The Positive Theory of Capital

Eugen v. Böhm-Bawerk, from the Warren J. Samuels Portrait Collection
Böhm-Bawerk, Eugen v.
(1851-1914)
CEE
Display paragraphs in this book containing:
Editor/Trans.
William A. Smart, trans.
First Pub. Date
1888
Publisher/Edition
London: Macmillan and Co.
Pub. Date
1891
Comments
Start PREVIOUS
11 of 55
NEXT End

Book I, Chapter VI

Social and Private Capital

I.VI.1

A few remarks still remain to be made on the relation in which the two divisions of our conception, Social (or Productive) Capital, and Private (or Acquisitive) Capital,*56 stand to one another. When enumerating and reviewing the various theories, I have already expressed my views generally on this point, and may here shortly sum them up. Private Capital, as we now call it, is the parent conception. It is not so much a branch, or a subdivision of the general conception of capital, as the conception itself. The conception of National Capital, or, more correctly, Social Capital, has detached itself from the other, in the historical development of theory, as a narrower conception. Substantially it is a quite independent conception. In every essential respect (in definition, in scientific employment, and in scope) it stands on entirely independent principles. It is bound up with the conception of Private Capital only by the external and subordinate circumstance, that the aggregate of its "intermediate products" happens to coincide in extent with the aggregate of those products which are the source of income to society as a whole,—those products which constitute capital in the older sense. But through a historical accident it is this subordinate feature that has had most to do with the naming of the new conception; and thus it also bears, and will perhaps continue to bear, the name capital. And this circumstance, so long as the whole relation was not clearly understood, led to the lamentable tangle so often spoken of, that not only the conceptions themselves, thus similarly named, but the fundamentally distinct problems connected with them, were confused and interchanged.

I.VI.2

This unfortunate confusion of the problems was first attacked, so far as I know, by Rodbertus, and his efforts were seconded with peculiar clearness by Adolf Wagner. In the course of this a new interpretation was given to the distinction between National and Private capital, which is highly interesting in itself, and which, at the same time, has been accepted so quickly and over so wide an area that I feel bound to take up a definite position towards it. Wagner, like Rodbertus before him,*57 makes a distinction between capital as a "purely economic category," and capital "in the historico-legal sense," or property in capital. "Capital as a purely economic category, considered apart from the legal relations which obtain as regards property in capital, is a store of those economic goods,—natural goods,—which serve as technical instruments to produce new goods to a community; it is a store of productive instruments; it is National capital (or a portion of such). Capital in the historico-legal sense, or property in capital, is that portion of a person's wealth which may serve him as a means of obtaining an income (Rent, Interest), and which, therefore, is owned by him to this end; it is a Rent Fund, or Private Capital."*58 In this the distinction between National capital and Private capital is narrowed down to the distinction between a natural store of goods on the one hand, and the legal rights which private individuals have over that natural store on the other.

I.VI.3

I am far from denying the very great importance and usefulness of this new distinction. Its appearance was an event of the first rank in economic criticism, and it has done good and laudable service in clearly stating the fundamentally distinct problems associated with the one name of capital. Without it, certainly, the far-reaching consequences of the other distinction, that between Social and Private Capital, would never have been noticed. One thing, however, I cannot allow. It does not exhaust the meaning of this latter distinction, and, consequently, it is not exactly fitted to take its place. The categories of Social Capital and Private Capital on the one hand, and of Natural Capital and Property in Capital on the other, do not coincide, either in compass or in content, so as to allow us simply to explain or replace the former by the latter. They are rather independent categories, each of them resting on a different basis of distinction. Social Capital and Private Capital are not distinguished from each other simply as a natural store of goods and property in these goods; they represent two distinct natural stores of goods. Social Capital embraces only the means of production; Private Capital embraces also certain consumption goods. These distinct natural quantities or stores of goods, further, exert distinct economic functions. And if to these we add the further distinction that Social Capital is a category independent of any regulations of positive law,—is, that is to say, a purely economic category,—while all capital as Source of Income presupposes an owner, and therefore a right of ownership founded on history and law, then this is only one distinction out of many, and that not the peculiar and essential distinction. For if we were to drop the two former distinctions, and draw our dividing line according to the absence or presence of historico-legal claims of ownership, we should find that the division had made some very considerable changes in the constitution of the members. In the first branch, indeed, we should have as before Social Capital, the natural means of production. But in the second branch we should have only the same means of production now looked at as private property and as source of rent, and we should not have those consumption goods, such as dwelling-houses, libraries, etc., which serve as sources of rent. To cover these latter, and so fill out the compass of private capital to its true extent, we must set against the natural means of production not only private claims based on history and law, but also another natural store of goods that is still more extensive.

