Part 10

Unless the category of Artificial Objects (which are the continuous outcome of the Productive Process) be treated with like fidelity to the meaning of technical Economic terms, there will still be confusion and consequent bafflement in Economic study.

Yet such fidelity is sadly lacking. There is an unfortunate tendency to indulge in the same colloquial trifling and business habits of speech with the technical term for this Basic Fact as with the technical term for the Man factor and the technical term for the Natural Resource factor. Although Wealth is the generally accepted technical term for Artificial Objects, careless uses of this term have well nigh obliterated its technical significance.

Technically it is correct to say that Wealth is produced by Labor applied to Land. This means neither more nor less than that Artificial Objects are produced from and upon Natural Resources by mental and physical exertions of Man. So used and understood, those technical terms enable us to trace Economic details in the Productive Process easily and accurately through all their complexities from origin to destination. We have but to assign them to their respective categories or Basic Facts and always to think of them in that connection. Yet, as with Labor and Land, so with Wealth. Colloquializations and arbitrary business meanings of this specific technical term multiply complexities and make Economic confusion worse confounded.

By colloquial usage and in business accounts the word “wealth”--“capital” when used as a sub-classification of Wealth, that is, Wealth devoted to the production of more Wealth--has taken on a variety of misleading connotations. In business accounts, for example, whatever will bring a price to the owner is accounted Wealth, or Capital as a sub-classification of Wealth, whether the object of the price be a building, a domesticated animal, a slave, a vacant building-lot, an unused agricultural area, or an improved and cultivated farm. Some of those items of “wealth” or “capital” do belong, Economically, in the Wealth category, buildings and domesticated animals being among them; but many fall wholly or in part into one or the other of the two other categories, Labor and Land.

Evidently the science of Economics, which comprehends the interests of all and not merely those of a private business, cannot classify slaves as Wealth. Since they are not and cannot be Artificial Objects, but are human beings, they belong of necessity in the Man or Labor category. They differ radically from animals. In the wild state animals belong Economically in the category of Land (Natural Resources) as truly as wild vegetation does; in the domesticated state they are Wealth (Artificial Objects) as truly as produced vegetation is; and if used to produce Wealth they are Capital (Wealth used for the production of Wealth) as truly as machinery is. But slaves in their “wild state” are not Natural Resources for the use of Man, as wild animals are; they are human beings, and as such they belong in the Man category.

As used in business accounts and colloquially, the word “wealth” does, as indicated above, include some kinds of true Economic Wealth, such as “store goods,” buildings, farm produce, machinery and other Artificial Objects. But in those undiscriminating uses it also includes such Natural Resources (Land) as mineral deposits, water fronts, building sites, railroad rights of way; also mere titles to various kinds of property interests, such as bonds, mortgages, deeds, bank balances, money in hand and corporation stocks.

Some of the Economically desirable things which are included colloquially and for business accountings in the term “wealth” are truly Wealth in the technical Economic sense, let us repeat, since they are Artificial Objects produced by Man from and upon Natural Resources--that is to say, by Labor from and upon Land. But others are not at all in the Wealth category, and putting them there has no other Economic result than confusion. Such of them as consist solely of Natural Resources belong in the Land category. Artificial Objects alone belong in the Wealth category. Deeds, mortgages, bank balances, money in hand, corporation stocks and the like, belong in no Economic category at all below the surface of customary titles to property. They are nothing but evidences of legal title to property of any kind--Natural Resources, Artificial Objects, Man himself when and where ownership of Man by Man is conventional.

