Appendix to Page 327 [Book VI, Chapter V], Amount of Subsistence Fund Necessary Before Entering on a Production Period o

If one year be the period of the production process and the stage period also be one year, so that no new goods, finished and ready for consumption, are turned out under a year's time, then, obviously, before beginning such a process, there must be on hand a fund of subsistence containing sufficient to cover the entire wants of the workers for one year, and that in a finished state. If we call the Subsistence Fund S, and the year's Want Y, then, in this case, S = Y.

If two years be the production period, and the stage period, as before, be annual, it is necessary that, at the beginning of the production period, there should be on hand one year's supply finished, and a second year's supply half finished. In each year the finished year's supply is consumed by the workers, while the half-finished is finished by the workers of the second stage—thus securing the subsistence for the next year—and a fresh year's supply is put in hands by the workers of the first stage, and, in turn, half finished. Here, therefore, if we call the half-finished year's supply a half year's supply, S = 1½ Y.

Similarly for a three years' production process, with annual stages, we require one year's want entirely covered, another 2/3 covered, and another 1/3 covered: or, one year's supply finished, another 2/3 finished, another 1/3 finished. In each year, then, the finished year's supply is consumed, the 2/3 finished is finished by the workers of the third stage, the 1/3 finished becomes 2/3 finished by the workers of the second stage, and a further year's supply is newly created by the workers of the first stage, and is finished to the extent of 1/3—whereby, at the end of the year, the status quo is restored, and continuous provision is guaranteed. S, therefore, here = 1Y × 2/3 Y × 1/3 Y = 2Y.

Similarly, if the stage is still one year, then in a four years' process S=(1 + ¾ + ½ + ¼)Y = 2½Y:

If we look closely into these figures we shall easily discover the law that underlies them: Every production period requires a fund of subsistence containing sufficient to cover half a year more than half the production period.

Suppose we continue our inquiry under the assumption of a different stage period, say, half a year. Here it is quite the same whether the stage period occurs under the division of labour or not, the only thing essential being that, every half-year, finished consumption goods are turned out from the total process. To enter upon a one year's process, with half-yearly stages, what we require is a finished supply for one half-year—during which no fresh consumption goods are turned out—and half-finished supply for the second half-year. During each six months, then, the finished supply is consumed; the half-finished is finished by the workers of the second stage; and a new six months' supply is begun and half finished by the workers of the first stage, whereby the status quo is restored. S here = ½Y + ½ &times ½Y = ½Y + ¼Y = ¾Y.

Similarly in a two years' production process, with half-yearly stages, we require ½Y + ½ × ¾Y + ½ × ½Y + ½ &times ¼Y = (½ + 3/8 + ¼ + 1/8)Y = 1¼Y, while in a three years' period we require ½ + ½ × 5/6 + ½ &times 4/6 + ½ × 3/6 + ½ × 2/6 + ½ &times 1/6 = ½ + 5/12 + 4/12 + 3/12 + 2/12 + 1/12 = 1¾Y.

Here, again, the underlying law is plain: If the stage period be six months the fund necessary contains subsistence for three months longer than half the production period.

If we were to carry out our inquiry still further we should find, similarly, that, where the stage is three months, the fund must contain six weeks' more subsistence, where it is one month, must contain two weeks' more subsistence, than half the production period. And thus we arrive at the general formula of p. 327, that the fund of means of subsistence most be sufficient for half the production period plus half the usual stage period.

See my Capital and Interest, 1890, p. 111.

See Menger, Grundsätze der Volkswirthschaftslehre, p. 1. Vienna, 1871.

P. 219 (German edition, p. 265). See also my Rechte and Verhältnisse, p. 51. Innsbruck, 1881.

See Mill's Principles, i. 1. 2.

