Capital is necessarily to be distinguished from money, with which in ordinary nomenclature it is almost identical. It is impossible to draw any line where capital may not operate actively without the intervention of money. A farmer, manufacturer, or artisan, who has saved from his consumption and expenses of the past year an amount of product-value, may in the following year either employ more labour to direct production or divert a portion of the labour hitherto employed to an improvement of his process, which in either case would be an investment of capital. Money, strictly speaking, is the gold and silver coins in circulation and banking reserve, and its sum in the United Kingdom may amount to over 100 millions sterling. But when the bank deposits of the kingdom are taken into account, they are found to be fives of hundreds of millions sterling, all active as money, and forming what is called the " floating capital " of the country. The explanation is that the farmer, manufacturer, and artisan already supposed, having a surplus produce to dispose of, sell it at what they deem the proper time for their advantage and put the pro ceeds in bank ; or the domestic servant or labouring man having a surplus from his wages, or the investor or speculator iu stocks and shares having realized a profit, or tho owner of a thousand acres, or the millionaire embarrassed with the returns of a capital so large that he can only add to it year after year, do the same thing the money employed in these multiplied transactions being merely the vehicle of their notation in money-value, and after accomplishing one series of transactions being available for another series following. The deposits thus made to the banks may be recalled soon or late, in whole or in part, or may go on increasing under the same names for a generation ; but, in any case, they are the realized money- values of commodities, wages, rents, interest, and profits, of which the owners had no present need, and which they placed at the service of the public in this social form at some rate of interest until such time as they might choose or need to recall them. This is capital in its most vitalized form, because it is offered through the banks to all who want capital and can give the requisite securities of document or character for its repayment. In proportion as this fund increases a country may be safely deemed richer in resource for the extended employment of labour in all profitable branches of industry, and for coping with every exigency in its industrial and commercial condition. It is a necessary element of all great enterprises, such as railways, telegraphs, lines of ocean steamers, and the like, as well as of operations in foreign commerce where there is a long train of outlays in materials, wages, and charges before there can be any return. Still the idea of capital cannot be confined to money and bank deposits of money. The indefinite extent to which, in the practical conduct of trades and industries, the capital is insensibly increased out of the resources of the business itself, without loans or contribu tion of new capital shares, and the facility with which property and commodities command the energy of free and active capital, forbid any narrow definition. The capital of a country can scarce be said to be less than the whole sum of its investments in a productive form, and possessing a recognized productive value.
The distinction of " fixed " and " circulating " capital by the author of the Wealth of Nations (book ii. c. i.) cannot fail to be always useful in exhibiting the various forms and conditions under which capital is employed. Yet the principal phenomena of capital are found to be the same, whether the form of investment be more or less permanent or circulable. The machinery in which capital is " fixed," and which yields a profit without apparently changing hands, is in reality passing away day by day, until it is worn out, and has to be replaced. So also of drainage and other land improvements. When the natural forests have been consumed and the landowners begin to plant trees on the bare places, the plantations while growing are a source of health, shelter, and embellish ment they are not without a material profit throughout their various stages to maturity and when, at the lapse of twenty or more years, they are ready to be cut down, and the timber is sold for useful purposes, there is a harvest of the original capital expended as essentially as in the case of the more rapid yearly crops of wheat or oats. The chief distinction would appear to rest in the element of time elapsing between the outlay of capital and its return. Capital may be employed in short loans or bills of exchange at two or three months, in paying wages of labour for which there may be return in a day or not in less than a year or more, or in operations involving within themselves every form of capital expenditure, and requiring a few years or ninety-nine years for the promised fructification on which they proceed. But the common characteristic of capital is that of a fund yielding a return and reproducing itself whether the time to this end be long or short. The division of expenditure or labour (all expenditure having a destination to labour of one kind or another) into " productive " and " unproductive " by the same distinguished authority (book ii. c. 3) is also apposite both for purposes of political economy and practical guidance, though economists have found it difficult to define where " productive expenditure " ends and "unproductive expenditure " begins. Adam Smith includes in his enumeration of the " fixed capital " of a country " the acquired and useful abilities of all the inhabitants ; " and in this sense expenditure on education, arts, and sciences might be deemed expenditure of tho most productive value, and yet be wanting in strict com mercial account of the profit and loss. It must be admitted that there is a personal expenditure among all ranks of society, which, though not in any sense a capital expenditure, may become capital and receive a productive application, always to be preferred to the grossly unpro ductive form in the interest both of the possessors and of the community.
clearness the origin, nature, and uses of capital. The subject in its details is full of controversies, on which it would be out of place here to enter. It may be enough to indi cate simply some conclusions which appear to be fully established. 1. Capital is not a prerogative or monopoly of any class, but embraces both in its actual form and its future possibilities all classes of men from the humblest labourer to the millionaire. 2. In proportion as capital increases the rate of profit falls, the competition of capital with capital being fully more close and active than that of labour with labour (J. S. Mill s Principles of Political Economy, book iv. c. 4). 3. The amount of the annual produce falling to capital is necessarily larger in proportion to the amount falling to labour in countries where the capital is large than in those where it is relatively small, in old than in new countries, though the rate of profit may be lower in the former than in the latter. The rate of profit may fall over the whole capital of a country, and yet from the increase of capital employed the aggregate profit be undiminished or even increased. M. Bastiat puts this conclusion in the following formula: "In proportion to the increase of capital the absolute share of the total product falling to the capitalist is augmented and his relative share is diminished ; while, on the contrary, the labourer s share is increased both absolutely and relatively" (Harmonies of Political Economy, vii.) 4. Capital, so far from being the antagonist, is the ally of labour, the indispensable means
of all extended employment and reward of labour, as well