defined and carefully studied, but it should not be treated as a specific distinction of wealth itself. Mill himself says (Book III., chap. i.), that “The conditions and laws of production would be the same as they are if the arrangements of society did not depend on exchange, or did not admit of it.” Here “production” means the production of things which must, by the definition, possess exchangeable value; but if the arrangements of society did not admit of the existence of exchangeable value at all, how could the production of things possessing it be carried on? Again, he says: “Exchange is not the fundamental law of the distribution of the produce, no more than roads and carriages are the essential laws of motion, but merely a part of the machinery for effecting it.” A definition, however, of motion, which made it dependent on the existence of roads and carriages, would be exactly parallel to a definition which makes wealth dependent on exchangeable value.

It is always undesirable to use a definition which pointedly draws the attention to any accidental quality of the thing defined, in such a manner that this quality may come to be regarded as essential. More especially is this the case when there already exists a tendency to regard the accidental quality as the only necessary and essential one. There can be no doubt of the existence of such a tendency as regards the exchange value of wealth. How many people look upon a short harvest as a not very great misfortune, because they think the high prices for which it is sold make up for the shortness of the crop? In one of President Grant's annual messages he congratulates his fellow-countrymen on the rise of prices in grain and pork which the Franco-German war had caused, and which he thought must be of great advantage to the United States. He evidently looked upon the rise in the exchange value of these commodities as equivalent to an increase of their utility, and that a scarcity of the necessaries of life was no real misfortune to the labouring classes of his country as long as it was accompanied by high prices. Where such opinions are held, even by men of education, it is surely well not to carelessly use a definition which gives a sort of plausibility to the error.

I propose to define wealth to be anything which is useful to man, by enabling him to live more comfortably or elegantly than he could without it.

Of the total wealth existing in a community a part is usually called capital. Unfortunately, this word has several different meanings in common language, and confusion and error have arisen from its being used in one of these instead of in its defined meaning. It sometimes denotes not actual wealth, but a right to a certain share of the wealth of the community.

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Mill frequently uses it where it can have no other meaning than this notwithstanding that he has defined it to be “a stock previously accumulated of the product of former labour,”—a definition which scarcely differs from that given of wealth; for, except land and its natural productions, nothing possesses exchangeable value which is not the product of former labour.

Fixed and Circulating Capital.

Capital, again, is subdivided into “fixed” and “circulating.” Mill's explanation of these terms, given in Book I., chap. vi., is too long for quotation, and is very far from being clear or exact. His summation is, however, that the result of a single use of circulating capital must be a reproduction equal to the whole amount of the circulating capital used, and a profit besides; and that with fixed capital, such as machinery, this is not necessary, as it is not wholly consumed by one use.

If capital means wealth of any kind, this sentence is absolutely without meaning. How can, for instance, the result of a single use of a sack of coals in a locomotive engine be a reproduction equal to a sack of coals and a profit besides? If, however, capital has the meaning above given, of a right to a share of the wealth of the community, the sentence becomes intelligible. The use of the coals must reproduce to the owner a right to some other wealth which he values more highly; and if the coals and the other wealth be both compared with a common standard of value, like money, the use of the coals must reproduce to the owner their price and a profit besides. Capital, with this meaning, can have nothing to do with the production of wealth except indirectly, and its subdivision into fixed and circulating does not seem to serve any good purpose in political economy.

There is, however, a natural division which cannot be disregarded. Some things, such as bread, wine, dwelling-houses, clothes, etc., etc., are useful for their own sakes; the production of these is the end and aim of all labour and sacrifice, or at least of all that falls within the province of political economy; they may be called direct wealth. Others are of no use for their own sakes; they are useful only by co-operating with human labour in the production of direct wealth; they are land, steam-engines, ploughs, coal when used to drive an engine, warehouses, etc., etc.; these may be called implements. Of course, neither direct wealth nor implements, if the product of human labour, are made complete at one operation; they first pass through the stage of materials, such as corn, wool, iron, wood, etc.; but it is not necessary to place materials in a separate class, as they may be classed with the final products of which they eventually form a part.

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Whenever labour is devoted to the production of an implement, there is a sacrifice of present for future advantage. The sacrifice may be slight and the advantage great and almost immediate, but there is always some sacrifice. For instance, olive oil is direct wealth, useful for its own sake; if, instead of consuming it as food, the owner uses it as an implement to lubricate a steam-engine, he gets, as a reward for his slight sacrifice of present good, a vast return in labour saved. This is an extreme case at one end of the scale; at the other end, are improvements in land, where a sacrifice of the product of a year's labour of, say, thirty men, may be given in exchange for a future increase of the yearly harvest, equal to the product of one man's labour. A wealthy landowner in England would probably undertake such a work, as he would make 3 ⅓ per cent. interest on his outlay; but it would not follow as a matter beyond dispute, that the employment of the labour in this manner was to the advantage of the community at large, or that, if both the sacrifice and the reward were evenly distributed, it would be worth while to incur the one for the sake of the other.

Bearing in mind the division of wealth I have proposed, we may readily test the accuracy of the several statements made by Mill and other writers as to the effect of employing labour in the production of fixed and circulating capital (or wealth) respectively. It is stated that the increase of fixed, when it takes place at the expense of circulating capital, must be temporarily prejudicial to the interests of the labourers. This is not quite accurate: labourers' cottages would, under his definition, be fixed capital; but it would not be prejudicial to the interests of the labourers themselves to employ labour in building them; provided, of course, such employment were judicious—that is, that the cottages were required, and the still more urgent requirements of the labourers, food and clothing for instance, were already provided. The same may be said of workmen's club-houses, teagardens, theatres, taverns, and other places of use or amusement which workmen frequent.

It is also stated that “there is a great difference between the effects of circulating and fixed capital on the gross produce of the country,” the context showing that the former is supposed to be the more productive. A steam-engine, for instance, is fixed capital, the coal which is consumed in it is circulating; the coal is, therefore, more productive than the steam-engine. Surely this is equivalent to saying that one shear of a pair of scissors does more work than the other. Although the steam-engine is fixed capital the iron of which it is made is circulating; and it is, therefore, a more productive employment of labour to manufacture unwrought iron than to make that same iron useful by putting it into an engine. The

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absurdity goes even one step further; the steam-engine is circulating capital when it is still in the hands of the maker—at least I think Mill's definition would so classify it. When it is in the hands of the user and in full work it is clearly fixed capital, and therefore less productive than before it came into use.

These illustrations show how needless, or even mischievous, is the usual subdivision of wealth into fixed and circulating capital. The division I have indicated of direct wealth and implements is, however, natural and essential to an intelligent study of the laws which govern the production of wealth.