I.VI.4

Perhaps the peculiar inappropriateness of confusing these two distinctions may be most strikingly shown by taking an exactly analogous example. If one were asked to characterise the distinction between the two conceptions "producing" and "exchanging," and were to answer that production is a purely economic category, whilst exchange, as presupposing the existence of private property, is a historico-legal phenomenon, the answer would scarcely be taken as sufficient. We should certainly have the impression that it gave us a distinction but not the distinction between producing and exchanging. For the essence of exchanging obviously does not consist in its being a "historico-legal category." It is also a very important economic category; indeed, it is just such another as producing; and one who would explain both conceptions must, at once and before anything else, establish the distinction between the economic nature of the two. And, similarly, in this opposition between "purely economic" and "historico-legal" categories, a distinction is put forward—and a very important distinction,—but not the characteristic distinction between Social and Private Capital.

I.VI.5

Let me say once more that I consider the distinction made by Rodbertus and Wagner between natural capital and property in capital a very important one indeed, and one which, in any case, must also be drawn. What I want to point out is, that it should not be confused with the distinction between social and private capital, which rests on an entirely different basis; and the definition of social and private capital should not be based on characteristics borrowed from another and totally different distinction.

I.VI.6

The example of Rodbertus himself is the best proof that this is not simply a quarrel about formulas. His one-sided conception led him directly into a false theory of interest. In his view the essence of private capital consisted in the historico-legal circumstances of force that were connected with it; and he was thus logically committed to explain the interest on private capital simply and solely from the existence of those circumstances. Interest to him was robbery; a profit which the owners of capital squeezed out of the labourers in virtue of the brute strength which their exclusive property in the means of production gave them.*59

I.VI.7

If, on the other hand, Rodbertus had attended to the peculiarly economic side of the matter, he would have found that that other natural complex of goods, called private capital, has exerted and continues to exert a peculiar economic function quite equally with social capital; and, further, he would have found that it is simply as the natural fruit of this economical element that interest originates. Thus he would have found that interest is not purely a growth of history and law, but an original economic growth, the emergence of which is, to a certain extent, independent of the form which history and law have given it. This will be shown with sufficient clearness, I trust, in the investigations into the origin of interest which follow.

I.VI.8

Before concluding this chapter there is still one question to be put: What in the concrete are the groups of goods that constitute Social capital, and what Private capital? The answer to this should, by rights, follow from the very definition of the two conceptions. But peculiar circumstances have led to disputes not only as to the correct definition, but even as to the compass which was to be allowed to each conception in conformity with the accepted definition. It is well, therefore, to be quite clear on this point.

I.VI.9

Social Capital, as an aggregate of products destined to serve for further production, covers—

1. Productive improvements, arrangements and dispositions of land, so far as these preserve an independent character, such as dams, drains, fences, etc. So far, however, as they are completely incorporated with the land, they are to be kept separate from capital for the same reasons which made us keep land itself separate from capital.*60
2. Productive buildings of all sorts—workshops, factories, sheds, steadings, shops, streets, railways, and so on. Dwelling-houses, however, and other kinds of buildings, such as serve immediately for any purpose of enjoyment or education or culture, e.g. theatres, schools, churches, law courts, do not come under Capital.
3. Tools, machines, and other kinds of productive utensils.
4. Useful animals and beasts of burden employed in production.
5. The raw and auxiliary materials of production.
6. Finished consumption goods in the hands of producers and merchants as (warehouse) stock.
7. Money.

