Mill, John Stuart
Of Capital
I.4.1
§1. It has been seen in the preceding chapters that besides the primary and
universal requisites of production, labour and natural agents, there is another
requisite without which no productive operations, beyond the rude and scanty
beginnings of primitive industry, are possible: namely, a stock, previously
accumulated, of the products of former labour. This accumulated stock of the
produce of labour is termed Capital. The function of Capital in production it is
of the utmost importance thoroughly to understand, since a number of the
erroneous notions with which our subject is infested originate in an imperfect
and confused apprehension of this point.
I.4.2
Capital, by persons wholly unused to reflect on the subject, is supposed to be
synonymous with money. To expose this misapprehension, would be to repeat what
has been said in the introductory chapter. Money is no more synonymous with
capital than it is with wealth. Money cannot in itself perform any part of the
office of capital, since it can afford no assistance to production. To do this,
it must be exchanged for other things; and anything, which is susceptible of
being exchanged for other things, is capable of contributing to production in
the same degree. What capital does for production, is to afford the shelter,
protection, tools and materials which the work requires, and to feed and
otherwise maintain the labourers during the process. These are the services
which present labour requires from past, and from the produce of past, labour.
Whatever things are destined for this use—destined to supply productive labour
with these various prerequisites—are Capital.
I.4.3
To familiarize ourselves with the conception, let us consider what is done with
the capital invested in any of the branches of business which compose the
productive industry of a country. A manufacturer, for example, has one part of
his capital in the form of buildings, fitted and destined for carrying on his
branch of manufacture. Another part he has in the form of machinery. A third
consists, if he be a spinner, of raw cotton, flax, or wool; if a weaver, of
flaxen, woollen, silk, or cotton, thread; and the like, according to the nature
of the manufacture. Food and clothing for his operatives it is not the custom of
the present age that he should directly provide; and few capitalists, except the
producers of food or clothing, have any portion worth mentioning of their
capital in that shape. Instead of this, each capitalist has money, which he pays
to his workpeople, and so enables them to supply themselves: he has also
finished goods in his warehouses, by the sale of which he obtains more money, to
employ in the same manner, as well as to replenish his stock of materials, to
keep his buildings and machinery in repair, and to replace them when worn out.
His money and finished goods, however, are not wholly capital, for he does not
wholly devote them to these purposes: he employs a part of the one, and of the
proceeds of the other, in supplying his personal consumption and that of his
family, or in hiring grooms and valets, or maintaining hunters and hounds, or in
educating his children, or in paying taxes, or in charity. What then is his
capital? Precisely that part of his possessions, whatever it be, which is to
constitute his fund for carrying on fresh production. It is of no consequence
that a part, or even the whole of it, is in a form in which it cannot directly
supply the wants of labourers.
I.4.4
Suppose, for instance, that the capitalist is a hardware manufacturer, and that
his stock in trade, over and above his machinery, consists at present wholly in
iron goods. Iron goods cannot feed labourers. Nevertheless, by a mere change of
the destination of these iron goods, he can cause labourers to be fed. Suppose
that with a portion of the proceeds he intended to maintain a pack of hounds, or
an establishment of servants; and that he changes his intention, and employs it
in his business, paying it in wages to additional workpeople. These workpeople
are enabled to buy and consume the food which would otherwise have been consumed
by the hounds or by the servants; and thus without the employer's having seen or
touched one particle of the food, his conduct has determined that so much more
of the food existing in the country has been devoted to the use of productive
labourers, and so much less consumed in a manner wholly unproductive. Now vary
the hypothesis, and suppose that what is thus paid in wages would otherwise have
been laid out not in feeding servants or hounds, but in buying plate and jewels;
and in order to render the effect perceptible, let us suppose that the change
takes place on a considerable scale, and that a large sum is diverted from
buying plate and jewels to employing productive labourers, whom we shall suppose
to have been previously, like the Irish peasantry [1848], only half employed and
half fed. The labourers, on receiving their increased wages, will not lay them
out in plate and jewels, but in food. There is not, however, additional food in
the country; nor any unproductive labourers or animals, as in the former case,
whose food is set free for productive purposes. Food will therefore be imported
if possible; if not possible, the labourers will remain for a season on their
short allowance: but the consequences of this change in the demand for
commodities, occasioned by the change in the expenditure of capitalists from
unproductive to productive, is that next year more food will be produced, and
less plate and jewellery. So that again, without having had anything to do with
the food of the labourers directly, the conversion by individuals of a portion
of their property, no matter of what sort, from an unproductive destination to a
productive, has had the effect of causing more food to be appropriated to the
consumption of productive labourers. The distinction, then, between Capital and
Not-capital, does not lie in the kind of commodities, but in the mind of the
capitalist—in his will to employ them for one purpose rather than another; and
all property, however ill adapted in itself for the use of labourers, is a part
of capital, so soon as it, or the value to be received from it, is set apart for
productive reinvestment. The sum of all the values so destined by their
respective possessors, composes the capital of the country. Whether all those
values are in a shape directly applicable to productive uses, makes no
difference. Their shape, whatever it may be, is a temporary accident: but once
destined for production, they do not fail to find a way of transforming
themselves into things capable of being applied to it.