If we were to carry our analysis of what man does in production a step further, we might appropriately distinguish three fundamental ways in which the producing man "moves things." The first is what, for want of a better name, we may call simple movements or changes of place—where men transport entire objects from one locality to another. Thus the miner brings the ore from the depths of the shaft to the upper air; the merchant takes his goods from the place where they are produced to the place where they are demanded and used. The second embraces those movements of parts of one and the same object whereby it experiences a change of form, as when nails are made from iron, statues from marble, pipes from clay, dials from ivory, combs from caoutchouc, tumblers from glass, furniture from wood. The third, and much the most common way, is where different objects are brought together in space to form combinations of matter. These combinations may be merely temporary, or they may be lasting. Instances of the one are where the stamp falls on the coin, the chisel chips at the marble, the carving tool is applied to the wood, the ore put into the furnace, the yarn into the loom, the paper under the printing press, the stuff under the shears, the plough through the clods. Instances of the other are where we build a house out of wood, stone, lime, iron, etc.; where we put together a watch out of wheels, springs, pendula, weights, stop-action and many other things; in fact in manufacture generally. I must warn the reader that this division into three fundamental forms neither has, nor is meant to have, the character of strict scientific classification. Indeed, these forms merge in many instances into one another. Temporary combinations, for instance, are very often half-way to changes of form, and what I have called a simple change of place is at the same time, in a certain point of view, a material combination, a bringing together of the thing moved and the object (personal or impersonal) to which it is moved. This division, however, will make it easier to find our reckoning, and will prove too, if necessary, the correctness of the general characteristics which I have ascribed in the text to productive processes. I mean to say that it is easy to see that every productive activity which one can think of ranges itself under some one of these three fundamental forms, and to that extent it is proved that such an activity must, a fortiori, range itself also under the general formula given in the text, where we have described the nature and method of the production of material goods as the mastery of natural powers by means of putting objects in motion.

Menger has suggestively called these Goods of the First Rank, classing all goods which go to their production as Goods of Higher Rank. It is unfortunate that we cannot use the literal English equivalent of the "Genussgüter," but, as next to it in convenience, I propose to use the expression Consumption Goods for what otherwise we should have to translate as Goods for Immediate Consumption. See Manger's Grundsätze, p. 8, and Böhm-Bawerk's Rechte and Verhältnisse, p. 101.—W. S.

The expression Capitalist Production is generally used in one of two senses. It designates either a production which avails itself of the assistance of concrete capital (raw materials, tools, machinery, etc.), or a production carried on for the behoof and under the control of private capitalist undertakers. The one is not by any means coincident with the other. I always use the expression in the former of these two meanings.

Looking back over the last few years only, I can recall, as coming in quick succession, the researches of Knies (Das Geld, Berlin, 1873, pp. 1-56); of Cossa (La Nozione del Capitale, 1874, published in the Saggi di Economia Politica, Milan, 1878); of Ricca-Salerno (Sulla Teoria del Capitale, Milan, 1877); of Umpfenbach (Das Kapital in seiner Kulturbedeutung, Würzburg, 1879); of Kühnast (Ueber den rechtlichen Begriff des Kapitales in Beiträge zur Erläuterung des Deutschen Rechtes, 1884); of Supino (Il Capitale nell' Organismo Economico e nell' Economia Politica, Milan, 1886). Meanwhile we have the well-known works of Rodbertus and Marx, both bearing the title Das Capital, and again the elaborate statements in the more comprehensive systems, particularly those of Wagner (Grundlegung, second edition, 1879, p. 36); of Kleinwächter (Schönberg's Handbuch, first edition, p. 170; second edition, p. 206); and of Cohn (Grundlegung der Nationalökonomie, Stuttgart, 1885, 145-147).

See on this subject Knies, Das Geld, Berlin, 1873, p. 6 (second edition, p. 24); Ricca-Salerno, Sulla Teoria del Capitale, 1877, chap. ii.; and Schönberg's Handbuch, second edition, vol. i. p. 206.

The English word "Cattle," as Knies (p. 7) has rightly remarked, has nothing in common derivatively with our conception.

Capital and Interest, book i. chaps. ii, and iii.

Glossarium of Dufresne du Cange, quoted by Umpfenbach, Das Kapital in seiner Kulturbedeutung, Würzburg, 1879, p. 32.

Wealth of Nations, book ii. chap. i.

Rodbertus, passim; Wagner, Grundlegung, second edition, p. 39.

Staatswirthschaftliche Untersuchungen, Munich, 1832, p. 59, and similarly in the second edition of 1874, p. 111. On p. 56 he expressly calls capital "Wealth which brings in income."