I.VI.10

At the first glance the two latter categories may be called in question. Consumption goods as found in warehouses are, to all appearance, no longer "intermediate products," but "finished goods," and Money is not a tool of production but a tool of exchange. Still, I think it correct to put both conceptions under capital. They both serve to complete a roundabout way of production. When, in order to take advantage of more favourable conditions, goods are produced, or caused to be produced, at a different place from where they are demanded, it is nothing else than a peculiar kind of roundabout process. The consequence then is—and it is here that the "roundaboutness," which is to be understood literally in this case, comes in—that, after the product is technically finished, it must be conveyed to the place where it is demanded. All this is done very often inside the narrow limits of an isolated economy; the peasant must bring his harvested grain from the field, his felled wood from the forest. But it is done, on an immensely greater scale, in the wider field of social production and divided labour. Just as the peasant may raise his crop a quarter of an hour's distance from his house, or cut his wood an hour's distance off, because in this way he can best utilise the conditions of production, so for good reasons it is quite common in organised and divided industry to obtain the objects of our demand from other people's workshops, indeed often from other places, other lands, other continents; and then, naturally, in the end we have to provide their means of conveyance. In the one case as in the other the conveyance forms the last act of production, and before this last act is finished we cannot properly say that the products are ready for human consumption. So, just as everybody would include among instruments of production and capital the horse and cart which assist the peasant in carrying in his grain and wood, must we reckon as capital the objects and apparatus of that more extensive "leading in" of the national harvest—the conveyed products, the streets, rails, ships, and the commercial tool money. It may be noted, besides, that those commercial roundabout ways, arising out of the division and organisation of labour, rank, as regards the advantage they confer, along with the other technical roundabout ways. They are as profitable as, or even more profitable than, any of the capitalist methods of production to which the most famous technical inventions have led.

I.VI.11

These seven categories exhaust, in my opinion, the group of things which constitute Social Capital. It goes without saying that economists who take another view of the conception of capital add other categories, such as land, durable consumption goods, the person of the labourer, and so on, and this needs no further elucidation here. It is surprising, however, to find writers, who take exactly the same view of the conception as we do, proposing to add certain other categories.

I.VI.12

Most surprising of all in this connection is the unanimity with which economists, from the earlier English writers down to Adolf Wagner,*61 put the maintenance of productive labourers under social capital. Certainly the real wages of the labourers—the articles of food, clothing, fuel, lighting etc., which the labourers use—are, from the standpoint of the undertaker who advances them, his private capital. But it is just as clear in my opinion that, from the standpoint of the whole community, these objects cannot be counted capital if capital is defined as a complex of means of production. The conception of "means of production" should and does form an antithesis to the conception "means of consumption." There cannot be the slightest doubt as to the meaning of this antithesis, and just as little can there be as to the fact that the workers' subsistence is the immediate instrument to the satisfaction of their wants, and that labourers are men and members of society. But if this is so, it seems to me absolutely proved that the maintenance of the labourer must be classed along with wealth destined for consumption and for the immediate satisfaction of the wants of society, and not with the means of production or capital. It could only be otherwise if the labourers were to be looked upon, not as members of the civil society in whose interest industry and commerce are carried on, but as material machines of labour. Then, but only then, the maintenance of the labourers would, as a matter of course, fall under the same category as the feeding of beasts of burden and the stoking of furnaces; it would be a means of production, or capital. The idea, however, scarcely needs refutation.

I.VI.13

It may be pointed out, however, that productive labourers are not simply consuming subjects, but are also active economical instruments; and that, consequently, the subsistence which does directly serve for the maintenance and furtherance of their life indirectly serves towards the further production of goods. But in this case a simple indirect relation to production is not sufficient. For it is easy to see that the distinction between means of production and means of consumption has a meaning only if it refers to the immediate destination of goods. If we were to take notice of their indirect or mediate destination we should require to put all goods without exception under the category of means of consumption, since even the means of production serve indirectly to the satisfaction of human wants. Then this raises another difficulty. The division of goods into goods for consumption and goods for production is intended to be a real division; it should be based on an opposition. Now it is impossible to deny that the food which the labourer consumes serves for the immediate satisfaction of the wants of a member of the community; that is, it corresponds entirely to the definition of a consumption good. How then could we class a thing which has all the properties of one category under the category opposed to it? Thus, as is so often the case, the laboured explanation leads us into a net of confusion, and the simplest is the truest. The goods with which the working members of the community feed, heat, and clothe themselves, are goods for immediate consumption, not means of production.