The sacrifice which is always made when labour, which would otherwise have been applied to the production of direct wealth, is applied to the production of implements, is made by the labouring classes. The whole wealth of the community belongs to part only of the individuals composing it. They apply a portion of their wealth to their own use, the rest they give to labourers to induce them to work for them. The reasons which induce them to employ part of their wealth in this manner, are not influenced by a resolve on the part of one of their number to produce new implements. When, therefore, new implements are made, capitalists do not take men away from the production of those commodities which they intend to use themselves; in other words, they do not lessen their own personal expenditure. They take men who would otherwise be engaged in producing commodities for the labourers, and, of course, less of those commodities are produced. This less quantity becomes the total fund to be divided between the labourers as wages. The owners of wealth as a body, without any personal sacrifice, become the owners of the implement; the sacrifice is made by the labourers alone and at once.

Generally, and perhaps always, except in the case of countries, which invest much wealth abroad, like England and Holland, the labourers suffer a further and still greater loss than the first cost of the new implements. The wealth-owners do not act as a body, but each individual acts independently of the others. Each man gives, of his own share of the general wealth, a certain portion annually to the labouring classes. When the implement was completed, no one would give more than before, while the man for whom it was made would give less; his gross share of the whole would be less than before by the whole cost of the implement, and he would give less by exactly that amount, as he would not reduce his own personal expenditure. There would thus be a general rise of profits, and a general fall of wages equal to the total cost of the implement, and this would continue for some years until the causes which had before fixed the relative proportions of

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wages and profits had time to bring them back to what they were before the disturbance.

New and improved implements always increase the quantity of wealth which can be produced by the labour of the community, and the labourers share more or less in this advantage. Their interest is thus seldom opposed to the construction of new implements, although they bear the whole of the necessary preliminary sacrifice, and even in most cases a great deal more. In new countries, however, like New Zealand, the interests of the labourers and employers of labour are more often in conflict. If, for instance, a man can manufacture cloth for a little less than he can import it from England, it is his interest to employ his wealth in erecting buildings and machinery for the purpose. He gets thereby a small increase of his income. The labouring classes suffer for several years an annual loss equal to the entire cost of these implements, and derive only a small final benefit, as, by the hypothesis, the cost of manufacturing the cloth is only slightly less than that of importing it.

The cry for “protection to native industry,” and consequently for increased expenditure on machinery and buildings, is perfectly rational on the part of colonial employers of labour. They gain, directly, the higher profits, for the sake of which they agitate for protection; and for every pound that is spent on implements, which would otherwise have been spent in producing direct wealth, they, as a body, get a pound a year out of the labourers, unless indeed they curtail their own expenditure, and thus pay for their machinery out of savings from their incomes. This they seldom do; machinery and buildings are generally made with money borrowed or taken out of some other business for the purpose.

Unfortunately, the labourers are generally so unskilled in political economy that they are as eager for protection as the employers. They see the employment that is given by a manufacturer, and do not see the much greater employment which would have been given by the same wealth had it been turned to other uses.

If they knew their own interests, instead of wishing to have nothing imported which can be manufactured in the colony, they would be loath to see any manufactory started which required expensive implements, if the article to be made could be imported at a cost not much exceeding that of manufacturing it in the colony. We, in New Zealand, are in so happy a position that we need not undergo the privation necessary to procure expensive machinery. The English are ready to do that for us, and are content with a recompense which we, in our more favoured circumstances, would consider inadequate.

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Productive Labour and Capital.

The words productive and unproductive play a great role in the works of political economists. Nominally, they mean productive or unproductive of wealth—that is, of things useful or agreeable which possess exchangeable value—but when closely exsamined they will often be found to refer, not to wealth, but to a right to a share of the wealth produced by others; or, in other words, labour is sometimes said to be productively employed when it produces wealth, and sometimes when it only produces profits to the employer of labour. To distinguish between these two meanings I propose to use the words “productive” and “profitable,” to mark the production of wealth and of profits respectively; and, unless otherwise stated, I shall use “capital” to denote, not wealth itself, but a right to a certain share of the wealth of the community.

A productive labourer is said (Book I., chap. iii., sec. 4) to be one “who produces more than he consumes.” Let us take for example a navvy, who excavates ten cubic yards of earth and consumes in the same time a certain quantity of beef and beer. Has he produced more or less than he has consumed? Is he to be classed as a productive or an unproductive labourer? and if, instead of ten yards, he had only excavated one yard, would it have any influence on the classification? A shoemaker, again, makes a dozen pairs of shoes, and, while doing so, consumes a certain quantity of food and other things. He has produced the shoes, and must, therefore, be a productive labourer; but it is impossible to compare them with the things he has consumed, so as to say that his consumption has been greater or less than his production. There is no difficulty in finding out whether he is a “profitable” labourer or not. If he consumes less commodities than his employer can get in exchange for the shoes he makes, he is profitably, and, if more, then he is unprofitably employed.

Mill's illustration (Book I., chap. iii., sec. 4) of the results of productive and unproductive labour shows clearly that he really means profitable and unprofitable. He says:—“When a tailor makes a coat and sells it, there is a transfer of the price from the customer to the tailor, and a coat besides which did not previously exist; but what is gained by an actor is a mere transfer from the spectator's funds to his, leaving no article of wealth for the spectator's indemnification. Thus the community collectively gains nothing by the actor's labour.”

Here the price of the coat is not wealth, nor anything which benefits the community or any member of it. The customer acquires the coat, giving to the tailor a piece of metal, useless of itself, but which gives him a right to a certain share of other people's wealth. This right he exercises,

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perhaps, in buying food for himself. The community is not benefited by the transaction more than in the case of the actor. In that case the customer acquires a seat at the theatre, giving to the actor a similar piece of metal, with which he, like the tailor, buys food. Here, also, the community is not benefited; in both cases the customer alone gets the benefit; he acquires and applies to his own use the product of other people's labour.

A coat is not worn out by one use, and will last some months or years; but if the customer had, instead of a coat, taken a beef-steak and a bottle of wine, there would have been “no article of wealth left for his indemnification,” precisely as would be the case if he went to the theatre.

It is stated in Book I., chap. iii., sec. 3, that “it is essential to the idea of wealth to be susceptible of accumulation; things which cannot, after being produced, be kept for some time before being used, are never, I think, regarded as wealth, since, however much of them be produced and enjoyed, the person benefited by them is no richer, is nowise improved in circumstances.” This limitation of the meaning of wealth would exclude most of the articles used as food. Grain, vegetables, live stock, are not food; they are only the materials of which food is made. As soon as they are cooked and served for use they become food, but are no longer susceptible of accumulation.

