This section is from the "The Science Of Wealth" book, by Amasa Walker.
This is the second grand condition, through which the productiveness of labor is increased.
"We have before spoken of capital: we now proceed to define it strictly.
It is that portion of wealth employed in reproduction.
The distinction involved is an important one. All capital is wealth, but all wealth is not capital. The very use of the term " reproduction " testifies to the feeling of man that the object of any thing is not fulfilled in its own creation or perfection, but that there is an endless series of propagations, with a constant view, and with increasing force, to some ulterior end. And we find that production does go forward, not by the increase alone of the laboring class, not by mere annual savings and gross accumulation, but by the employment of that which before was an object of desire in itself, as now a means to the gratification of new desires. Since it is recognized that human wants create others of their kind, and hence go on increasing in number and urgency, it is necessary that human efforts should find some force having a corresponding rate of increase, by which to assists themselves in supplying the growing demand. Such an agent is found in capital, which is taken out of wealth.
A man may have much wealth, and use little capital. Wealth is as it is had; capital, as it is used. For example, a man may live in a house worth thirty thousand dollars, and have ten thousand dollars invested in a ship, from which he derives all his support, and which forms his capital. It may be asked, Is not the house itself capital? It is so far as necessary to production, in sheltering the producer and his family, even with the style and comfort usual to such a degree of society. Beyond this, it ceases to be capital. It is devoted, not to the creation of values, but to personal enjoyment and culture; noble and worthy ends for wealth, but not for capital.
We may change the supposition. The man may have a house worth ten thousand dollars, and ships to the value of thirty thousand dollars. The difference to production will be apparent, inasmuch as his active capital now consists of three-fourths of his wealth, while before it was only one-fourth.
It will follow from this illustration, that there is much of the wealth of the world which it is difficult to classify whether as capital or not, much in which the two ends unite, much in which the share devoted to reproduction is doubtful. Still, this casts no discredit on the distinction itself, which stands manifest to all. There are many such principles in political economy, the general direction and character of which cannot be intelligently doubted, yet in whose particular applications we find difficulties and apparent contradictions; just as the mountain-ranges stretch across the continent, unmistakable in their great course, shedding the waters of one slope to the east and of the other to the west, making clear separation between the Flora and Fauna of the adjacent countries, and forming impassable boundaries of empire, yet are occasionally interrupted by one cause or twisted away by another, so that we find peaks here and there, which a little critic can take his stand upon, and deny the geography of the hemisphere.
How does capital arise?
From the net savings of labor. A person who earns five hundred dollars a year, and places one hundred dollars of it in a savings-bank, or invests it in land or machinery or railroad stock, or anywhere at work, has increased his own capital and the capital of the country by so much. It is not what he lays aside for use in his own occupation merely, but for use anywhere.
All capital comes in this way. A country increases in capital just in proportion to the increase of capital accumulated by its members. If the individuals of a nation apply none of their net income to reproduction, there is no increase of the national capital. If they withdraw any of their capital to meet personal consumption, the country becomes poorer.
Many of the considerations which pertain to the accumulation of capital, and the ultimate use of it, belong to the discussions of economic culture, or go further on, to the general division of " Consumption." We have simply to do with those principles which apply existing capital to the wants of present labor.
Capital is known as " fixed " or " circulating."
Fixed capital consists of every description of property employed in production, which, from its nature, cannot be advantageously changed to any other use than that for which it was originally designed. The land, buildings, and tools of the farmer, the ships and warehouses of the merchant, the machines and implements of the manufacturer, belong to this class. They must be used for the purposes to which they are particularly adapted, or they have little value. They are fixed. The ship cannot be used as a wagon, or the spinning-jenny as a locomotive.
Circulating capital, on the other hand, consists of those articles or. commodities which can be readily changed from one purpose of production to another. Of this class are the stock and produce of the farmer, the money and wares of the merchant, the raw materials of the mechanic. These are easily transferred from one business to another, and indeed from one place to another, and may be used in a great variety of forms. Of all these, money is the most mobile, as it can be changed without delay or loss to any occupation or locality.
Fixed is, in its nature, more permanent than circulating capital, not merely in its adaptations, for its name implies that, but in its existence. The greater part of circulating capital — stock and materials, for example — is held only in the immediate view of transmuting or transferring or transporting it, so that it shall pass into fixed capital. There, on the contrary, it has taken its ultimate form. If it loses this, it is only by destruction. It does not intend to assume any higher condition.
It is in this way that fixed capital receives the mighty annual additions which astonish us on the page of the statistician. The products of last year form a part of the houses, ships, railroads, and machinery of the present. The farmer adds something to his stock, or his land, or his buildings. The mechanic widens his shop, and multiplies his tools. The merchant enlarges his business, and extends his connections. The laborer saves something out of his wages, beyond the demands of immediate subsistence. It is in this way that fixed capital is increased by the contributions of circulating capital. The products of labor are generally in this form ; and it is enabled to pay its tribute without being itself impoverished.
In popular language, all wealth is divided into real estate and personal property. This distinction, if not scientific, is convenient for occasional use. We must bear in mind, however, that, while all real estate is fixed, all personal property is not circulating capital. Ships, machinery, and many other things not attached to the soil, are personal property, though standing in the category of fixed capital.