I.VI.14

That, in face of arguments so obvious, the opposed doctrine should be held so universally and so tenaciously is a phenomenon scarcely intelligible at first sight, but easily explained when we inquire more closely into the circumstances of the case. Two powerful factors, I think, co-operated towards it. One was historical tradition, which, in this case, was very strong and deep-rooted. It should not be forgotten that the inclusion of the labourers' maintenance into the conception of capital came at a time when the conception itself was not yet clearly defined, and when, in particular, Private capital, to which the labourers' maintenance in any case belongs, was not yet sharply divided off from Social capital, to which it does not belong. This was assisted by the peculiar view, dominant for a long time, that the function of capital was the "putting of labour in motion"—a function which the labourers' maintenance conspicuously realised. It was assisted, moreover, by the famous Wage Fund theory. That theory made the rate of wages depend chiefly on the proportion between the number of labourers and the amount of the Wage Fund; that is, the amount of capital destined for the support and payment of the labourers—an idea which helped to connect the means of subsistence still more closely with the conception of capital. And, finally, another impulse in the same direction may have been given by the frequently and justly criticised tendency of the English school to look upon the labourer as a machine of production, and to consider his wage simply as an element of the costs of production—a deduction from the national income and not a part of it.*62

I.VI.15

Resting on such a wide basis of support, the proposition that the maintenance of productive labourers forms an element in Social capital worked its way by degrees so firmly into the scientific consciousness, that it was considered by many as an axiom quite above discussion; and in the end it was able to maintain its position on the strength of its own authority, even after the ground had really been taken from under it by the discovery of the distinction between Private and Social capital, and by the definition of the latter as an aggregate of means of production.

I.VI.16

The second factor has had even more effect than the weight of historical tradition; and not only has it co-operated in the past in the creation of these traditions, but it still asserts its living influence. That factor was, if I am not very much mistaken, the conscious or unconscious inclination towards another reading of the conception of capital than that recognised in what we may call the official definition. Economists have stood, and still stand, in hesitation between those two conceptions which have the most numerous and suggestive relations to the problems of capital—the conception of "produced means of production" and the conception of "national subsistence fund."*63 In the official definition, it is true, the preference was finally given to the "produced means of production"; but economists, quite rightly feeling that the "national subsistence fund" had also something to do with the theory of capital, could not quite give up this conception. And thus they put together a hybrid conception, adding to the Means of Production proper, which had the stamp of the official definition, a portion of the Subsistence Fund conception, in the maintenance of productive labourers. Of course a classification like this, which is nothing else than the result of uncertainty and compromise, cannot be satisfactory. Economic theory must make decisive choice between the two competing conceptions, and, however the choice turns out, the conception will be limited and determined otherwise than it is by the writers now being criticised. Either we shall decide for that conception which makes capital an aggregate of Intermediate Products—and this choice, for reasons of appropriate terminology already stated, I consider the happier one—and in this case the labourers' maintenance falls outside the conception; or we shall give the name capital to the Subsistence Fund which makes the roundabout way of production possible, and then, as will be shown later,*64 not only must the means of subsistence of the productive labourers be reckoned as capital, but also the subsistence of the capitalists and landowners, as standing in exactly the same indirect, relation to the adoption of "capitalist" methods of production. If all this cannot justify, it may at least explain the phenomenon, otherwise almost incomprehensible, that, in flat contradiction to the official definition of capital, people continue to add to it the maintenance of the labourers; and perhaps the exposure of this origin may help to put an end to the curious habit.*65

I.VI.17

Another category which seems to me wrongly placed among the constituents of Social capital is the so-called "incorporeal capitals," such as debts and other kinds of claims, goodwill of businesses, the state, etc. These things are not capital, because they are not real goods. They are, as I have shown at length in another place,*66 nothing but representative words or collective names for a sum of real goods, which may be capital, or may not. If they are, then they are already contained in our seven categories; if they are not, we should not, of course, open a special category for them.

I.VI.18

Finally, Private capital consists of the following:—

1. All goods which form Social capital.
2. Those consumption goods which their owners do not use for themselves, but employ by exchange (sale, hire, loan) in the acquisition of other goods, e.g. let-houses, lending-libraries, means of subsistence advanced by undertakers to their labourers, and many others.

I.VI.19

Many writers add certain "relations," patents,*67 trade connection,*68legal claims.*69 These, of course, on the same grounds of theory as above, I must reject as constituting an independent category of capital.

