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,[170] 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."[171] 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.
APPENDIX II.
"OVER-CONSUMPTION" CONSIDERED AS CAUSE OF DEPRESSION.
It is of course quite possible that a temporary over-production in one or several trades may be explained by a correspondent under-production in others—that is to say, there may be a misplacement of industrial enterprise. But this can afford no explanation of the phenomenon Depression of Trade, which consists in a general or net over-supply of capital, as evidenced by a general fall of prices.
In like manner it is possible to explain a commercial crisis in a single country, or part of a commercial community, as the reaction or collapse following an attempt to increase the quantity of fixed capital out of proportion to the growth of the current national income, by a reckless borrowing. This attempt of a single country to enlarge its business operations beyond the limits of the possible savings of its own current income, Mr. Bonamy Price and M. Yves Guyot speak of under the questionable title of Over-consumption. Since they tender this vice of over-consumption as the true and sufficient explanation of commercial crises, it is necessary to examine the position.
Professor Bonamy Price applied the following analysis to the great crisis in the United States of 1877:—