To test the value of this definition we may take some examples: A painter is a producer of wealth, as he, with the help of the canvas-maker, produces commodities susceptible of accumulation. A poet, unless his works are printed, is an unproductive labourer; so is a musician. It will, I think, be readily conceded, that any classification is faulty which separates works so allied in general character as the productions of poets, painters, and musicians. An actor is emphatically an unproductive workman, and is always quoted as the example of the class; the dramatic author is also a non-producer; the theatre-builder is, however, a producer, because his work “can be kept for some time before being used.” These three are, however, fellow-labourers, the finished product of their combined labour being an acted play: why should they be differently classed? If the actor does not produce wealth, the mason and carpenter who build the workshop in which his work is carried on must be also employed in producing something which is not wealth. The physician is a non-producer; but his fellow-labourers, the druggist, instrument maker, hospital builders, etc., are all producers; the labour of all is necessary to the work which they perform in common, and, in any classification, they should all go together. The public singer is at present a non-productive labourer, but if, as seems likely, the phonograph is ever so perfected that sounds may be stored up

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and thus made articles of trade, he will become a productive labourer. Such an improvement in the phonograph would be, of course, a great addition to the wealth of the world. The labour of the singer, instead of adding to the pleasure of hundreds as at present, would give pleasure of a very high order to tens of thousands. The average happiness of man would be increased, but I do not see how the improvement would so change the character of the singer's labour as to convert it from unproductive to productive.

Throughout the whole of his chapter on “Unproductive Labour,”, Mill appears to have in mind, production of profits rather than production of wealth. The so-called unproductive labourers—authors, actors, public singers, lawyers, physicians, soldiers, sailors in the navy, civil servants, etc.—are men whose labour is as necessary to the well-being of society as that of any other class, but for the most part they work on their own account and are not dependent on capitalists. The product of their labour cannot be passed from hand to hand, and cannot, therefore, be made the instrument for acquiring a right to a share of the wealth of the community; it is, in short, not productive of profits or of capital.

Of all the products of labour, food is the most necessary, and may, therefore, most justly be called wealth. The community at large is not, however, enriched by the labour of the farmer more than by that of the actor or public singer. Without the farmer's labour the community could not exist at all, but without the actor's labour it could not maintain that average state of enjoyment in which it lives and to which the labour of both is equally necessary. The product of the labour of both can only be enjoyed once, and when once used is gone for ever.

Far too much stress is laid on the accumulation of wealth in most works on political economy, especially when discussing productive labour, and too little on the kind of wealth which can be, or at least should be, accumulated. We are unfortunately obliged to store sufficient grain for one year's consumption, but there would be no use in accumulating a stock sufficient for several years, unless, like Pharaoh, we anticipated a drought. So with clothing and all other forms of direct wealth; there is no advantage in having a large stock of them on hand. The makers and sellers of all kinds of direct wealth always strive to keep the stock in existence, and not in actual use, as small as possible, while the consumers take care that the stock in use shall not be needlessly large. No one has any interest or wish to acquire or keep a stock of commodities which will not be shortly consumed, or put into the consumers' hands for use.

Under the social system prevailing in all civilized countries, everyone

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should in his youth accumulate capital, that is, a right to wealth which he himself has not produced, so that in his old age he may live in comfort without working; this is not, however, accumulating wealth, but only providing that the distribution of future wealth shall be made in a particular manner. The community never grows old; and it would be unreasonable, even if it were possible, that one generation should scrimp and spare so that the next should live without labour. Each generation provides for the future by rearing children. It does not lay aside wealth for future use, but stores it, by using it to feed the young, who in their turn support their fathers when no longer able to work. Unhappily, the machinery by which this is effected is very faulty, and age and want too often go together; but it is still true that all who are too old or too young to work are supported by those in the prime of life.

Direct wealth is never saved, but is consumed as fast as it is made, or is stored up so far only as may be necessary to make the stock in hand last until more can be produced. This can not be called saving at all; it is no more than the exercise of sound judgment in the rate of consumption. There is no sacrifice involved, but the reverse.

Saving on the part of the whole community can only be made by making implements; there is in this case a clear sacrifice, for the labour which is devoted to the work might have been employed in producing direct wealth, which would at once have been useful, while the implement only makes it possible that a larger stock of wealth shall in future be produced with the same labour.

The number of implements which can be judiciously made is, of course, limited by the number of men who are at hand to use them; it is also limited by the advantages which would be gained by having them; if a large expenditure would be incurred in making a new machine, and only a small increase obtained in the production of future wealth, the community would be richer by not making it at all. In a community where education and knowledge of the laws of nature are stationary this latter limit is soon reached, and no further increase of wealth is then possible.

There would have been for instance no use, just before the invention of railways, in making more macadamized roads in England, as those already made were sufficient, and any increase in their number, however large, would have been followed by only a small increase of utility. Increased knowledge of the laws of nature, by suggesting that invention, opened out a new way of employing labour in making new implements which would repay their cost. The result was a large increase of the wealth of the world, measured, not by the cost of the railways, but by their efficiency as compared with the roads they superseded.

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From the language generally used by writers, it would almost appear as if they thought the usefulness of the “accumulated stock of the product of former labour” depended on the labour which was spent in producing it, and not on the facility it gives for producing future wealth, and hence too much importance is generally given to the durability of implements. If, in a community, a given number of machines is required to carry on its manufactures, say ten, each of which requires a year's labour of a hundred men to produce, and will just last ten years: at the end of every year one machine will be thrown aside as used up, and a new one brought into use; there will always be ten in use, each representing the labour of 100 men, so that the stored-up wealth of the community will be represented by the labour of 1,000 men for one year, and there will always be 100 men employed in making new machines. If, now, a new kind of machine be used, which is equally efficient, but will last only one year, and requires only ten men to construct: At the end of every year the whole ten machines are thrown aside and ten new ones put in their place. The total number of men employed in machine-making is, as before, a hundred. The community is no better off than before, and no worse off; the same number of its members are removed from the business of producing direct wealth. The amount of labour stored up is, however, represented by one year's labour of a hundred men instead of, as before, of a thousand. The “accumulated stock of the produce of former labour” has been reduced to one-tenth of its former amount without lessening the well-being of the community.

There are hundreds of steam-engines now being thrown aside which would last for twenty or thirty years longer, but it is better to make new ones of better design. The old engines cost as much labour to produce as the new ones, so that if the wealth of a community is to be measured by the amount of stored-up labour it possesses, there is no advantage in replacing old-fashioned machinery by new.