To illustrate that species of confusion, for the importance of precise discrimination in Economic thought cannot be overemphasized in Economic study, a farm is often accounted “wealth” or “capital” in colloquial and business usage. So of its purchase “price” or “value,” and also of a mortgage upon it. Yet its purchase price and a mortgage are merely evidences of title to property. Neither of them is Wealth or Capital within the meaning of precise Economic terminology. If they were, the more the mortgages upon a farm the more valuable it would be. A farm the purchase price of which is ten thousand dollars would be worth fifteen thousand if it were mortgaged for five, and seventeen if it carried a second mortgage for two. And that would be absurd. The farm itself really consists of a combination of Artificial Objects and Natural Resources--that is to say, of Wealth and also of Land--two radically different things as matter of Economic discrimination. Its site is a Natural Resource, its untilled soil is a Natural Resource, the space which it and its surrounding atmosphere occupy are Natural Resources. All those characteristics are in the Land category. But its artificial enrichments of soil by tillage or other human activity, and artificial replacements of exhausted or partly exhausted fertility, the fencing and the ditching and the buildings, what are they? what can they be but Artificial Objects, and therefore in the Wealth category? Nor is this conclusion vitiated by the fact that permanent improvements of the soil or location by means of drainage or “made land” or the like may with lapse of time lose their artificial characteristics in consequence of an ultimate natural merging with the site.

A different type of illustration, though identical in Economic terminology, would be an urban residence or a building for business. Its site, the enveloping atmosphere, the space--all these are in the Economic category of Natural Resources or Land. But the building is an Artificial Object and therefore in the category of Wealth. If the building burn down or be torn down, then the property--the site and the space it commands--is in the category of Land alone. In no respect can the site and the space it commands be Wealth in the technical Economic sense--in the discriminative sense which identifies basic differences.

In that sense nothing is or can be Wealth except Artificial Objects produced by Man from and upon Natural Resources. The common characteristic of Wealth in the technical Economic sense is that it consists of natural substances which have been adapted by human exertion to human uses. Another term would serve as well, but no term would serve if used also to designate something radically different.

IV. SECONDARY CATEGORIES

In Economic analysis Wealth takes on two aspects. They are distinguishable by secondary classifications. One is Wealth in the possession of consumers; the other is Wealth in process of utilization by Labor for the production of further Wealth. For the former no technical Economic term is in use; for the latter the technical Economic term is Capital.

1--Capital

Capital is a highly important technical term in Economics. It must not be confused, therefore, with the same word as loosely used in business accounts, where, like the term for its parent category, Wealth, it mingles such essentially different things as Wealth and Land--Artificial Products and Natural Resources. And, as observed in a preceding paragraph, not only such different things as Wealth and Land, but in some circumstances Labor also.

Such undiscriminating uses of the term Capital are doubtless defensible enough in business accountings; for in private business anything may be thought of as business “capital” if it can be summarized in terms of Money. But for Economics as a comprehensive social science, the dumping into the same basic category of such radically different things as Labor, Land and Wealth--Man, Natural Resources and Artificial Objects--is indefensible and miraculously confusing.

Limited strictly to distinguishing Wealth consumed in the process of producing more Wealth--Artificial Objects devoted to further production of Artificial Objects,--the term Capital is a convenient subclassification of some kinds of Wealth. To appreciate that characterization one need but think, for instance, of any sort of productive machinery. Is it not an Artificial Object? Is it not produced by Labor? Is it not produced from and upon Land? Is it not used by Labor upon Land for further production of Artificial Objects? And are not those observations true also of seed gathered and saved for planting? of minerals mined for metal? of metal to be transformed into productive machinery? of food material turned into food at a restaurant? Are they not true of every kind of intermediate product--from Machinery (which, though finished as machinery, is only an intermediate factor in the process of producing Wealth for ultimate consumption), back to the rawest of artificial raw materials and forward through all gradations to the food on a dinner table, the clothing on a diner’s body, the floor under his feet and the roof over his head?

One obsession regarding Capital, even when the term is used with Economic accuracy, is that it consists of saved Wealth. There is no such process, in any literal sense, as saving Wealth--Artificial Objects--except for ripening or reproduction purposes. Even for those purposes the saving is in the nature of using, its object being the production of more Wealth rather than preserving this Wealth. Any saving of Wealth in the Economic sense, consists in utilizing it in the Productive Process.

