four circulating capital, a distinction of which it is not necessary to our purpose to take any note.
Ricardo’s definition is:
”Capital is that part of the wealth of a country which is employed in production, and consists of food, clothing, tools, raw materials, machinery, etc., necessary to give effect to labor.“ —Principles of Political Economy, Chap. V.
This definition, it will be seen, is very different from that of Adam Smith, as it excludes many of the things which he includes—as acquired talents, articles of mere taste or luxury in the possession of producers or dealers; and includes some things he excludes—such as food, clothing, etc., in the possession of the consumer.
McCulloch’s definition is:
”The capital of a nation really comprises all those portions of the produce of industry existing in it that may be directly employed either to support human existence or to facilitate production.“ —Notes on Wealth of Nations, Book II, Chap. I.
This definition follows the line of Ricardo’s, but is wider. While it excludes everything that is not capable of aiding production, it includes everything that is so capable, without reference to actual use or necessity for use—the horse drawing a pleasure carriage being, according to McCulloch’s view, as he expressly states, as much capital as the horse drawing a plow, because be may, if need arises, be used to draw a plow.
John Stuart Mill, following the same general line as Ricardo and McCulloch, makes neither the use nor the capability of use, but the determination to use, the test of capital. He says:
”Whatever things are destined to supply productive labor with the shelter, protection, tools and materials which the work requires, and to feed and otherwise maintain the laborer during the process, are capital.“ —Principles of Political Economy, Book I, Chap. IV.
These quotations sufficiently illustrate the divergence of the masters. Among minor authors the variance is still greater, as a few examples will suffice to show.
Professor Wayland, whose ”Elements of Political Economy“ has long been a favorite textbook in American educational institutions, where there has been any pretense of teaching political economy, gives this lucid definition:
”The word capital is used in two senses. In relation to product it means any substance on which industry is to be exerted. In relation to industry, the material on which industry is about to confer value, that on which it has conferred value; the instruments which are used for the conferring of value, as well as the means of sustenance by which the being is supported while he is engaged in performing the operation.“ —Elements of Political Economy, Book I, Chap. I.
Henry C. Carey, the American apostle of protectionism, defines capital as ”the instrument by which man obtains mastery over nature, including in it the physical and mental powers of man himself.“ Professor Perry, a Massachusetts free trader, very properly objects to this that it hopelessly confuses the boundaries between capital and labor, and then himself hopelessly confuses the boundaries between capital and land by defining capital as ”any valuable thing outside of man himself from whose use springs pecuniary increase or profit.“ An English economic writer of high standing, Mr. Wm. Thornton, begins an elaborate examination of the relations of labor and capital (”On Labor“) by stating that he will include land with capital, which is very much as if one who proposed to teach algebra should begin with the declaration that he would consider the signs plus and minus as meaning the same thing and having the same value. An American writer, also of high standing, Professor Francis A. Walker, makes the same declaration in his elaborate book on ”The Wages Question.“ Another English writer, N. A. Nicholson (”The Science of Exchanges,“ London, 1873), seems to cap the climax of absurdity by declaring in one paragraph (p. 76) that ”capital must of course be accumulated by saving,“ and in the very next paragraph stating that ”the land which produces a crop, the plow which turns the soil, the labor which secures the produce, and the produce itself, if a material profit is to be derived from its employment, are all alike capital.“ But how land and labor are to be accumulated by saving them he nowhere condescends to explain. In the same way a standard American writer, Professor Amasa Walker (p. 66, ”Science of Wealth“), first declares that capital arises from the net savings of labor and then immediately afterward declares that land is capital.
I might go on for pages, citing contradictory and self-contradictory definitions. But it would only weary the reader. It is unnecessary to multiply quotations. Those already given are sufficient to show how wide a difference exists as to the comprehension of the term capital. Any one who wants further illustration of the ”confusion worse confounded“ which exists on this subject among the professors of political economy may find it in any library where the works of these professors are ranged side by side.
Now, it makes little difference what name we give to things, if when we use the name we always keep in view the same things and no others. But the difficulty arising in economic reasoning from these vague and varying definitions of capital is that it is only in the premises of reasoning that the term is used in the peculiar sense assigned by the definition, while in the practical conclusions that are reached it is always used, or at least it is always understood, in one general and definite sense. When, for instance, it is said that wages are drawn from capital, the word capital is understood in the same sense as when we speak of the scarcity or abundance, the increase or decrease, the destruction or increment, of capital—a commonly understood and definite sense which separates capital from the other factors of production, land and labor, and also separates it from like things used merely for gratification. In fact, most people understand well enough what capital is until they begin to define it, and I think their works will show that the economic writers who differ so widely in their definitions use the term in this commonly understood sense in all cases except in their definitions and the reasoning based on them.
This common sense of the term is that of wealth devoted to procuring more wealth. Dr. Adam Smith correctly expresses this common idea when he says: ”That part of a man’s stock which he expects to afford him revenue is called his capital.“ And the capital of a community is evidently the sum of such individual stocks, or that part of the aggregate stock which is expected to procure more wealth. This also is the derivative sense of the term. The word capital, as philologists trace it, comes down to us from a time when wealth was estimated in cattle, and a man’s income depended upon the number of head he could keep for their increase.
The difficulties which beset the use of the word capital, as an exact term, and which are even more strikingly exemplified in current political and social discussions than in the definitions of economic writers, arise from two facts—first, that certain classes of things, the possession of which to the individual is precisely equivalent to the possession of capital, are not part of the capital of the community; and, second, that things of the same kind may or may not be capital, according to the purpose to which they are devoted.
With a little care as to these points, there should be no difficulty in obtaining a sufficiently clear and fixed idea of what the term capital as generally used properly includes; such an idea as will enable us to say what things are capital and what are not, and to use the word without ambiguity or slip.
Land, labor, and capital are the three factors of production. If we remember that capital is thus a term used in contradistinction to land and labor, we at once see that nothing properly included under either one of these terms can be properly classed as capital. The term land necessarily includes, not merely the surface of the earth as distinguished from the water and the air, but the whole material universe outside of man himself, for it is only by having access to land, from which his very body is drawn, that man can come in contact with or use nature. The term land embraces, in short, all natural materials, forces, and opportunities, and, therefore, nothing that is freely supplied