The exaggerated importance generally given to saving and accumulation in common estimation, and even by political economists, is due to the use of the word capital in a sense not covered by its definition. A capitalist is one who, without labouring himself, has a right to a share of the wealth produced by others. If he exercises his right in acquiring costly food and clothing for himself, and coarser food and clothing to give to servants to induce them to wait on him, his right is satisfied and thereafter ceases. He is said to have lived on his capital. If, instead of doing so, he uses only a part himself and gives the rest to labourers to induce them to work, some to produce articles which he himself will consume, and the rest to produce

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food to maintain both themselves and the other labourers, he is said to invest his capital and to live on the interest. The more he gives to the labourers and the less he uses for himself, the more he is said to save. Of course there can be no limit to the saving of this kind which it is desirable that he shall make, short of his not keeping enough to maintain himself in average comfort. All that he saves is consumed by the workmen, so that the community as a whole stores up nothing. Both capitalist and workmen cannot save at the same time, except, as before said, by making new implements. If they both persist in refusing to consume the wealth produced, their barns would be filled with grain for the benefit of the rats, and their warehouses with cloth and iron for the moth and rust to corrupt; but they could not go on for ever in that way, and would have eventually to cease work. Any individual workman may save, that is, he may refrain from consuming his share and invest it, by giving it to his fellow-workmen who would consume it; but the whole body of workmen can only become capitalists by making new implements, unless other capitalists live beyond their incomes.

It must not be forgotten that implements are made for the purpose of being at once useful and not for the sake of storing wealth. If one generation gets any advantage from the labour of its predecessor, it is due to the accident that most implements, and some articles of direct wealth, are made of durable materials, and not to any saving made intentionally with the view of benefiting posterity. One generation, however, owes very little to its foregoers of the material wealth it enjoys. The greater part of the wealth of the community was made within the last year, and very little is ten years old. The accumulations we have received from our fathers, and owe to our sons, are knowledge of the laws of nature, good laws, and habits of labour. If these are increased, the means of producing material wealth are also increased; with the same labour our sons will be able to live better than we, unless their numbers increase so much that they cannot produce sufficient food without increasing the proportion of those employed in producing it as compared with the whole community.

Capital.

This word has not been as closely defined as its importance requires, nor is it uniformly used in its defined meaning. Mill says it is “a requisite without which no productive operations beyond the rude and scanty beginnings of primitive industry are possible.” His first definition already quoted, makes it equivalent to all exchangeable wealth, except land and its spontaneous productions. With this meaning it is clearly an unnecessary word. Land is simply an implement, and does not require to be classed

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separately from other implements; nor do trees and grass, which have grown without the help of man's labour, differ from those which man has planted or sown.

In Book I., chap. iv., sec. 1, it is thus further defined:—“What, then, is his (the capitalist's) capital? Precisely that part of his possessions, whatever it be, which is to constitute his fund for carrying on fresh production. It is of no consequence that a part, or even the whole of it, is in a form in which it cannot directly supply the wants of labourers.” And again:—“The distinction between capital and Not-capital does not lie in the kind of commodities but in the mind of the capitalist—in his will to employ them for one purpose rather than another; and all property, however ill-adapted in itself for the use of labourers, is a part of capital, so soon as it, or the value to be received from it, is set apart for productive re-investment. The sum of all the values so destined by their respective possessors, compose the capital of the country.”

The first objection to these definitions which presents itself, is that they would be unmeaning if there were not two classes in the community, one to whom the whole of its wealth belongs, and who may or may not, as they like, give any of it to the other class, who own no wealth and can only procure any by labouring for the wealthy class. The existing social arrangements under which this state of things almost necessarily exists, are not, however, essential to the production of wealth. The total produce of the labour of the community might be equally the property of all; there would then be no part set aside for productive re-investment. The whole direct wealth would be consumed as it was made, or at least given to the consumer to put into use. While it was being consumed, the community would be at work producing new wealth, which in its turn would be consumed. Can any part of this wealth be marked out and said to be the capital of the community? the part on which the production of future wealth depends? Food is, of course, necessary, and if an insufficient quantity were produced the community would starve and produce no more wealth; but if by capital be meant the necessaries of existence, why use so confusing a word when others, about the meaning of which no doubt can arise, are at hand? Except implements none of the other articles which were consumed or used were more necessary than another to production, and all must, therefore, be in the same class, either capital or not-capital.

Implements are essential to production, but no political economist has defined capital to be the stock of them in the country; land, the most important of all, is indeed pointedly excluded, obviously because the land-

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ord's share of the common stock of wealth depends on different conditions than that of other capitalists.

It thus appears that in a communistic society there is no such thing as capital in the sense of a fund for carrying on fresh production, or of a fund set aside for productive re-investment. The material requisites of production are labourers and implements only. The necessaries of life are required, as are also health, strength and intelligence, to enable labourers to work—but they are connoted by the word labourer, and need not be taken into consideration. There is one immaterial requisite which must, however, be considered, namely, the effective wish that wealth be produced, that is, a wish strong enough to overcome man's natural repugnance to work.

In a rude stage of society this wish is so weak that man will only labour under the immediate spur of hunger; his repugnance to making other people work is not so strong, and he makes his wife and slaves work even where the return from their labour is somewhat distant; the rude beginnings of agriculture are always the result of woman's labour. It is doubtful whether there is, even now, a society so advanced in civilization that the production of wealth could be safely left to the average forethought of its members without the help derived from the pressure of immediate want. As society is at present organized, the great majority of the people, the labouring classes, are kept to their work by a pressure almost as strong as in the rudest societies; if they do not work to-day they will get no dinner to-morrow. In a commune, the punishment of idleness would be quite as certain but more distant. As long as the past year's harvest lasted they would be equally well fed whether they worked or not; the results of their idleness or industry would not show themselves until after the following harvest, when it would be too late to make good any past errors. The wish that wealth be produced need not be so strong as in a commune; for wealth will be produced if the capitalists wish it, and they need not themselves labour to carry their wish into effect; it is sufficient that they induce other people to labour.

The requisites of production are the same under present social arrangements as they would be in a commune; they are labourers, implements, and the wish to produce. If capital is, as it is stated to be, a requisite of production, it must be one or more of these, and is a worse than useless word, for it is never, in ordinary conversation, used with a meaning allied to that which would have to be given to it by definition.

It is impossible, by reading Mill's definitions as given in Book I., chap. iv., to get any clear understanding of what he really means by

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capital; we will therefore examine his four fundamental propositions as given in chap. v., to see whether he means any or all of the three requisites of production above given.

His first proposition is, that “Industry is limited by capital,” and conversely, “every increase of capital gives, or is capable of giving, additional employment to industry, and this without assignable limit.”

The whole wealth produced by the community belongs to the capitalists. The labourers have no share in its ownership. Theoretically, the capitalists could store it in their warehouses and keep it for their own exclusive use, leaving the workmen to starve; practically, they do not, nor would they be allowed to do so. It is their interest to keep only a certain share for themselves, and to give the balance to the workmen to induce them to work for them and produce new wealth. If they acted together as a class, or if no individual capitalist wanted to get more than the share he was already entitled to of the total product, they need never give the labourers more than the bare necessaries of life. All that could be produced beyond that, they might themselves consume. The labourers would then be divided into two classes; one engaged in producing the necessaries of life for themselves and for the other class; the other engaged in producing luxuries for the rich, and new and improved implements, which would still further increase those luxuries. It is obvious that if the wealthy then reduced the share of wealth which they gave to the producers of necessaries, some of the labourers would starve, and industry would thus be lessened as the number of labourers was lessened. The theorem is correct only when the conditions are such as are here indicated, when the labourers get only the bare necessaries of life, and when capital means these necessaries. Industry is then limited by capital, but not otherwise.

