Appendix I.

ARE GOODS IN THE POSSESSION OF CONSUMERS CAPITAL?

The question whether food, clothing, etc., which are "capital" so long as they form part of the stock of a shopkeeper, are to be regarded as ceasing to be capital when they pass into the possession of consumers has seldom been definitely faced by English economists. Jevons was perhaps the first to clearly recognise the issues involved. He writes:--"I feel quite unable to adopt the opinion that the moment goods pass into the possession of the consumer they cease altogether to have the attributes of capital. This doctrine descends to us from the time of Adam Smith, and has generally received the undoubting assent of his followers. Adam Smith, although he denied the possessions of a consumer the name of capital, took care to enumerate them as part of the stock of the community." (The Theory of Political Economy, 2nd edit., p. 280.)

As a historical judgment this is very misleading. Adam Smith, chiefly impressed by the necessity of separating consumptive goods from goods used as a means of making an income--e.g., commercial capital, quite logically severed revenue from capital as a distinct species of the community's stock. His "followers," however, differed very widely, and usually expressed themselves obscurely. Generally speaking, the English economists of the first half of this century inclined to the inclusion of certain consumptive goods in the possession of labourers under capital. Ricardo, for example, thus expresses himself:--"In every society the capital which is employed in production is necessarily of limited durability. The food and clothing consumed by the labourer, the buildings in which he works, the implements with which his labour is assisted, are all of a perishable value. There is, however, a vast difference in the time for which all these different capitals will endure. A steam engine will last longer than a ship, a ship than the clothing of the labourer, and the clothing of the labourer than the food which he consumes." (Principles of Political Economy, 1817, p. 22.) The last sentence is conclusive in its inclusion under capital of goods in the possession of labourers. McCulloch again regrets Smith's exclusion of "revenue" from capital, insisting that "it is enough to entitle an article to be considered capital that it can directly contribute to the support of man or assist him in appropriating or producing commodities," and he would even go so far as to include "a horse yoked to a gentleman's coach," on the ground that it was "possessed of the capacity to assist in production." (Principles of Political Economy, Part I., chap. ii. § 3.)

Malthus does not, so far as I can ascertain, face the question. James Mill alone, among the earlier nineteenth century economists, definitely excludes labourers' consumptive goods from capital. (Principles of Political Economy, chap. i. § 2.) J.S. Mill is not equally clear in his judgment. In Bk. I., chap. iv. § 1, food "destined" for the consumption of productive labourers apparently ceases to be capital when it is already "appropriated to the consumption of productive labourers." This position, however, is not consistent with his later position regarding the unlimited character of saving, which can only be justified by regarding real wages when paid as continuing to be capital. Fawcett is vague, but he is disposed not only to include under capital food which is in the possession of consumers, but to exclude food which is in the possession of dealers. "If a man has so much wheat, it is wealth which may at any moment be employed as capital; but this wheat is not made capital by being hoarded; it becomes capital when it feeds the labourers, and it cannot feed the labourers unless it is consumed." (Manual of Political Economy, Bk. I., chap, iv., p. 29.) Among later English writers, Cairnes, like all holders of the "Wages fund" doctrine, does not clearly meet the question, "Does the food, etc., forming the real wage fund which is one part of capital, cease to be capital when it is actually paid out in wages?" He plays round the question in Leading Principles, Part II., chap. i. Bonamy Price includes consumptive goods. "It is to be remarked of all this capital, these materials, implements, and necessaries for the labourers, that they are consumed and destroyed in the process of creating wealth, some rapidly, some more slowly. Thus the very purpose of capital is to be consumed and destroyed; it is procured for that very end." (Practical Political Economy, pp. 103, 104.) Since, he adds a little later, "an article cannot be declared to be capital or not capital till the purpose it is applied to is determined," it would appear that flour in the dealer's hands is not capital, but that it only becomes capital when handed over to persons who productively consume it. Thorold Rogers appears to take the same view, holding the food of a country to be part of its capital irrespective of the consideration in whose hands it is. (Political Economy, p. 61.) Professor Sidgwick appears to regard "food" consumed by productive labourers as capital. "On this view it is only so far as the labourer's consumption is distinctly designed to increase his efficiency that it can properly be regarded as an investment of capital." (Principles of Political Economy, Bk. I., chap. v.)

General Walker apparently holds that stored food used to support productive work is capital in whosoever hands it lies. (Political Economy, 2nd edit., § 87.) He is, however, concerned with illustrations from primitive society, and possibly might hold the food ceased to be capital if paid over by one person to another as wages.

Hearn, on the contrary, definitely excludes consumptive goods. "The bullock, which when living formed part of the capital of the grazier, and when dead of the butcher, is not capital when the meat reaches the consumer." (Plutology, p. 135.)

Professor Marshall defers to the commercial usage so far as to apply the term Trade Capital to "those external things which a person uses in his trade, either holding them to be sold for money, or applying them to produce things that are to be sold for money." But turning to the individual, he insists upon speaking of the necessaries he consumes to enable him to work as "capital." "Some enjoyment is indeed derived from the consumption of the necessaries of life which are included under capital; but they are counted as capital because of the work for the future which they enable people to do, and not on account of the present pleasure which they afford." (Principles, 2nd edit., p. 125.)

