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employment, or additional remuneration; enriches either the country or the labouring class. If it finds additional hands to set to work, it increases the aggregate produce: if only the same hands, it gives them a larger share of it; and perhaps even in this case, by stimulating them to greater exertion, augments the produce itself.
§ 4. A second fundamental theorem respecting Capital, relates to the source from which it is derived. It is the result of saving. The evidence of this lies abundantly in what has been already said on the subject. But the proposition needs some further illustration.
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, capital could not increase. All capital, with a trifling exception, was originally the result of saving. I say, with a trifling exception; because a person who labours on his own account, may spend on his own account all he produces, without becoming destitute; and the provision of necessaries on which he subsists until he has reaped his harvest or sold his commodity, though a real capital, cannot be said to have been saved, since it is all used for the supply of his own wants, and no abstinence has been practised. We may imagine a number of individuals or families, settled on as many separate pieces of land, each living on what their own labour produces, and consuming the whole produce. But even these must save (that is, spare from their personal consumption) as much as is necessary for seed. Some saving, therefore, there must have been, even in this simplest of all states of economical relations; people must have produced more than they used, or used less than they produced. Still more must they do so before they can employ other labourers, or increase their production beyond what can be accomplished by the work of their own hands. All that any one employs in supporting and carrying on any other labour than his own, must have been originally brought together by saving; some
body must have produced it and forborne to consume it. We may say, therefore, without material inaccuracy, that all capital, and especially all addition to capital, are the result of saving.
In a rude and violent state of society, it continually happens that the person who has capital is not the very person who has saved it, but some one who being stronger, or belonging to a more powerful community, has possessed himself of it by plunder. And even in a state of things several degrees more advanced, the increase of capital has usually been in a great measure derived from privations which, though essentially the same with saving, are not generally called by that name, because not voluntary. The actual producers have been slaves, compelled to produce as much as force could extort from them, and to consume as little as the self-interest or the usually very slender humanity of their taskmasters would permit. This kind of compulsory saving, however, would not have caused any increase of capital, unless a part of the amount had been saved over again, voluntarily, by the master. If all that he made his slaves produce and forbear to consume, had been consumed by him on personal indulgences, he would not have increased his capital, nor been enabled to maintain an increasing number of slaves. To maintain any slaves at all, implied a previous saving; a stock, at least of food, provided in advance. This saving may not, however, have been made by any self-imposed privation of the master; but more probably by that of the slaves themselves while free; the rapine or war, which deprived them of their personal liberty, having transferred also their accumulations to the conqueror.
There are other cases in which the term saving, with the associations usually belonging to it, does not exactly fit the operation by which capital is increased. If it were said, for instance, that the only way to accelerate the increase of capital is by increase of saving, the idea would probably be suggested of greater abstinence, and increased privation. But it is obvious
that whatever increases the productive power of labour, creates an additional fund to make savings from, and enables capital to be enlarged not only without additional privation, but concurrently with an increase of personal consumption. Nevertheless, there is here an increase of saving, in the scientific sense. Though there is more consumed, there is also more spared. There is a greater excess of production over consumption. It is consistent with correctness to call this a greater saving. Though the term is not unobjectionable, there is no other which is not liable to as great objections. To consume less than is produced, is saving; and that is the process by which capital is increased; not necessarily by consuming less, absolutely. We must not allow ourselves to be so much the slaves of words, as to be unable to use the word saving in this sense, without being in danger of forgetting that to increase capital there is another way besides consuming less, namely, to produce more.
§ 5. A third fundamental theorem respecting Capital, closely connected with the one last discussed, is, that although saved, and the result of saving, it is nevertheless consumed. The word saving does not imply that what is saved is not consumed, but only that it is not consumed by the person who saves it. If merely laid by for future use, it is said to be hoarded; and while hoarded, is not consumed at all. But if employed as capital, it is all consumed; not indeed by the capitalist, but by his workpeople. Part is exchanged for tools or machinery, which are worn out by use: part for seed or materials, which are destroyed as such by being sown or wrought up, and destroyed altogether by the consumption of the ultimate product. The remainder is paid in wages to productive labourers, who consume it for their daily wants; or if they in their turn save any part, this also is not, generally speaking, hoarded, but (through savings banks, benefit clubs, or some other channel) re-employed as capital and consumed.
The principle now stated, is a strong example of the necessity of attention to the most elementary truths of our subject: for it is one of the most elementary of them all, and yet no one who has not bestowed some thought on the matter is habitually aware of it, and most are not even willing to admit it when first stated. To the vulgar, it is not at all apparent that what is saved, is consumed. To them, every one who saves, appears in the light of a person who hoards; they may think such conduct permissible, or even laudable, when it is to provide for a family, and the like; but they have no conception of it as doing good to other people: saving, is to them another word for keeping a thing to oneself: while spending appears to them to be distributing it among others. The person who expends his fortune in unproductive consumption, is looked upon as diffusing benefits all around; and is an object of so much favour, that some portion of the same popularity attaches even to him who spends what does not belong to him; who not only destroys his own capital, if he ever had any, but, under pretence of borrowing, and on promise of repayment, possesses himself of capital belonging to others, and destroys that likewise.
This popular error comes from attending to a small portion only of the consequences that flow from the saving or the spending; all that part of the effects of either which is out of sight, being out of mind. The eye follows what is saved, into an imaginary strong box, and there loses sight of it; what is spent, it follows into the hands of tradesmen and dependents; but without reaching the ultimate destination in either case. Saving (for productive investment) and spending, coincide very closely in the first stage of their operations. The effects of both begin with consumption; with the destruction of a certain portion of wealth; only the things consumed, and the persons consuming, are different. There is, in the one case, a wearing out of tools, a destruction of material, and a quantity of food and clothing supplied to labourers, which they destroy by use: in the
other case, there is a consumption, that is to say a destruction, of wines, equipages, and furniture. Thus far, the consequence to the national wealth has been much the same; an equivalent quantity of it has been destroyed in both cases. But in the spending, this first stage is also the final stage; that particular amount of the produce of labour has disappeared, and there is nothing left; while on the contrary the saving person, during the whole time that the destruction was going on, has had labourers at work repairing it; who are ultimately found to have replaced, with an increase, the equivalent of what has been consumed. And as this operation admits of being repeated indefinitely without any fresh act of saving, a saving once made becomes a fund to maintain a corresponding number of labourers in perpetuity, reproducing annually their own maintenance with a profit.
It is the intervention of money which obscures, to an unpractised apprehension, the true character of these phenomena. Almost all expenditure being carried on by means of money, the money comes to be looked upon as the main feature in the transaction, and since that does not perish, but only changes hands, people overlook the destruction which takes place in the case of unproductive expenditure. The money being merely transferred, they think the wealth also has only been handed over from the spendthrift to other people. But this is simply confounding money with wealth. The wealth which has been destroyed was not the money, but the wines, equipages, and furniture which the money purchased; and these having been destroyed without return, society collectively is poorer by the amount. It may be said, perhaps, that wines, equipages, and furniture, are not subsistence, tools, and materials, and could not in any case have been applied to the support of labour; that they are adapted for no other than unproductive consumption, and that the detriment to the wealth of the community was when they were produced, not when they were consumed. I am willing