Grundsätze, Vienna, 1871, p. 130.

See Mataja, Der Unternehmergewinn, 1884, p. 180.

Grundlagen und Ziele des sog, wissenschaftlichen Sozialismus, 1885, p. 184.

Theory of Political Economy, second edition, London, 1879, p. 242.

Ibid. p. 242, and very emphatically p. 264: "The capital is not the railway, but the food of those who made the railway."

Das Kapital, vol. i., second edition, p. 796 (first edition, p. 747). See also Knies, Das Geld, first edition, p. 53.

Das Geld, first edition, p. 47. In the second edition (1885) the same conception is on the whole retained, but often formulated in a less exact manner. Accordingly, where I do not explicitly mention the contrary, I quote from the more distinct formulation of the first edition.

Élements d'Économie Politique Pure, Lausanne, 1814, p. 213. Launhardt (Mathematische Begründung der Volkswirthschaftslehre, Leipsic, 1885, 2) has closely followed Walras.

"It does not represent commodities in any way whatever, but only the power its owner has of purchasing what he wants" (Elements of Political Economy, 1858, pp. 66 and 69).

"Ueber den rechtlichen Begriff des Kapitals," in the Beiträge zur Erläuterung des Deutschen Rechtes, 1884, p. 356; and particularly pp. 385-387.

See also Knies, Das Geld, p. 17 (second edition, p. 38).

Thus occasionally Adam Smith, J. B. Say, and others.

Thus Canard: "The fundamental wealth of one who pursues an art or a handicraft is his own person"; and later, M'Culloch (Principles of Political Economy, 1825, p. 319): "A labourer is himself a part of the national capital." Elsewhere he explains the wage of labour as an interest on capital of the "machine called man."

Grundlagen der Nationalökmomie, 42.

Das Geld, p. 5.

See above, p. 24. [Book I, Chapter III, par. I.III.2.—Econlib. Ed.]

Cosec (La Nozione del Capitale), Saggi di Ec. Pol., p. 157, has the definition: "Capitals è un prodotto impiegato nella produzione." Ricca-Salerno (Sulla Teoria del Capitale, 1877, p. 51) says: "Il capitale è ricchezza prodotta applicata alla produzione." Rodbertus, whose opinion I am inclined to put particularly high, because, although not altogether happy in his solution of the problems of capital, he had an insight into its essence such as scarcely any one before him had, explains (Das Kapital, p. 234, also Zur Beleuchtung der soz. Frage, p. 98) that "Capital (materials and tools) is product which serves for still further production." A. Wagner, also, who has done good service in the theory of capital (Grundlegung, second edition, p. 38), calls capital a "Stock of economical goods, which serve as instruments to the making or acquiring of new economical goods." In the most recent Italian monograph on capital, Supino (Il Capitale nell' Organismo Economico e nell' Economia Politica, 1886, pp. 9 and 17) defines capital again as "Il prodotto del lavoro passato che serve a produzione successivea," or as "ricchezza impiegata produttivamente allo scopo di ricavarne un profitto." Of other prominent modern writers may be mentioned Pierson (Leerboek der Staathuishoudkunde, Haarlem, 1884, p. 157); Schönberg (Handbuch, second edition, p. 209), "Capital is a material means of production obtained by human labour, which, employed as such, is destined to give a return to its owner"; E. Sax (Grundlegung der theoretischen Staatswirthshaft, pp. 115, 315, 323, etc.) Of recent French writers on the subject Gide (Principes d'Économie Politique, Paris, 1884) recognises the two varieties in the conception of capital with a clearness rare even in French literature, and distinguishes them an "capitaux simplement lucratifs" and "capitaux productifs." "Les premiers," he says, "sont ceux qua rapportent an revenu à une personne; les seconds sont ceux qui produisent une richesse nouvelle dan le pays" (p. 148). His only failure is that he would recognise productive capitals alone as "true" capitals.