I.4.5
§2. As whatever of the produce of the country is devoted to production is
capital, so, conversely, the whole of the capital of the country is devoted to
production. This second proposition, however, must be taken with some
limitations and explanations. A fund may be seeking for productive employment,
and find none, adapted to the inclinations of its possessor: it then is capital
still, but unemployed capital. Or the stock may consist of unsold goods, not
susceptible of direct application to productive uses, and not, at the moment,
marketable: these, until sold, are in the condition of unemployed capital. Again,
artificial or accidental circumstances may render it necessary to possess a
larger stock in advance, that is, a larger capital before entering on
production, than is required by the nature of things. Suppose that the
government lays a tax on the production in one of its earlier stages, as for
instance by taxing the material. The manufacturer has to advance the tax, before
commencing the manufacture, and is therefore under a necessity of having a
larger accumulated fund than is required for, or is actually employed in, the
production which he carries on. He must have a larger capital, to maintain the
same quantity of productive labour; or (what is equivalent) with a given capital
he maintains less labour. This mode of levying taxes, therefore, limits
unnecessarily the industry of the country: a portion of the fund destined by its
owners for production being diverted from its purpose, and kept in a constant
state of advance to the government.
I.4.6
For another example: a farmer may enter on his farm at such a time of the year,
that he may be required to pay one, two, or even three quarters' rent before
obtaining any return from the produce. This, therefore, must be paid out of his
capital. Now rent, when paid for the land itself, and not for improvements made
in it by labour, is not a productive expenditure. It is not an outlay for the
support of labour, or for the provision of implements or materials the produce
of labour. It is the price paid for the use of an appropriated natural agent.
This natural agent is indeed as indispensable (and even more so) as any
implement: but the having to pay a price for it, is not. In the case of the
implement (a thing produced by labour) a price of some sort is the necessary
condition of its existence: but the land exists by nature. The payment for it,
therefore, is not one of the expenses of production; and the necessity of making
the payment out of capital, makes it requisite that there should be a greater
capital, a greater antecedent accumulation of the produce of past labour, than
is naturally necessary, or than is needed where land is occupied on a different
system. This extra capital, though intended by its owners for production, is in
reality employed unproductively, and annually replaced, not from any produce of
its own, but from the produce of the labour supported by the remainder of the
farmer's capital.
I.4.7
Finally, that large portion of the productive capital of a country which is
employed in paying the wages and salaries of labourers, evidently is not, all of
it, strictly and indispensably necessary for production. As much of it as
exceeds the actual necessaries of life and health (an excess which in the case
of skilled labourers is usually considerable) is not expended in supporting
labour, but in remunerating it, and the labourers could wait for this part of
their remuneration until the production is completed; it needs not necessarily
pre-exist as capital: and if they unfortunately had to forego it altogether, the
same amount of production might take place. In order that the whole remuneration
of the labourers should be advanced to them in daily or weekly payments, there
must exist in advance, and be appropriated to productive use, a greater stock,
or capital, than would suffice to carry on the existing extent of production:
greater, by whatever amount of remuneration the labourers receive, beyond what
the self-interest of a prudent slave-master would assign to his slaves. In truth,
it is only after an abundant capital had already been accumulated, that the
practice of paying in advance any remuneration of labour beyond a bare
subsistence, could possibly have arisen: since whatever is so paid, is not
really applied to production, but to the unproductive consumption of productive
labourers, indicating a fund for production sufficiently ample to admit of
habitually diverting a part of it to a mere convenience.