These instances show that Jevons is wrong in attributing to English economists a general acceptance of the belief that goods cease to be capital when they come into the possession of consumers. They also serve to explain the source of the conflict of judgment and the confusion of expression. Economists who take it to be the end of industrial activity to place in the possession of consumers goods which shall satisfy their desires, regard "capital" as a convenient term to cover those forms of wealth which are a means to this end, and are thus logically driven to exclude all consumers' goods from capital. This view of capital coincides with the ordinary accepted commercial view which regards capital not from its productivity side but from its income-yielding side. Those economists, on the other hand, who actually, though not avowedly, take production to be the end of industry, regard as "capital" all forms of material wealth which are means to that end, and therefore include food, etc., productively consumed by labourers. If work considered as distinct from enjoyment be regarded as the end, it is reasonable enough that some term should be used to cover all the forms of material wealth serviceable to that end. It is, however, unfortunate that the term "capital" should be twisted from its fairly consistent commercial use to this purpose.

Dr. Keynes, who seems to think the sole difficulty as regards the definition of capital arises from the difference in the point of view of the individual and of the community, suggests the use of two terms, "revenue capital" and "production capital." But these terms are doubly unsatisfactory. In the first place, the "productive consumption" economist might fairly claim that as his food, etc., enabled the workman to obtain his wages or revenue, they belonged to revenue capital. On the other hand, regarding it as essential to distinct terminology to sever entirely consumptive goods from productive goods, I should insist that the "production capital" of the community was synonymous with its "revenue capital," and that although the individual view of capital is not always coincident with the community's view, that difference cannot be expressed by the distinction of "revenue capital" and "production capital."

Moreover, the consumptive-production economists, to be consistent and to preserve the continuity of the conception of economic activity, would do well to abolish labour-power as a separate factor, and to include the body of the labourer with its store of productive energy as a species of capital. For it is urged (e.g., by Professor Marshall) that the fact that the food consumed by labourers enables them to earn an income entitles it to rank as capital. In that case the "wages" which form that income should rank as interest upon the capital. Again, there is no reason for breaking the continuity of the capital at the time when the "food" is actually eaten. The food is not destroyed, but built up into the frame of the labourer as a fund of productive energy. If consumptive goods are once admitted as capital, the labourer's body must be likewise capital yielding interest in the shape of wages. If the other factor "natural agents" be still retained (an unnecessary proceeding, since all land, etc., which is productively serviceable is so by reason of the application of some element of stored labour, and may therefore be called "capital"), labour could be resolved into natural agents (the infant body) and capital (the food, etc., used to strengthen and support the body). Wages could then be reckoned partly as rent, partly as interest. It is difficult to understand why "productive-consumption" economists, some of whom have evidently contemplated the change of terminology, have refused to take a step which would at any rate have the merit of imparting consistency to their terminology. It is, of course, true that no "productive-consumption" economist would straightly admit production not consumption to be the economic goal, but his terminology can only approximate to consistency upon this supposition.

Mr. Cannan, in his able exposure of Adam Smith's mixed notions upon Capital, inclines to an extended use of the term which shall include "the existing stock of houses, furniture, and clothes" on the ground that they are "just as much a part of the surplus of production over consumption, and therefore the result of saving, as the stock of warehouses, machinery, and provisions." Moreover, whether in merchants' or consumers' hands they produce a real income, in the latter case consisting of the comforts and conveniences which attend their consumption. But if this view be accepted all forms of wealth must rank as capital; the distinction between those which have been saved and those which have not loses all meaning; so long as a piece of wealth which has been made exists, it has been saved, and is an "investment" which will, at any rate in the satisfaction due to its consumption, yield a real income. But this extension, though logically defensible, must be rejected on grounds of convenience. When economists can be got to recognise the necessity of measuring all "incomes," as indeed all "outputs," in terms of human satisfaction and effort, then it may be well to recognise that all forms of wealth which have figured as producers' capital continue to exist as consumers' capital, yielding an income of satisfaction until they are consumed. To place the consumptive-goods on a common level with forms of productive capital, it would of course be necessary to make the usual provision against wear and tear and depreciation before reckoning income. There would be no justification for reckoning the total use of a coat worn out and not replaced as income from capital.

As matters now stand, the only logically accurate correlation of economic activities which shall enable us to give a clear and separate meaning to capital and labour-power involves the distinct recognition of unproductive consumption--i.e., consumption considered as an end and not as a means to further production of industrial wealth, as the final object of economic activity. In other words, it is the benefit or satisfaction arising from the destruction of forms of industrial wealth that constitutes the economic goal. Life not work, unproductive not productive consumption, must be regarded as the end. The consideration that a good and wholesome human life is identified with work, some of which will be industrial in character, so that many forms of industrial wealth will be destroyed under conditions which enable them to render direct service in creating new forms, does not impair the validity of this conception. The inability of most economic thinkers to clearly grasp and to impress on others the idea of the industrial organism as a single "going concern," has arisen chiefly from the circular reasoning involved in making "production" at once the means and the end, and the inconsistent definitions required to support this fallacy.