In English literature our conception of capital (without, of course, any clear distinction being kept between its two varieties) is almost exclusively the prevailing one; this is so well known that I may spare quotations. Generally speaking, it is very significant of the state of "public opinion" in the matter that not long ago Kleinwächter (Schönberg's Handbuch, second edition, p. 210) could explain "Common usage in political economy to-day considers it an essential characteristic of capital that it is a material means of production." The only difference of opinion is as to whether land should be reckoned as capital or not. Finally, I think I may venture to express the opinion that even the foremost representative of a rival definition, Knies, is in opposition to us more in form than in matter. It is he at any rate who has, in a masterly manner, developed the idea—the really important one in our statement of the conception—that, in defining capital, we must define that which is the object of those problems that "have appeared on the scene under the name of capital" (Das Geld, p. 19).

I do not care to waste more words than necessary here on things which will become clear of themselves se we go on, but I may make one remark. For reasons that Rodbertus (Das Kapital, p. 301) has seen through tolerably correctly, and which will be fully explained later, it is by no means my meaning to emphasise only the subsistence advanced to productive labourers, and reckon it capital. Either the conception of capital is limited to goods which serve immediately in production, and therefore to productive goods proper,—in which case means of subsistence in general, and also the means of subsistence of labourers, have no share. Or, besides "intermediate products," such finished consumption goods are taken into the conception as serve indirectly by their existence to production,—in which case, as will be shown in the proper place, certain advances of subsistence given to landowners and capitalists must be included. But then we are at once met with the difficulty suggested in the text of fixing definitely, when the advances of subsistence, given to people who do not themselves produce, are of indirect assistance to production, and when they occupy no relation to it.

Grundlagen der Nationalökonomie, 42.

Grundlagen der Nationalökonomie, p. 211.

See also the acute criticism of Knies, Das Geld, p. 46.

In latest editions Reacher, evidently under the influence of what Knies has said on the subject, formally widens his definition of capital to some extent by an addition. It now runs: "Every product which is destined to further economical production (even to systematic later use) we call capital." This addition, however, does not materially widen the conception, as Roscher, independent of this, has already included every use—therefore every "systematic later use"—in the production of (material or personal) goods.

Das Geld, pp. 83 and 92.

For the community as a whole, moreover, which, naturally, has neither claims nor debts, its material property, according to Knies's definition, completely coincides with its wealth.

Knies himself has pronounced this opinion in saying (Das Geld, p. 22) that no one would claim that "capital is identical with economic goods."

It needs no showing that the group of short-dated money claims, although the most obvious, is by no means the only example that might be given in proof of the objection urged in the text.

Among others Ricca-Salerno (Sulla Teoria del Capitale, Milan, 1877, p. 58) and lately Emil Sax (Grundlegung der theoretischen Staatswirthschaft, p. 310) have criticised Knies on this point. Sax's criticism of the weaknesses of Knies's conception is both trenchant and substantially correct, but he does not recognise the kernel of truth that is in it, and ends by a judgment which, on the whole, is rather rudely expressed.

For instance, Adam Smith, ii. 1; Umpfenbach, Das Kapital in seiner Kulturbedeutung, 1879, p. 19; Say, Cours Complet, part i. chap. x.

Thus Say, Cours Complet, part i. chap. xiii.; M'Culloch, Principles, first edition, p. 319; fifth edition, p. 294; Walras, Élements d'Économie Politique, p. 217.

See my Capital and Interest, p. 99.

Fr. Albert Maria Weiss, Ord.-Priester, Die Gesetze der Berechnung von Kapitalzins und Arbeitslohn, Freiburg, 1883. Quoted by Schäffle in Tübinger Zeitschrift, vol. xli. p. 225. Dargun, Arbeitskal und Normalerwerb, Tübinger Zeitschrift, vol. xl. p. 514, and specially pp. 530-535. Ofner, Ueber das Rechtsprinicip des Arbeitslohnes nach herrschendem System, Juristische Blätter, 1884, Nos. 3 and 4. Engel, Der Werth des Menschen, 1883.

It is very significant that none of the authors who explain wage by interest makes any attempt to explain interest itself. They simply accept it as a given fact—with the exception of M'Culloch, who, with amazing naïveté, repeats the trick again in the opposite way, and explains interest by wage. It is very gratifying to me to note that Schäffle holds himself aloof from the theories just criticised, although his social and political tendencies must certainly lie in their direction (Tübinger Zeitschrift, vol. xli. p. 225).