I.4.8
It will be observed that I have assumed, that the labourers are always subsisted
from capital: and this is obviously the fact, though the capital needs not
necessarily be furnished by a person called a capitalist. When the labourer
maintains himself by funds of his own, as when a peasant-farmer or proprietor
lives on the produce of his land, or an artisan works on his own account, they
are still supported by capital, that is, by funds provided in advance. The
peasant does not subsist this year on the produce of this year's harvest, but on
that of the last. The artisan is not living on the proceeds of the work he has
in hand, but on those of work previously executed and disposed of. Each is
supported by a small capital of his own, which he periodically replaces from the
produce of his labour. The large capitalist is, in like manner, maintained from
funds provided in advance. If he personally conducts his operations, as much of
his personal or household expenditure as does not exceed a fair remuneration of
his labour at the market price must be considered a part of his capital,
expended, like any other capital, for production: and his personal consumption,
so far as it consists of necessaries, is productive consumption.
I.4.9
§3. At the risk of being tedious, I must add a few more illustrations, to bring
out into a still clearer and stronger light the idea of Capital. As M. Say truly
remarks, it is on the very elements of our subject that illustration is most
usefully bestowed, since the greatest errors which prevail in it may be traced
to the want of a thorough mastery over the elementary ideas. Nor is this
surprising: a branch may be diseased and all the rest healthy, but unsoundness
at the root diffuses unhealthiness through the whole tree.
I.4.10
Let us therefore consider whether, and in what cases, the property of those who
live on the interest of what they possess, without being personally engaged in
production, can be regarded as capital. It is so called in common language, and,
with reference to the individual, not improperly. All funds from which the
possessor derives an income, which income he can use without sinking and
dissipating the fund itself, are to him equivalent to capital. But to transfer
hastily and inconsiderately to the general point of view, propositions which are
true of the individual, has been a source of innumerable errors in political
economy. In the present instance, that which is virtually capital to the
individual, is or is not capital to the nation, according as the fund which by
the supposition he has not dissipated, has or has not been dissipated by
somebody else.
I.4.11
For example, let property of the value of ten thousand pounds belonging to A, be
lent to B, a farmer or manufacturer, and employed profitably in B's occupation.
It is as much capital as if it belonged to B. A is really a farmer or
manufacturer, not personally, but in respect of his property. Capital worth ten
thousand pounds is employed in production—in maintaining labourers and providing
tools and materials; which capital belongs to A, while B takes the trouble of
employing it, and receives for his remuneration the difference between the
profit which it yields and the interest he pays to A. This is the simplest case.
I.4.12
Suppose next that A's ten thousand pounds, instead of being lent to B, are lent
on mortgage to C, a landed proprietor, by whom they are employed in improving
the productive powers of his estate, by fencing, draining, road-making, or
permanent manures. This is productive employment. The ten thousand pounds are
sunk, but not dissipated. They yield a permanent return; the land now affords an
increase of produce, sufficient, in a few years, if the outlay has been
judicious, to replace the amount, and in time to multiply it manifold. Here,
then, is a value of ten thousand pounds, employed in increasing the produce of
the country. This constitutes a capital, for which C, if he lets his land,
receives the returns in the nominal form of increased rent; and the mortgage
entitles A to receive from these returns, in the shape of interest, such annual
sum as has been agreed on. We will now vary the circumstances, and suppose that
C does not employ the loan in improving his land, but in paying off a former
mortgage or in making a provision for children. Whether the ten thousand pounds
thus employed are capital or not, will depend on what is done with the amount by
the ultimate receiver. If the children invest their fortunes in a productive
employment, or the mortgagee on being paid off lends the amount to another
landholder to improve his land, or to a manufacturer to extend his business, it
is still capital, because productively employed.