Are art objects exceptional? Not such as are relatively reproducible. Only “uniques” are exceptions, if indeed they may be regarded as within the boundaries of Economics. Saved over long periods, hundreds upon hundreds of years in some instances, these would seem to be out of the field of contemporary Economics. What gives them their extraordinary value? The same kind of non-Economic sentiment, on a higher plane, perhaps, that gives extraordinary value to heirlooms. Such products are not Wealth in the Economic sense any more than sacred tombstones are. Though produced by Man from and upon Natural Resources, they cannot be satisfactorily reproduced. They are closer to the nonproducible Natural Resource category than to the reproducible Wealth category.

That titles to Wealth may be saved is true enough. But in no extensive sense can Wealth itself be saved. Unless consumed in the production of more Wealth, or in the satisfaction of human desire, Wealth goes to waste.

Titles to Wealth, except such as are specific like the title to a particular house, are titles not to existing Wealth but to future Wealth. A title to a house, being specific, testifies to property rights in a particular structure which is in process of consumption. A title to its site is not a title to Wealth, but to Land, which, however, may be exchanged for Wealth. Such general titles as Money obligations declare, are titles to anything upon the market when demanded, including Wealth that may have been produced years after the total consumption of everything for which the Money title was originally exchanged. One’s “savings” in the form of Money or credits are not Wealth produced but titles to Wealth not yet delivered to him, and perhaps yet to be produced.

Only in the sense of withholding for use or of using or permitting its use in further Production of Wealth, is Wealth actually saved; and such saving is part of the Productive Process. It is a dedication of that portion of produced Wealth to service in the production of further Wealth. Wealth so dedicated is Capital.

A familiar example is seed saved for sowing. Also seed sown for growing. And seed in the barn awaiting the sowing season, that too is Capital. Seed in the field sprouting and growing and producing grain for the coming harvest, is likewise Capital. The ripened grain ready for harvest is Capital in turn, for it, too, is Wealth to be utilized in the production of more Wealth--bread or seed or both.

And so of mechanisms, which grow not as seeds do but only as the hand of the mechanic coaxes them into shape. When, for example, a machine which aids in the flouring of grain is produced, he who owns the machine owns Capital. He has saved it by putting purchasing power into a productive implement instead of putting it into ultimate products for his own consumption. Owning the machine, he owns bread-producing Capital. Using it, he consumes it in the production of bread.

A coffeemill, for further illustration, is a machine produced by Labor from and upon Land, which, when Labor uses it for grinding coffee (another product of Labor from and upon Land) brings the latter product nearer in serviceability to the ultimate consumer.

For a complex illustration, consider a railway passenger car. It is Wealth because it is an Artificial Object produced by Labor from and upon Land. But does it fall into that subdivision of Wealth which is distinguished as Capital--Wealth used for the production of more Wealth? As to its owners it is Capital, for they are using it to increase their share of Wealth in process of production; but as to the aggregate of social Wealth, its passengers, if not using it for productive purposes, are consuming Wealth unproductively. To the extent that the passengers are not on productive missions, but are gratifying their own wants, a passenger-car is in Economic contemplation Wealth in process of ultimate consumption to satisfy wants; to the extent that its passengers are on productive missions it is Wealth devoted to the Production of more Wealth, and therefore in the subcategory which is distinguished as Capital. The fact that part of its use is for Production and another for enjoyment does not disturb the principle which distinguishes Capital from Wealth in process of ultimate consumption for the satisfaction of wants.

Capital is Wealth in forms that are consumed in the further or better production of Wealth toward final forms for ultimate consumption. To save such Wealth in the sense of preventing its consumption would be to waste it; but to permit its consumption in the Productive Process is to give it serviceability.

So with all other details of the Productive Process, from natural raw materials to and including delivery to ultimate consumers. Capital is produced by Labor from and upon Land and in forms of Wealth--either Artificial materials or Artificial contrivances--which, being adapted and devoted to further Production of Wealth, are part of Labor’s artificial materials or mechanism or both--Wealth produced for augmenting Productive power. In Economic phrasing, Wealth used in the Production of Wealth is Capital.

2--Trade