Chapter IV. Capital Defined And Classified.
Capital distinguished from wealth.—Whenever material wealth is used not directly in meeting present wants, but to produce more wealth suited to future wants, it is called capital. Any store of good things devoted only to meeting wants as they come is thought of as wealth, as well as possible capital, since at any time it may be made the means of creating other wealth to more than take its place. The distinction grows wholly out of the uses of wealth, not its forms. A horse used, or to be used, as a force in production by drawing loads is counted as capital; but if used for mere pleasure-riding is only wealth, which leaves no material return when consumed. Thus the same horse may, in the hands of a breeder, a trainer, or a liveryman be capital, but in the hands of a fancier or a pleasure seeker be only wealth, to be used as wanted.
Wealth in dwellings or public buildings constructed for enjoyment rather than protection of a working community is not capital, and may be destroyed by fire or storm without serious disturbance of industry. The loss is bravely met, the hardship endured and extra energy put into restoration. A farmer may lose a fine house and by living in less comfort for a time restore it, while [pg 039] the loss of his teams or his barns may cripple his industry. In the great Chicago fire of 1871 the wealth destroyed is estimated at $50,000,000, while the loss of actual capital may have been only $5,000,000. An energetic use of the capital remaining wrought apparent wonders in the restoration of wealth. Indeed, the total capital of our country is supposed to be only three times the annual product of industry, though a century of labor could not restore it if destroyed entirely, because effective tools would be wanting.
The capital of an individual is such a portion of his wealth as he is using to maintain and increase his wealth. The capital of a country includes all the farms, so far as they are made such by improvements directly or indirectly, including all ways and means of communication and transportation, for roads contribute to all goods drawn over them; all buildings devoted to systems of production, including necessary protection of laborers themselves; all tools, machines and contrivances for power; all animals employed in connection with industry; all materials of construction or growth; all materials consumed in securing and maintaining power, as fuel, lubricating oil, etc., or in performing operations of manufacture, as dye stuffs; subsistence for the workers, the brutes they use, and the families which keep up the life and comfort of the people; the necessary stock in trade, that all wants may be readily supplied; all the machinery of trade for ready transfers, including any actual wealth in form of money; all the governmental machinery for protection and maintenance of order, as a first essential to wealth-producing.
All these are more simply grouped in their different relations to labor under three classes: first, as sustaining labor by food, clothing, protection and material on which to work; second, as aiding efficiency by tools, machines and stored up forces; third, as stimulating exertion by reducing present anxieties and arousing more far-reaching plans for future undertakings, illustrated by possession of satisfactory stocks of goods or comfortable homes for families.
Capital a time-saver.—All these forms of wealth serve in production by extending the possible waiting between an effort of any kind and the greater satisfaction secured by it. No community could begin farming as a business until it had secured housing and seeds and tools and provisions in some form for most of a year's sustenance. All the capital that constructs a great thoroughfare is used in getting ready to satisfy wants in many future years. Capital furnishes subsistence for laborers of every kind during those years of waiting for a product. This is true capital, because the object of its use is a greater product of wealth; but the product may be long delayed. So all accumulated wealth in every form represents sustained labor during the past. Professor Taussig estimates the accumulation of subsistence in all existing goods at five years of labor for the community. The total value of farms in our country is just about five times the average annual product of the farms, though a large portion of the land is unused.
Capital circulating or fixed.—A further distinction is desirable between capital in food, fuel or stock in trade, which may be turned at a single use into new wealth, [pg 041] and capital in buildings, bridges, roads and farms, which may be used many times in adding new wealth before they entirely disappear or give place to new forms of capital. The first is called circulating capital, and the last fixed capital.
The degree of permanence in fixed capital is indefinite of course—even drains vary in permanence—and the line between the two is not always easily drawn, yet the distinction is real. Most men distinguish “the plant” in any enterprise from “the current supplies,” and realize that some fit proportion exists between them. A farm well equipped can not be handled to advantage without a proportional investment in current supplies. Many a renter cannot pay his rent for want of means to work his farm profitably. If the farm were given him, he would still be hampered by the same lack of consumable goods to turn at once into larger products. Many a “land poor” farmer would gain at once by exchange of acres for more “current supplies” for his farming, such as food for help, feed for teams and stock, seed or fertilizers for his crops, or young stock to consume the raw product of his fields. In the fourteenth century the stock of European farms was worth three times the value of the farms. Similar conditions are found now in some newer portions of the United States. It is impossible to estimate exactly the existing ratio between fixed and circulating capital from statistics at hand. Farmers in older, more developed regions can use, without suffering, a larger per cent of fixed capital than pioneers can, because the circulation is more rapid. For the same reason the raising of staple annual crops gives place to [pg 042] double cropping, dairying and full feeding as land grows more valuable, frequent returns serving instead of large circulating capital.