I.VI.20

And now, after this very lengthy introduction, which can only be excused by the singular confusion in which we found the theory, we may turn from the conceptions to the problems which are associated with them. In the book which follows we shall work out the theory of the conception we had to glance at in the two first chapters of the present book; the theory of capital as Instrument of Production, or the theory of Social Capital.*70


Notes for this chapter


56.
As I have already remarked on p. 38 I consider the terms in brackets, Productive and Acquisitive Capital, as essentially the more appropriate. But since Rodbertus and Wagner the terms National and Private capital have been used almost universally, and as I consider it conducive to the final settlement of this jumble of terminology not to disturb names that are fast rooted in common usage, unless there is some quite overwhelming reason for doing so, I content myself with making the one change—which seems to me in any case indispensable—of the term "National" into the term "Social capital.
57.
See particularly Zur Erklärung und Abhilfe der heutigen Kreditnoth des Grundbesitzes, second edition, vol. i. p. 90, vol. ii. p. 286, where das reale Kapital, as consisting of the natural objects of capital, is sharply opposed to Kapitalbesitz, or property in capital. Similarly Das Kapital, pp. 304, 313, and passim.
58.
Wagner, Grundlegung, second edition, p. 39.
59.
See my criticism of this theory in Capital and Interest, p. 337.
60.
I may be accused of want of logic here on the ground that such improvements are always products which serve towards further production, and therefore come under our definition of capital. The criticism is correct as to the letter, but wrong as to the spirit. A stay propped up against a tree is certainly not the tree itself but an outside body. But who would still call it an outside body if after some years it had grown inseparable from the tree?
61.
Grundlegung, second edition, pp. 39, 43.
62.
See Schmoller, Tübinger Zeitschrift, vol, xix. (1863), pp. 10, 25.
63.
See above, p. 42.
64.
See also above, p. 43, note 1.
65.
The case is exactly the same with the notorious Wage Fund theory. In it also I see a misbegotten fruit of an idea which is quite right in itself. It is, as we shall see later, a very unsuccessful attempt to express certain relations that really do exist between the national subsistence fund on the one hand, and the height of wage and interest on the other. Against the inclusion of the labourers' means of subsistence in national capital Rodbertus has expressed himself in a quite classical style, Das Kapital, p. 294, and before that in his Zur Erkenntniss unser, staasw. Zustände, theorem i. Very clear and convincing, too, is Gide, Principes d'Économie Politique, Paris, 1884, p. 150. See also Sax, Grundlegung, p. 324, note.
66.
Rechte und Verhältnisse vom Standpunkte der volks. Güterlehre, 1881, passim. Since then, see H. Dietzel (Der Ausgangspunkt der Socialwirthschaftslehre und irh Grundbegriff, in the Tübinger Zeitschrift, 1883, p. 78), and Sax (Grundlegung, pp. 39, 199), who surely goes too far in excluding personal service from the conception of goods. Neumann, on the other hand (Schönberg's Handbuch, second edition, p. 151), remains firm in recognising rights and relations as real goods on grounds which do not commend themselves to me as at all convincing. On one single a point I feel myself bound to reply. In my definition of the conception of goods, Neumann "does not find" the lines sufficiently distinctly drawn, and quotes, in a tone of irony, a number of expressions which, taken by themselves, certainly do not draw any distinct line (ibid. note 41). But Neumann can only have read portions of the work he objects to, or read it very hurriedly. Otherwise it would not have escaped him that the expressions he quotes stand at the end of a chapter Rechte, p. 29), and that the beginning and middle of that chapter (p. 13 onwards) are devoted to what he "does not find," and that, obviously, the later expressions are to be taken and understood along with what goes immediately before.
67.
Wagner, Grundlegung, second edition, p. 42.
68.
Roscher, Grundlagen, eighteenth edition, § 42.
69.
Hermann, Staats. Untersuchungen, second edition, p. 122.
70.
The careful reader will, without doubt, have remarked that the statement as to the nature of capital given in the second chapter, relates solely to Social economic capital. For obvious reasons I did not wish to mix up the dogmatic statement with the terminological and critical discussion which, I am afraid, has been terribly prolix. And, for reasons as obvious, I did not wish to commence this discussion without having, at least partially, put before my readers the object to which the discussion refers. I therefore made use, for the time being, of the word Capital without any of the clauses and additions which would at once have necessitated the tedious terminological discussions I wished at the time to avoid. The more exact explanations which follow will prevent any misunderstanding to which this may, perhaps, have given rise.

End of Notes


Start PREVIOUS
11 of 55
NEXT End

Return to top