Fortunately, capitalists do not act together as a class; each individual tries to get more than his allotted share of the wealth of the community, and all try to entice workmen from the others by giving higher rewards, that is, they “employ more of their capital in reproductive investment.” The result is not, however, an increase of industry as stated in the theorem, but higher wages for the labourers.

The second theorem is, that “Capital is the result of saving.” The meaning of saving in this sentence is not that which it usually bears. It means the saving made by the capitalist, that is, giving to the working classes some of the wealth which the capitalist might, had he so chosen, have consumed himself. He says, by way of illustration of the theorem,—“If all persons were to expend in personal indulgences all that they produce, and all the income they receive from what is produced by others,

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capital could not increase.” The community as a whole does, however, practically consume all that it produces. If population is stationary, nothing more is required to increase the average wealth than to replace all worn-out implements with new ones of a more scientific kind. If population is increasing, the number of implements must be increased as well as their quality improved, in order that the larger population may labour more advantageously than the smaller had done. This would not in the ordinary meaning of the word be called saving; if the community increases, it is part of its current expenditure to provide the new members with facilities of producing wealth for their own support.

The meaning of “capital” in this case appears to be the wealth which the capitalists give to the labouring classes in exchange for their labour; and the theorem is little more than an identical proposition.

The third theorem is, that “Capital, although saved and the result of saving, is nevertheless consumed.” This follows from what has been already said; everything which is saved by the capitalist is consumed by the labourers, except new implements, the production of which may be called saving by the whole community, as it implies a sacrifice of present for future advantage. All that Mill deduces from it does not, however, follow. He says: “Saving, in short, enriches, and spending impoverishes, the community along with the individual; which is but saying, in other words, that society at large is richer by what it expends in maintaining and aiding productive labour, but poorer by what it expends on its enjoyments.” Saving by the capitalist, as has been so often said above, enriches the workman, but saving by the community would enrich no one. The object of labour is the bettering the conditions of life, and the community, therefore, is the richer by what it expends on its enjoyments, and not the poorer; it is the richer by what the capitalist saves, simply because this kind of saving is only another name for more equal distribution.

The community does not require to save; it requires only that its labour shall be wisely directed, so that the produce shall give the greatest possible comfort and enjoyment. If the necessaries of life are not produced in sufficient quantity it will suffer privation, although every man had been engaged in what is generally called productive labour; no amount of cloth or iron would make good the want of food. The necessaries having been first provided for, the common labour should be devoted to producing those luxuries which all can share. This is the “productive labour” which it is the interest of society to “maintain and aid.” An actor or public singer may more properly be called a productive labourer than a velvet-maker or diamond-digger, because the enjoyment which his labourpro-

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duces, is shared by a larger number. As nothing can be done without implements, the stock of these must be kept up, and whenever increasing population or increasing knowledge makes it possible to do so with advantage, it should be increased, Care must, however, be taken that the future advantage shall not be purchased at the cost of an undue present sacrifice.

The fourth theorem is, that “What supports and employs productive labour is the capital expended in setting it to work, and not the demand of purchasers for the produce of the labour when completed. Demand for commodities is not demand for labour. * * * * The maintenance or payment of labour depends on the amount of capital or other funds directly devoted to the sustenance and remuneration of labour.” The main deduction from this theorem is, that a capitalist, by buying velvet or other commodity for his own use, does not improve the circumstances of the working classes, but that by employing gardeners, grooms, and other retainers, or by giving alms, he does so. The error contained in this deduction unfortunately pervades Mill's work, and makes that part of it which treats of the production of wealth far less valuable than that which treats of its distribution.

If two capitalists, A and B, are entitled to equal shares of the wealth of the community, and both invest their shares from year to year, the working classes will receive the whole product of their own labour; A and B will receive none of it. If they retain for their own use a certain proportion which we may call interest, and invest the balance, the labourers will receive, not the whole, but a part only, the part received from A being equal to that received from B. Let us now assume that both resolve to consume the whole themselves; A deciding to take his share in the form of attendance on himself, while B decides to procure velvet; the wealth which had been produced by the labourers they had previously employed must in both cases be again given to the working classes; in A's case it goes to grooms and footmen; in B's case it goes to velvet weavers. When the wealth is all consumed, the labourers get no more from either A or B; A has received the share of wealth he was entitled to in the form of the services of his attendants, and having done nothing to entitle him to any share of future wealth his right lapses. B gets a certain quantity of velvet which he uses for his own pleasure, the labouring classes get no benefit from it, and, as in the case of A, his right to a share of future wealth also lapses. It is obvious that in both cases the labourers receive precisely the same advantage; A has done no more good than B.

If A had not come to the selfish resolve to apply his wealth to his own

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use, until a year after B had done so, be would have invested it, and the working classes would have enjoyed the use of it once more, receiving thereby a further benefit. He would then enjoy the services of his attendants at the same time that B was wearing his velvet, and not, as before, at the time B was manufacturing it. Mill's error consists in thinking that, in this latter case, the actions of A and B are parallel, and that both were using contemporaneously their right to the product of the labour of others. A definition of the word “invest” would have prevented this mistake.

The capitalists, as a class, have absolute power over future production; whatever they wish to be produced will be produced; but they have no power over the past; the stock of wealth in existence is the result of their past wishes and actions, and cannot be altered. If any capitalist resolves to “invest his wealth,” he means to give it to the working classes, and to continue to give them the result of their labour, keeping for himself only a part, which he calls his interest. He will so dispose the labour over which he has control, that it shall produce for himself the particular commodities which he wishes to use, and for his labourers the particular commodities which they will require. It may be more convenient that he shall arrange to produce for some other capitalist a different commodity, while the other capitalist produces what he requires, and, that they shall exchange their respective productions. This would have no influence on the total wealth produced, which will be the sum of all the different kinds of wealth which all the capitalists require. Of course, in a large community there is no previous bargain made as to what each capitalist shall produce. They all anxiously forecast what their fellows will require, and direct the labour under their command accordingly; the result is, that taking one year with another, everyone gets exactly what he wishes. If any particular capitalist, after he has influenced the disposition of the year's labour of the community, changes his mind, and wishes to consume, himself, the share of wealth which he had previously determined to give to his labourers, he will be unable to do so. He may, by outbidding a fellow-capitalist, procure for himself what had been manufactured for his colleague, who will thus be deprived of it, but the labourers will be uninfluenced. The capitalist who was outbid will have on his hands, instead of the particular commodity which had been produced to gratify his wishes, a stock of goods suitable for the labourers, which he can only turn to account by giving it to them in exchange for the product of their future labour. If the first capitalist is not prepared to outbid his fellow, he must wait for a year before his new wish can be gratified, and in the mean time his labourers will get the benefit of

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his former determination to invest his wealth. The result of a sudden resolve, on the part of one capitalist, to squander, thus appears to be, to induce another capitalist to save; on the other hand, a sudden resolve to save would in the same way induce an equal expenditure on the part of some one else; in either case the working classes are not affected.

