In addition to all these causes of variation the productiveness of labour is also affected by changes in the magnitude of the accumulation of instruments of production, and by changes in the number of persons who have to live and work on a given area. But owing to the practice of treating land and capital as requisites, or even agents of production, co-ordinate with labour itself, these changes will be more conveniently dealt with in the next two chapters. CHAPTER IV THE SECOND REQUISITE OF PRODUCTION-CAPITAL § 1. The Word. THE word 'capital,' in its economic sense, has neither more nor less to do with the French 'cheptel' and the English 'cattle' and 'chattels'1 than it has with the 'chapter' of a book or the 'capital' of a pillar. In Dr. Murray's New English Dictionary the article on the word 'capital' is divided into two sections. In the first of these, which treats of the word when used as an adjective, the eighth meaning is, 'Of or pertaining to the original funds of a trader, company, or corporation; principal; hence, serving as a basis for financial and other operations.' In the second section, which treats of the adjective elliptically used as a substantive, the first meaning given is 'a capital letter,' the second 'a capital town or city,' and the third 'a capital stock or fund.' Under this head we read :— (a.) Commerce.-The stock of a company, corporation, or individual with which they enter into business, and on which profits or dividends are calculated; in a joint-stock company it consists of the total sum of the contributions of the shareholders. (b.) Political Economy. The accumulated wealth of an individual, company, or 1 Sir H. Maine says: "There are some few facts both of etymology and of legal classification which point to the former importance of oxen. Capitale -kine reckoned by the head-cattle-has given birth to one of the most famous terms of law and to one of the most famous terms of political economy, Chattels, and Capital' (Early History of Institutions, p. 147); but he adduces no evidence of any historical connection between capitale, kine, and capital in the economic or commercial sense. Still more groundless is the statement of Mr. H. D. Macleod: 'The word capital comes to us from the Greek κepáλαιov a capital, or principal sum placed out at interest' (Principles of Economical Philosophy, 2d ed. 1879, vol. i. p. 225). community, used as a fund for carrying on fresh production; wealth in any form used to help in producing more wealth.' The adjective was 'used elliptically as a substantive' in the commercial sense, at least as early as the first half of the seventeenth century;1 but the fact that it was merely an adjective was by no means forgotten. In 1697 Parliament passed 'an Act for making good the Deficiencies of several Funds therein mentioned, and for enlarging the Capital Stock of the Bank of England, and for raising the Public Credit.' 2 Section xx. of this Act not only shows that the adjective 'capital,' applied to stock, could then be placed between two other adjectives, but also shows that the plan of issuing new capital at a premium, or at a discount, was not then understood. Before the new capital was created it was considered necessary to compute the old at the value of the actual property held : 'And for the better settling and adjusting the Right and Property of each Member of the present Corporation of the Governor and Company of the Bank of England, before any such Enlargement as aforesaid, be made thereunto; be it further enacted by the authority aforesaid that before the Four and Twentieth Day of July One thousand six hundred and ninety-seven, the Common, Capital, and Principal Stock of the said Governor and Company shall be computed and estimated by the Principal and Interest owing to them from the King or any others, and by Cash, or by any other Effects whereof the said Capital Stock shall then really consist over and above the Value of the Debts which they shall owe at the same Time for Principal or Interest to any other Person or Persons whatsoever.' 3 1 The Merchant's Mirrour; or Directions for the perfect ordering and keeping of his Accounts, by Richard Dafforne (1635), gives among examples of book-keeping: 'No. 96. To booke the capitall which each partner of a joint company promiseth to bring in : : Simon Sands promiseth into the company for his stocke,. 2 8 and 9 W. & M. cap. 20. 