I.4.13
Suppose, however, that C, the borrowing landlord, is a spendthrift, who burdens
his land not to increase his fortune but to squander it, expending the amount in
equipages and entertainments. In a year or two it is dissipated, and without
return. A is as rich as before; he has no longer his ten thousand pounds, but he
has a lien on the land, which he could still sell for that amount. C, however,
is 10,000l. poorer than formerly; and nobody is richer. It may be said that
those are richer who have made profit out of the money while it was being spent.
No doubt if C lost it by gaming, or was cheated of it by his servants, that is a
mere transfer, not a destruction, and those who have gained the amount may
employ it productively. But if C has received the fair value for his expenditure
in articles of subsistence or luxury, which he has consumed on himself, or by
means of his servants or guests, these articles have ceased to exist, and
nothing has been produced to replace them: while if the same sum had been
employed in farming or manufacturing, the consumption which would have taken
place would have been more than balanced at the end of the year by new products,
created by the labour of those who would in that case have been the consumers.
By C's prodigality, that which would have been consumed with a return, is
consumed without return. C's tradesmen may have made a profit during the
process; but if the capital had been expended productively, an equivalent profit
would have been made by builders, fencers, tool-makers, and the tradespeople who
supply the consumption of the labouring classes; while at the expiration of the
time (to say nothing of any increase), C would have had the ten thousand pounds
or its value replaced to him, which now he has not. There is, therefore, on the
general result, a difference to the disadvantage of the community, of at least
ten thousand pounds, being the amount of C's unproductive expenditure. To A, the
difference is not material, since his income is secured to him, and while the
security is good, and the market rate of interest the same, he can always sell
the mortgage at its original value. To A, therefore, the lien of ten thousand
pounds on C's estate, is virtually a capital of that amount; but is it so in
reference to the community? It is not. A had a capital of ten thousand pounds,
but this has been extinguished—dissipated and destroyed by C's prodigality. A
now receives his income, not from the produce of his capital, but from some
other source of income belonging to C, probably from the rent of his land, that
is, from payments made to him by farmers out of the produce of their capital.
The national capital is diminished by ten thousand pounds, and the national
income by all which those ten thousand pounds, employed as capital, would have
produced. The loss does not fall on the owner of the destroyed capital, since
the destroyer has agreed to indemnify him for it. But his loss is only a small
portion of that sustained by the community, since what was devoted to the use
and consumption of the proprietor was only the interest; the capital itself was,
or would have been, employed in the perpetual maintenance of an equivalent
number of labourers, regularly reproducing what they consumed: and of this
maintenance they are deprived without compensation.
I.4.14
Let us now vary the hypothesis still further, and suppose that the money is
borrowed, not by a landlord, but by the State. A lends his capital to Government
to carry on a war: he buys from the State what are called government securities;
that is, obligations on the government to pay a certain annual income. If the
government employed the money in making a railroad, this might be a productive
employment, and A's property would still be used as capital; but since it is
employed in war, that is, in the pay of officers and soldiers who produce
nothing, and in destroying a quantity of gunpowder and bullets without return,
the government is in the situation of C, the spendthrift landlord, and A's ten
thousand pounds are so much national capital which once existed, but exists no
longer: virtually thrown into the sea, as far as wealth or production is
concerned; though for other reasons the employment of it may have been
justifiable. A's subsequent income is derived, not from the produce of his own
capital, but from taxes drawn from the produce of the remaining capital of the
community; to whom his capital is not yielding any return, to indemnify them for
the payment; it is lost and gone, and what he now possesses is a claim on the
returns to other people's capital and industry. This claim he can sell, and get
back the equivalent of his capital, which he may afterwards employ productively.
True; but he does not get back his own capital, or anything which it has
produced; that, and all its possible returns, are extinguished: what he gets is
the capital of some other person, which that person is willing to exchange for
his lien on the taxes. Another capitalist substitutes himself for A as a
mortgagee of the public, and A substitutes himself for the other capitalist as
the possessor of a fund employed in production, or available for it. By this
exchange the productive powers of the community are neither increased nor
diminished. The breach in the capital of the country was made when the
government spent A's money: whereby a value of ten thousand pounds was withdrawn
or withheld from productive employment, placed in the fund for unproductive
consumption, and destroyed without equivalen