33. What is capital? We will now endeavour to understand the nature of the third requisite of production, called capital, which consists of wealth used to help us in producing more wealth. All capital is wealth, but it is not true that all wealth is capital. If a man has a stock of food, or a stock of money with which he buys food, and he merely lives upon this without doing any labour, his stock is not considered to be capital, because he is not producing wealth in the meantime. But if he is occupied in building a house, or sinking a well, or making a cart, or producing anything which will afterwards save labour and give utility, then his stock is capital.

The great advantage of capital is that it enables us to do work in the least laborious way. If a man wants to convey water from a well to his house, and has very little capital, he can only get a bucket and carry every bucket-full separately; this is very laborious. If he has more capital, he can get a barrel and wheel it on a barrow, which takes off a large part of the weight; thus he saves much labour by the labour spent upon the barrel and barrow. If he has still more capital his best way will be to make a canal, or channel, or even to lay a metal pipe all the way from the well to his house; this costs a great deal of labour at the time, but, when once it is made, the water will perhaps run down by its own weight, and all the rest of his life he will be saved from the trouble of carrying water.

34. Fixed and Circulating Capitals. Capital is usually said to be either fixed or circulating capital, and we ought to learn very thoroughly the difference between these two kinds. Fixed capital consists of factories, machines, tools, ships, railways, docks, carts, carriages, and other things, which last a long time, and assist work. It does not include, indeed, all kinds of fixed property. Churches, monuments, pictures, books, ornamental trees, &c., last a long time, but they are not fixed capital, because they are not used to help us in producing new wealth. They may do good, and give pleasure, and they form a part of the wealth of the kingdom; but they are not capital according to the usual employment of the name.

Circulating capital consists of the food, clothes, fuel, and other things which are required to support labourers while they are engaged in productive work. It is called circulating because it does not last long; potatoes and cabbages are eaten up, and a new supply has to be grown; clothes wear out in a few months or a year, and new ones have to be bought. The circulating capital, which is in the country now, is not the same circulating capital which was in the country two years ago. But the fixed capital is nearly the same: some factories may have been burnt or pulled down; some machines may have become worn out, and have been replaced by new ones. But these changes in fixed capital are comparatively few; whereas the whole or nearly the whole of the circulating capital is changed every year or two.

But the fact is that we cannot distinguish so easily as we may seem to do between fixed and circulating capitals; there may be kinds of capital which are neither quite fixed nor quite circulating, but something between the two. Flour is soon eaten up, and is circulating capital. A flour mill lasts fifty years, perhaps, and may certainly be called fixed capital; a flour sack lasts about ten years on an average. Is such a sack fixed or circulating capital? It seems to me difficult to say. In the case of a railway, the coal and oil wanted for the engine are used up at once, and are clearly circulating capital; the railway wagons last about ten years, the locomotive engines twenty years or more; the railway stations last at least thirty years; there is no reason why the bridges and tunnels and embankments should not last hundreds of years with proper care. Thus we see that capital is altogether a question of time, and we must say that capital is more fixed as it endures or continues useful a longer time; it is more circulating in proportion as it is sooner worn out or destroyed, and thus requires to be more frequently replaced.

35. How Capital is obtained. Capital is the result of saving or abstinence, that is, it can only be obtained by working to produce wealth, and then not immediately consuming that wealth. The poor savage who has to labour hard every day for fear that he may have to go without food, has no capital; but when he has food in hand, and can employ himself in making bows and arrows to facilitate the capture of animals, he is investing capital in the bows and arrows. Whenever we work in this way for a future purpose, we are living on capital and investing it. The abstinence (Latin, abs, from, and tenens, holding) consists in holding off from the enjoyment of something which we have produced, or might produce with the same labour. To save is to keep something whole or untouched for future use; we save it as long as we do not consume it. If I have a stock of flour and eat it up, there is an end of the flour, and I cannot be said to save that. But if, while eating the flour, I am engaged in making a plough or a cart, or any other durable thing which will help me in production, I have turned one form of capital into another form. I might have eaten the flour in idleness, in which case it would not have been capital. But, while eating it, I worked for a future purpose. In so doing I am said to invest capital, which means to turn circulating into fixed capital, or less durable into more durable capital. Capital, accordingly, is invested for longer or shorter periods according to the durability of the form in which it is invested (Latin, in, on, and vestire, to clothe). A good plough will perhaps last twenty years; all through that time the owner should be getting back by its use the benefit of the labour and capital spent in making it. When it is worn out, he ought to have all the capital it cost paid back, with some increase or interest. Capital invested in railway wagons should pay itself back during the ten years that the wagons last on an average.

The capital invested in any work may always be said to consist of wages or what is bought with wages. Thus the capital invested in railways really consisted of the food, clothes, and other commodities consumed by the labourers who made the railways. It is true that tools also were needed as well as the iron rails, sleepers, bricks, and other materials required for the work. But as these things had previously been made by labour, we may consider that the capital really invested in them was the wages of the labourers who had already made them. Thus, when we go far enough back, we always find that the capital invested consisted of the maintenance of labourers.

36. Investment of Capital. We have two things to consider with regard to the investment of capital, firstly, the quantity of the capital, and secondly, the length of time for which it is invested. The same quantity of capital will keep more or less men at work, according as it is invested for shorter or longer periods. A man in growing potatoes only needs to wait for the result of his labour during one year on an average. If his food and clothing during one year cost thirty pounds, then capital worth thirty pounds is sufficient to keep him at work in this way. Three men cultivating potatoes will of course require three times as much capital, or ninety pounds worth; ten men will need three hundred pounds worth, and so on in proportion. But in growing vines it is necessary to wait several years after the vines are planted before they begin to bear. Suppose it to require five years waiting, then the labourer will want 5 x 30, or one hundred and fifty pounds worth of capital before he can grow vines. Three vine-growers will want 3 x 5 x 30, or four hundred and fifty pounds worth of capital; ten men, 10 x 5 x 30, or fifteen hundred pounds worth, and so on in proportion. Thus we see clearly that the capital required in any kind of industry is proportional to the number of men employed, and also to the length of time for which the capital remains locked up, or invested on the average. But there is no fixed proportion whatever between the number of labourers and the capital they require it entirely depends upon the length of time in which the capital is turned over, that is, invested, and got back again. A poor savage manages to live on a few days’ capital in hand; a potato grower on one year’s capital. On a modern farm in which many durable improvements are made, the quantity of capital required is very much greater. To employ men upon a railway requires immense capital, because so much of it is sunk in a very fixed and durable form in the embankments, tunnels, stations, rails, and engines.

37. Labour cannot be Capital. It is not uncommon to hear it said that labour is the poor man’s capital; and then it is argued that the poor man has just as much right to live upon his capital as the rich man upon his. And so he has, if he can do it. If a labourer can go and produce any kind of wealth, and exchange it for food and necessaries, of course he may do so. But, as a general rule, he cannot do this without working for a length of time, waiting till the produce is finished and sold. In order to do this he wants something more than his labour, namely, his food in the meantime, besides materials and tools. These form the required capital, and there is no good in calling labour capital when it is really quite a different thing. At other times I have heard it said that land is capital, intelligence is capital, and so forth. These are all misleading expressions. The intended meaning seems to be that some people live upon what they get from land, or from intelligence, as other people live upon what they get as interest upon capital. Nevertheless, land is not capital, nor is intelligence capital. Production requires, as we have seen, three distinct things, namely, land, labour, and capital; and there is much harm in confusing things together by giving them the same name when they are not the same thing.