3 In Thorold Rogers' First Nine Years of the Bank of England, p. 89, the words, 'from the king or any others, and by cash or by any other effects,' are corrupted, evidently by misreading of manuscript, into 'by the king and by each or any other effects.' In Dyche and Pardon's Dictionary (1735) the article on 'Capital' begins :— 'CAPITAL (A). Chief, head, or principal; it relates to several things, as the capital stock, in trading companies, is the fund or quantity of money they are by their charter allowed to employ in trade.'1 § 2. Adam Smith on the Nature and Origin of the Capital of a Community. In the First Book of the Wealth of Nations we hear little of 'capital' or 'capital stock.' When it is mentioned it is not distinguished from 'stock.' Now the 'stock' of a trader, so far as his trade is concerned, consists, and seems always to have consisted, of the movable goods which he holds in his possession in the way of business. The stock of a shopkeeper is the wares in his shop, the 'live and dead stock' of a farmer is his cattle, horses, and implements, and so on. Movables shade into fixtures in rather an insensible manner, and fixed property, such as factories, houses, and other buildings, can scarcely be separated from the land on which it stands; so that the meaning of the phrase, the stock of an individual trader, could easily be extended so as to make it include all the property which he holds for the purpose of his business 1 Compare with this: 'The Hollanders' capital in the East India Company is worth above three millions.'-Petty, Several Essays in Political Arithmetic (1699), p. 165. The author of A Discourse of Money. with Reflections on the present evil state of the Coin of this Kingdom (1696) represents hoarding as a means of increasing the capital stock of national treasure,' and says: 'You trade to loss if you buy from abroad and pay more money for what you fetch from foreigners than you receive from them for your service and your native fruits and manufactures. . . . You are blowing a dead cole, and take all this pains but to diminish your capital or national stock of treasure' (p. 198). William Richardson, in his Essay on the Causes of the Decline of the Foreign Trade (1744), uses the word capital in its commercial sense in the plural, complaining that customs duties 'lessen the capitals of our merchants by keeping a great part of their stocks by them idle to pay the duties of the goods they import' (p. 173 in Overstone's Tracts on Commerce). Philip Cantillon, on the other hand, uses the singular, speaking of 'the capital of our merchants.'-Analysis of Trade (1759), p. 160. Richard Cantillon uses singular and plural (in French) indifferently.- Essai sur le Commerce, p. 376. * See pp. 22 b, 23 b, 43 a, 51 a. at any one time. And when we look at the matter from a comprehensive point of view, regarding rather the things which are of importance to the community than those which are only of importance to the individual, the distinction between what is held for the purpose of a man's business and what is held for his own immediate benefit appears rather trivial. For example, ovens are ovens, and useful for baking, whether they belong to a baker or a private individual. As to the meaning of 'stock' and its synonym capital' in Book I. of the Wealth of Nations, all that can be said with complete certainty is that it is the amount upon which the profits of a business are calculated. In Book II., where Adam Smith for the first time goes into the question, the stock of an individual is the whole amount of personal property, or property other than land, which he possesses at any given point of time, and the stock of a community is the sum of the stocks of its individual members. The capital of an individual is not identical with his stock, but is only that part of it which is to afford him a revenue-that is, a revenue in money, or at any rate a revenue in commodities obtained not directly but by way of exchange. The rest of the stock is merely a reserve for 'immediate' consumption, and is not entitled to be called capital : : 'When the stock which a man possesses is no more than sufficient to maintain him for a few days or a few weeks, he seldom thinks of deriving any revenue from it. . . . But when he possesses stock sufficient to maintain him for months or years, he naturally endeavours to derive a revenue from the greater part of it; reserving only so much for his immediate consumption as may maintain him till this revenue begins to come in. His whole stock, therefore, is distinguished into two parts. That part which he expects is to afford him this revenue is called his capital. The other is that which supplies his immediate consumption, and which consists either, first, in that portion of his whole stock which was originally reserved for this purpose; or secondly, in his revenue, from whatever source derived, as it gradually comes in; or thirdly, in such things as had been purchased by either of these in former years, and which are not yet entirely consumed, such as a stock of clothes, household furniture, and the like.'1 1 Bk. II. ch. i. beginning, pp. 119 b, 120 a. |