A resolve, to have influence on the community at large, must have been made a year beforehand, when it could influence the future supply of commodities.

The word year here means, not a solar, but what may be called a manufacturing year; that is, the time which must elapse before the resolve on the part of a capitalist to produce any commodity can bear fruit. In the case of grain, wool, cotton, and other important agricultural products which form the main wealth of the world, it is equal to a solar year; however much capitalists may wish to increase the total stock of these, they cannot do so before next harvest. For most other things the year is shorter; if more iron or coal is wanted than has been produced, more men can be employed in producing it, and the stock thus increased pretty quickly. There are, however, many practical difficulties in the way of any great and sudden increase of the production of any particular commodity, and the manufacturing year is, perhaps, on the average not less than the solar.

To return to our former illustration: When A resolves to employ retainers he can do so at once, because his past resolve, which influenced production, gave him the food and other necessaries which he could give to the labourers to induce them to wait upon him. B could not at once wear velvet, because his past resolve was not that velvet should be produced, but that commodities suitable for workmen should be. These were produced in obedience to his wish, and he can only turn them into velvet by giving them to weavers to induce them to produce the velvet for him. If he does procure velvet at once, as Mill supposes, he can only do so by taking from some one else the share of it, which he had willed to be produced, and by giving him in exchange the commodities suitable for workmen, and these the workmen would in the end receive.

In short, a capitalist expends his wealth whenever he gives it to workmen to produce any commodity which he will himself consume; it does not matter whether the commodity be capable of accumulation, like velvet, or incapable, like a song or the services of a footman. The expenditure begins when the workman begins to labour.

He invests his wealth in wages when he gives it to workmen to support them while producing commodities which he neither intends to consume

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nor to exchange for others which he will consume. He intends that the work produced shall be consumed by the workmen themselves, and it must therefore be of such description as workmen generally use. The wealth so given to the labourers may be called the “invested fund.”

He “invests his wealth in implements” when he induces labourers to make them. It is absolutely necessary that implements shall be made, and it would therefore be absurd to say that it is any special hardship for the workmen to be obliged to produce them; but there is a good deal of analogy between wealth expended, and wealth invested in implements. In both cases the capitalist becomes the owner of the product of the labour, and the workman does not, as in the case of invested wealth, get any direct benefit from it.

He exchanges his wealth when he gives a commodity, or a valid certificate of a right to a share of the common wealth, such as cash, mortgage, book debt, or bank credit, in exchange for another. This form of transaction is generally looked upon as most important, but to the community at large it matters very little whether A owns a ship and B a farm, or B the ship and A the farm.

Mill (Book I., chap. v., sec. 9) speaks of a capitalist “expending his income in buying velvet or lace,” as if this were the same as expending his income in producing it. The confusion between the two expressions has grievously misled him. The mere exchange of gold for velvet is of not the slightest importance to the community. A owned gold and B velvet; they make an exchange, and B then owns gold and A velvet. No one is in the least influenced except themselves. If A produces gold, or B velvet, for his own use, he applies the labour of the community to his personal advantage; if he is a mere agent, and C or D is the real user, then C or D gets the benefit, and expends his wealth in producing the velvet.

The foregoing examination shows that Mill does not use the word capital in any one fixed sense, but glides almost imperceptibly from one meaning to another. It is not, when used with any meaning he gives to it, a requisite of the production of wealth; these are labourers and implements only.

Its common meaning is that in which I have used it–the share of the direct wealth produced by the labour of the community, to which any capitalist can make a valid claim. The owner of implements, cash, mortgages, or any other form of acknowledgment of indebtedness, is called a capitalist, because by means of these he can make good a claim on the common stock of direct wealth, and not because he owns the things themselves which are not directly useful to him or to anyone else.

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Capital in this meaning is of so much importance that some further examination of it is required.

The capitalists, who are the owners of the whole of the wealth of the community, must give some of it to the workmen to induce in them an effective wish to produce a further supply; the wealth so given forms what may be called the wages fund. As it is greater or less compared to the numbers of the workmen, wages will be high or low.

The wages fund embraces all wealth which is being “expended” (as before defined), that is, which is being given to labourers, who are employed in producing something which the capitalist will himself consume; as well as that which is being “invested.” The present prosperity of the labourer depends on it alone; but that prosperity will only last the year, unless the “invested fund” forms a large proportion of the total wages fund. Next year's prosperity depends on the “invested fund,” which will produce the wages fund of next year, since the capitalists have placed all that it is instrumental in producing beyond their own reach, in so far as they have willed that it shall be in the form of those commodities which workmen generally use. Future prosperity will depend on the future actions of the capitalists; if they resolve to expend their wealth for their own gratification, the labouring classes will not suffer during the following year, as they will then be as fully paid for producing commodities for the capitalists' use as they had been before. Their privations will not begin until the second year, when the capitalists will keep for themselves all the wealth produced by last year's labour.

If an individual capitalist is content not to consume a larger proportion of his share of the common wealth than the average of his fellows, he will be able to enjoy that proportion every year, and still keep good his claim to the proportion of the whole year's produce to which he was originally entitled. The part he consumes is often called the interest on his capital, and the part he invests, capital. By a false analogy, it is generally supposed that the wealth of the whole community is also divided into capital and interest, and that if the community consumes more than its interest it encroaches on its capital, and is on the downward road to ruin. An article lately appeared in the London Times, which argued from some manipulation of that bugbear of political economists, the returns of exports and imports, that England was “expending its capital,” and, like a spendthrift squire, would soon be ruined unless she retrenched. Ruin to the squire would mean that in future the poor fellow would have to work for his living, and it would be hard to say when England was not in that unhappy state.

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It is also commonly supposed that a spendthrift who expends his capital in one year, does more direct harm to the working classes than a wealthier man who expends as large a sum out of his interest; there is a feeling that in the one case capital has been destroyed, and that on capital the wellbeing of the workmen depends, while in the other case the capital which produced the interest is still intact. There is, however, no difference, except indirectly, in the two cases. Both consume certain wealth, which, had they not consumed it, would have gone to the working classes. It makes no difference to the latter whether what they want and would have had, if it had not been taken by some one else, is taken by A or by B; nor is their future stock of wealth at all influenced, for the men who were employed in producing the commodities consumed by prudent B were just as much taken away from the production of goods to be used by workmen, as were those employed in producing for spendthrift A.

