§ 11. The truth here insisted on, that an exact quantitative relation exists between the amount of stock and plant, severally and collectively, required at the different points A, B, C, D, E, and that the amount economically serviceable at each point is determined by the quantity of current consumption, would seem self-evident. But though this has never been explicitly denied, the important results following from its recognition have been obscured and befogged by several conceptions and phrases relating to capital which have found acceptance among English economists.
Chief and foremost among these errors is the framing of a definition of capital so as to exclude the clear separation of productive goods and machinery, the economic means, from consumptive goods, the economic end. So long as a definition of capital is taken which includes any consumptive goods whatsoever, two results follow. One is a hopeless confusion in the commercial mind, for in commerce everything is capital which forms the stock or plant of a commercial firm, and nothing is capital which does not form part of such stock or plant. Secondly, to include under capital the food in the possession of productive labourers or any other consumptive goods is an abandonment of the idea of consumption as the economic end and a substitution of production.
If we follow Böhm-Bawerk and the Austrian economists in definitely refusing to include the consumptive goods of labourers as capital,[164] we get a conception of capital which is at once in accordance with the universal conception of commercial men, and which enables us to realise the vital relation between capital and consumption. We now see Capital in the form of stock and plant at each point in the industrial machine deriving its use and value from its contribution to the end, Consumption, and dependent for its quantity upon the quantity of Consumption. We have seen that a demand for commodities is the true and exact determinant of the quantity of capital at each industrial stage. It is therefore the determinant of the aggregate of wealth which can function as useful forms of capital in the industrial community at any given time. The aggregate of plant and stock which constitute the material forms of capital at the points A, B, C, D, E must in a properly adjusted state of industry have an exact quantitative relation to the consumption indicated by F. If F increases, the quantity of forms of capital at A, B, C, D, E may severally and collectively increase; if F declines, the useful forms of capital at each point are diminished. Since we have seen that the sole object of saving from the social point of view is to place new forms of capital at one of the points A, B, C, D, E, it is evident that the amount of useful saving is limited by the rate of consumption, or financially, by the amount of "spending." Where there is an improvement in the general productive power of a community, only a certain proportion of that increased power can be economically applied to "saving"—i.e., to the increase of forms of capital; a due proportion must go to increased spending and a general rise in consumption.
§ 12. This will hardly be disputed, except by those who still follow Mill in maintaining that the whole of the current production could be "saved," with the exception of what was required to support the efficiency of labour, a doctrine to which even he could only give passing plausibility by admitting that the increased savings which resulted from an attempt to do this would take the shape of luxuries consumed by the said labourers—that is to say, would not be "savings" at all, but a transfer of "spending" from one class to another.[165] If capital be confined to commercial capital, and "saving" to the establishment of the forms of such capital, no one will deny that the quantity of "saving" which can be effectually done by a community at any time depends upon the current rate of consumption, or that any temporary increase of such saving must be justified by a corresponding future increase in the proportion of spending.[166]
This will be generally admitted. But there are those who will still object that production just as much limits and determines consumption as consumption does production, and who appear to hold that any increase in present saving, and the consequent increase of amount of plant and stock, has an economic power to force a corresponding rise of future consumption which shall justify the saving. This they urge in the teeth of the fact that in a normal state of industry in machine-using countries there exists more machinery and more labour than can find employment, and that only for a brief time in each decennial period can the whole productive power of modern machinery be fully used, notwithstanding the increasing blood-letting to which superfluous saving is exposed by the machinations of bogus companies, in which the "saving" done by the dupes is balanced by the "spending" of the sharps. Ignoring the fact that the alleged power of increased saving to stimulate increased consumption is not operative, they still maintain that there cannot be too much "saving," because the tendency of modern industry is to make production more and more "roundabout" in its methods, and thus to provide scope for an ever-increasing quantity of forms of capital.
Under modern machinery we see a constant increase in the number of direct and subordinate processes connected with the forwarding of any class of commodities to its completion. A larger proportion of the productive labour and capital is employed, not upon the direct horizontal line, but upon the perpendicular lines which represent the making of subsidiary machinery. More and more saving may be stored up in the shape of machines to make machines, and machines to make these machines, and thus the period at which the "saving" shall fructify in consumption may be indefinitely extended.
Some of the labour stored and the capital established in the construction of harbours, the drainage of land, the construction of scientific instruments, and other works of durable nature and indirect service, may not be represented in consumptive goods for centuries. Admitting this, it may be urged, can any limits be set to present "saving" and its storage in forms of capital, provided those forms be selected with a due regard to a sufficiently distant future? The answer is that only under two conditions could an indefinitely large amount of present "saving" be justified. The first condition is that an unlimited proportion of this "saving" can be stored in forms which are practically imperishable; the second condition is that our present foresight shall enable us to forecast the methods of production and consumption which shall prevail in the distant future. In fact neither of these conditions exists. However much present "saving" we stored in the most enduring forms of capital with which we are acquainted—e.g., in the permanent way of railroads, in docks, in drainage and improvement of land, a large proportion of this "saving" would be wasted if the consumption it was destined to subserve was postponed for long.[167] Neither can we predict with any assurance that the whole value of such "savings" will not have disappeared before a generation has elapsed by reason of changes in industrial methods.
The amount of present "saving" which is justified from the point of view of the community is strictly limited. We cannot forecast the demand of our twentieth generation of descendants, or the industrial methods which will then prevail; we do not even know whether there will be a twentieth generation; there are certain large inevitable wastes in postponed consumption by reason of the perishability of all material forms of wealth, or the abstraction of them by others than those for whose use they were intended. Moreover, we do not believe it would be good for our descendants to have the enjoyment of excessive wealth without a corresponding personal effort of producing, nor would it be good for us to exert effort without some proximate and corresponding enjoyment. The limits of individual life rightly demand that a large proportion of individual effort shall fructify in the individual life.
Thus there are practical limits set upon the quantity of "saving" which can be usefully effected by extending the interval between effort and enjoyment. If the right period be exceeded the risk and waste is too great. The analogy of gardening adduced by Ruskin is a sound one.[168] By due care and the sacrifice of bud after bud the gardener may increase the length of the stem and the size of the flower that may be produced. He may be said to be able to do this indefinitely, but if he is wise he knows that the increased risks of such extension, not to mention the sacrifice of earlier units of satisfaction, impose a reasonable limit upon the procrastination. The proportion of "saving" which may be and is applied to establish late-fructifying forms of wealth, differs not only with the different developments of the industrial arts, but with the foresight and moral character of the race and generation. As our species of civilisation advances, and the demand for complex luxuries and the arts of supplying them advance, a larger amount of "roundabout" production becomes possible, and as regard for the future generations advances, more capital will be put into forms which fructify for them. But at the present in any given community there is a rational and a necessary limit to the quantity of "saving" which can be applied to such purposes.
Secondly, we find that in fact the surplus "saving" over and above what is needed to provide the necessary forms of capital to assist in satisfying current consumption is not absorbed in making provision for distant future consumption by more "roundabout methods." Much of it goes into a mere increase of the number of existing forms of capital whose raison d'être lies in the satisfaction of present or immediately future wants. The multiplication of cotton-spinning-mills, of paper-mills, of breweries, ironworks, has gone on far faster than the growth of current consumption. This increase of productive machinery has not in fact been able to force such an increase of consumption as gives adequate employment to these new forms of machinery and to the labour which is at hand to work them.