When a spendthrift squanders his wealth he ceases to be a capitalist, but the others acquire the share which he has lost. The whole class owns between them all the wealth produced. If one of their number falls out of the ranks it is so much the better for the rest; on the other hand, a capitalist who increases his share by saving and investing a larger proportion of his gross share than the average, acquires his right at the expense of the others. He benefits the working classes, not only directly by increasing their wages, but also indirectly, by compelling other capitalists to be more frugal so as to maintain their proportionate share of the future stock; the spendthrift injures the working classes directly by consuming the wealth which they have produced, and also indirectly, by making it easier for the average man to keep his position as a capitalist, and thus keeping up the rate of interest.

It is the interest of the capitalists to give as little as they can to the labourers, and to receive as much from them as possible, consistently with their attaining other objects they have in view. As a rule, while they wish to live comfortably or luxuriously themselves, they also wish to leave to their heirs a right to a share of the common wealth, not less than that which they themselves enjoy. If they live too abstemiously, they increase the share to which they are entitled, but exercise a self-restraint which, under the circumstances, they consider unnecessary; if they live too well, other more abstemious men will push them from their stools, and acquire, to their loss, a right to the wealth produced by the community. In order to hold their own they must conform their personal expenditure to that of the average of their fellow-capitalists.

Capitalists are not necessarily men of more than common intelligence,

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nor more likely than others to take a wide view of their own interests. They do not try to get more profit out of their steam-engines by stinting the supply of coal, or out of their horses or cattle by stinting their food, but they will, if they can, reduce wages to a point at which the labourer can barely live and work. They forget that a real and active desire that wealth shall be produced is one of the requisites of production, and that this cannot be entertained by a spiritless, hopeless drudge, who by hard and continuous labour can scarcely live better than the paupers in the work-house, into whose ranks he must fall as soon as, broken down with rheumatism and other ailings brought on by insufficient food and shelter, the few best years of his wretched youth are passed.

The total wages fund does not depend on the supply of labour, but on the competition between capitalists, and will be the same whether wages are high or low. The rate of wages depends on the numbers of the workmen who share the wages fund. Where the community is divided into capitalists and labourers, the latter have scarcely any inducement to keep down their numbers, or rather, it is not so apparent as in the case of the capitalists, and they are not fitted by education or habits of thought to exercise self-restraint when the reward is distant and not very obvious. They, therefore, tend to multiply until the wages fund is not more than sufficient to give them the bare necessaries of life. If the capitalists avail themselves of the competition of the labourers against one another, they may pay their workmen no more than is just sufficient to keep body and soul together. It is not their real interest to do so; by doubling wages they would induce the men to work so much better, that the produce would be increased in a still higher ratio. They should, even in their own interest, refuse to pay less than a certain liberal rate; the wages fund would then maintain only a comparatively small number of labourers, and an efficient check would be at once placed on undue increase of population.

We have a right to expect more from capitalists in return for the immense privileges we grant them, than a simple acquiescence in the course which events are taking. If they cannot prevent a country from falling into the state into which Ireland fell, or even into that in which the southwest of England now is, they are of no use, and the sooner they are abolished the better.

No other servants of the State, which capitalists simply are, would be tolerated who were so highly paid, and who performed their work so badly. We leave in their hands the absolute disposal of the labour of the community, and the distribution of the wealth produced by that labour; we

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allow them, within wide limits, to fix their own wages, only requiring them in return to conduct their operations so as to give themselves the largest profit they can make. The only argument which can be used to justify such a trust is, that in striving for the interests of themselves, they, if they use thought and self-restraint, are likely to do better for us than we could without their help. The failures they have made would fairly justify the community in trying to do without them; it is scarcely likely that worse disasters would follow than the Irish famine, or the long years of hopeless misery which preceded. it. The subjects of King Tawhiao or Sitting Bull are far better off than the poorest classes of Ireland, or even of England.

It is a very important social problem to ascertain what is the rate of wages which would give, in any geographical area, and under existing conditions, the largest return to the capitalists (excluding landlords) as a class. If this were known, public opinion among them would probably prevent anyone from offering a lower rate, and it is almost certain that the labourers of all the older countries of the world would be bettered in circumstances by getting this minimum instead of their present wages. Notwithstanding the falling off in the population of Ireland since the famine, and the higher rate of wages now paid, there is no doubt whatever that the capitalist class gets a larger return than they used to when the rate of wages was only from fourpence to sixpence a-day.

The number of hours which a man must work during the day in order that the produce shall be a maximum is also unknown. Capitalists would seem, from their actions, to think that it is not less than fourteen or even more. Some information may be gained from the public works carried out in New Zealand during the last few years. The average rate of wages for unskilled workmen has not been less than a shilling an hour, the men working eight hours. In England the rate is, or at least was, a few years ago, about threepence an hour, the men working twelve hours; the cost of earthwork should be, if the work done were proportional to the number of hours in a day's work, four times as high in New Zealand as in England, but it has averaged considerably less than twice. This is a very rough test, but it tends to strengthen the opinion held by many intelligent employers of labour, that a man will do more when working eight than he will when working twelve hours a-day.

Interest.

As before said, that part of the national direct wealth which capitalists keep for their own use is called interest; it is the reward they receive for investing their wealth, instead of expending it.

As new men are continually, by frugality, making good a footing in,

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and others, the spendthrifts and prodigals, are dropping out of the list of capitalists, the average rate of interest tends, even when the population is stationary, to become lower, to approximate more closely to what will satisfy the more frugal part of the class.

As population increases, and it becomes necessary to cultivate inferior land in order to produce a sufficiency of food, the average effectiveness of labour tends to decrease, and the rents of the landlords to increase, the labourers can then, besides making new implements, produce little more than is sufficient to maintain themselves and to pay the landlords. The temptation to expend wealth instead of to invest it becomes greater, and in the struggle for a position the smaller capitalists are gradually pushed out of the ranks by the larger, who can, with less sacrifice, afford to invest a larger proportion of their capital.

There is thus a tendency of wealth to fall into the hands of a few, and the extremes both of riches and poverty are generally found in the same community.

In an extreme case, the number of capitalists may become so small that a practical combination may occur amongst them to reduce the wages fund; and something like this appears to have taken place in the later years of Rome.

Those who share the interest fund are the owners of money and land, the fund-holders, and those whose wealth, invested either in implements or wages, had been instrumental in its production.

The owners of that large stock of wealth which is in the hands of the consumer, dwelling houses, furniture, clothes, etc., do not share in it, nor do the owners of goods manufactured for the use of capitalists. The velvet manufacturer, for instance, gets no interest on his velvet; it is the product of “expended” wealth. As a rule, he would not himself be the consumer of his own manufactures; he has only manufactured them so as to procure other goods which he requires; the velvet was made because other capitalists had so willed it, he knowing from former experience that they had done so, and that, in the same way, whatever he willed to be produced would be duly provided. If he intended to invest his wealth, others would provide the commodities which he requires to give to his workmen, and he will be able to get these in exchange for his velvet. He has, it is true, “expended” his wealth in making a commodity for the use of capitalists, but by so doing has induced those capitalists to “invest” theirs in making goods for the future use of his labourers; by exchange each gets exactly what he wants, more conveniently than he could otherwise have done. If there had not been a prospect amounting to a certainty that this

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exchange would take place, the velvet consumer would have manufactured the velvet he required, and the velvet manufacturer would have made the commodities for workmen which he required. The essential part of investment does not consist in what is actually manufactured by any capitalist, but in what he wills shall be manufactured for him, his will being equivalent to an order given to the makers. As long, however, as the velvet remains in the hands of the maker, he cannot invest it; he must exchange it for other goods, and, when exchanged, it comes into the user's hands, when it is of just as little use to the working classes as the past services of the same user's footman.

It would be impossible to adjust the claims of the various capitalists without the help of a common measure of value, and throughout the world gold and silver have been adopted for the purpose.

The capitalist measures his wealth in money; it is the quantity of gold he has, or which at current rates he could get, for the particular thing on which his claim to a share of future wealth is founded. The only capitalists who help, directly, in producing wealth are those who invest either in wages or implements, and the capital of each individual is measured by the current price of his implements or of the food and other things which he possesses. The money owner, indirectly, facilitates production, and his capital is measured by the gold he owns. The landlord and fund-holder do nothing towards production, but as they share in the product, their possessions have, on that account, exchangeable value and therefore a market price. If the money value of the possessions of these five classes of capitalists were added together, it would form what might be called the capital of the country, if the term were not so likely to suggest other and different meanings. The share of the interest fund which any capitalist could apply to his own uses without lessening his future share bears the same proportion to the whole that his capital bears to the total capital of the country.

The expression “capital of the country” is often used to represent that part of the wealth of the community on which its prosperity and well being are supposed peculiarly to depend, but as in all other cases in which the word capital is used, there is great vagueness as to the meaning which is intended to be conveyed.

In estimating its value, the price of land and of the national debt is often included, but the interest of these is simply a tax on the community at large, and cannot in any sense be said to further the general prosperity.

Money also should not be included. It consists largely, and might consist entirely of paper, which costs nothing. Our just distrust of the

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honesty of governments is the only reason why gold should not be given up as the medium of exchange and bank notes substituted, the number issued to be limited in accordance with a fixed and unvarying rule. The whole of the enormous expense of gold-mining would be saved to the world and the existing stock of gold made available for use in the arts. In any case, whether it consists of metal or paper, money has no intrinsic worth, being a mere implement to assist in the distribution of wealth.

Implements should also be deducted; their costliness is not an element of prosperity but only an indication of past privations. Their efficiency does influence production, but cannot be valued in money, as it is the result of thought and knowledge, as well as of labour. The engines of one of the Cunard steamers of the present day cost no more labour to produce than did those of five-and-twenty years ago; they will, however, develope the same horse-power with one-third of the cost of coal and repairs. As far as they are concerned the “capital of the country” has trebled, but no indication of the increase would appear in a return of the machines in use and their cost.

In short, there is no means of comparing the prosperity of two different countries or the same country at different times. Present prosperity depends on the stock of direct wealth in actual use or stored ready for use, and on the number of men, such as actors and singers, employed in producing for the immediate gratification of the community enjoyments not capable of being stored. Future prosperity depends on the number of men who are employed in producing a further stock, and in the efficiency of their labour. The only further requisites are, that the choice of things to be produced shall be judicious and their distribution moderately equal.

A large part of capital consists of what is generally called floating capital. Its ownership is attested by bank accounts, promissory notes, and other acknowledgments of indebtedness. At first sight it would appear that this was not included in any of the forms above enumerated, but the owners of floating capital really own a share of the wealth nominally owned by those who are indebted to them; they do not, as is generally supposed, own money of which the supply in existence is comparatively small.

It has been assumed throughout that the owner of capital applies it with average skill and energy, in such way as shall give him a right to share in the future wealth; the implement-owner must take care that his machines are kept fully employed; the employer of labour must keep his men to their work, and must direct their labour judiciously; the landlord must find tenants or farm the land himself; the fund-holder has nothing to do but to draw his dividends when they become due—his claim is the reward of

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past services done to the community. The money owner has a very peculiar duty, as he has only to see that he keeps no more of it on hand than is required. If a banker keeps a larger reserve than he needs, he will not get the average banker's interest. He gets no interest, directly, on his gold reserve, but the profit on his other transactions is larger on account of it. If it is unnecessarily large, he, of course, loses the interest on all the money he needlessly keeps. This is also true of the merchant and manufacturer. The consumer who keeps money in hand to meet current expenditure gets no interest for it.

A capitalist who uses his capital unskilfully benefits all other capitalists and injures the community at large, except in the case of a money owner, who injures no one, except himself, by mismanagement. If he keeps more on hand than the nature of his business requires, the stock in the hands of others becomes more valuable, by the exact amount of his excess, and the smaller amount in circulation is quite as efficient as the larger would be.

Cost of Production.

The cost of production of any commodity is simply the labour required to produce it; it does not matter whether the labourer be a Millais or a coal-heaver. Wealth being required, there is only one way of getting it, and that is by labour, and the labour of all is equally necessary to the production of the common stock. The problem to assess the utility of each man's production would be quite insoluble. There would even be a difficulty in deciding whether a day's labour of Turner or West, or of Browning or Tupper, were worth most. It would be easier to assess the relative value of two navvies' work, one of whom could dig ten and the other only five yards of earth in a day. Even in this latter case the labour of both men would be equally requisite to the production of the total stock, if it were necessary to dig fifteen yards a day. A capitalist must take into account not only the labour which was required to produce his wares, but also the rate of wages he was obliged to pay his workmen, and the interest he would be obliged to pay to other capitalists; from his point of view, therefore, both interest and wages form part of the cost of production.

It would be well to keep distinct what is essential under all circumstances from what is due to the accidental conditions under which society may happen to regulate its labour; and as a medium of exchange, like money, is necessary in a community divided into capitalists and labourers, I think the capitalists' costs of production should be called the “price of production.”

The exchange value of wealth tends to be in proportion to its price of production and not to its cost.

– 31 –

[Note.—Mill makes a note that the reviewer in the Edinburgh Review, (October, 1844), suggested a definition of implements very similar to that which I have proposed, but I have not been able to procure a copy of the review. See Book I., chap. ii., sec. 4.]