See also Schmoller, whose conclusions agree with mine (Lehre vom Einkommen in ihrem Zusammenhang mit den Grundprincipien der Steurlehre, Tübinger Zeitschrift, 1863, p. 24); Knies, Das Geld, pp. 15-22; Ricca-Salerno, as before, p. 28; and Cossa, La Nozione dal Capitale, in the Saggi di Ec. Pol., 1878, p. 163. What Coen says against the passion for immoderately widening the conception of capital is well worth noting. He is remarking that one very often feels the want of an expression which would indicate without ambiguity just those products which serve immediately for production, and he continues:—"Se il concetto del capitale at allarga di troppo, comprendendovi altri prodotti, o altri fattori della produzione, esso o sfuma del tutto, o non ha piɉ la sua ragione di essere. Si contruisce, per dir la cosa in altro modo, ono strumento od imperfetto o superfluo, il quale o non serve punto, o non serve bene. E tali categorie debbonsi senz' altro espellere, e non già moltiplicare nelle investigazioni economiche, se non vogliamo che la scienza si isterilisca in polemiche oziose a puramente nominali," p. 168.

See Knies, Das Geld, p. 33; Schömberg, Handbuch, second edition, vol. i. p. 210; Roscher, Grundlagen, 42. note 1.

Die Grundlagen und Ziele des sog. wissenschaftlichen Sozialismus, Innsbruck, 1885, p. 185.

"In the strict physical sense, of course, this is not correct" (p. 192).

Capital and Interest, book vi. p. 313.

Theory of Political Economy, second edition, pp. 242, 263.

Cours Complet, part i. chap. viii. It may be added that Say, in this and other passages formerly quoted, gives no less than four contradictory readings of the conception of capital. In one place, chapter viii., he explains it as products of labour which serve towards production; and in the same chapter he speaks of it as the value of these products. In chapter x. (see above, p. 50) be makes it the talents and skill of the labourers; and in chapter xiii., again, the persons of the labourers!

That theories of such doubtful value should commend themselves to the recognition of eminent jurists like Kühnast may, perhaps, be explained by pointing out that jurists, as having to deal in their systems, to a very great extent, with abstract persons and objects, have, generally, a strong tendency to hypostatize conceptions; a practice which may be quite suitable for their special field of investigation, but is certainly misapplied in political economy.

As I have already remarked on p. 38 I consider the terms in brackets, Productive and Acquisitive Capital, as essentially the more appropriate. But since Rodbertus and Wagner the terms National and Private capital have been used almost universally, and as I consider it conducive to the final settlement of this jumble of terminology not to disturb names that are fast rooted in common usage, unless there is some quite overwhelming reason for doing so, I content myself with making the one change—which seems to me in any case indispensable—of the term "National" into the term "Social capital.

See particularly Zur Erklärung und Abhilfe der heutigen Kreditnoth des Grundbesitzes, second edition, vol. i. p. 90, vol. ii. p. 286, where das reale Kapital, as consisting of the natural objects of capital, is sharply opposed to Kapitalbesitz, or property in capital. Similarly Das Kapital, pp. 304, 313, and passim.

Wagner, Grundlegung, second edition, p. 39.

See my criticism of this theory in Capital and Interest, p. 337.

I may be accused of want of logic here on the ground that such improvements are always products which serve towards further production, and therefore come under our definition of capital. The criticism is correct as to the letter, but wrong as to the spirit. A stay propped up against a tree is certainly not the tree itself but an outside body. But who would still call it an outside body if after some years it had grown inseparable from the tree?

Grundlegung, second edition, pp. 39, 43.

See Schmoller, Tübinger Zeitschrift, vol, xix. (1863), pp. 10, 25.

See above, p. 42.

See also above, p. 43, note 1.

The case is exactly the same with the notorious Wage Fund theory. In it also I see a misbegotten fruit of an idea which is quite right in itself. It is, as we shall see later, a very unsuccessful attempt to express certain relations that really do exist between the national subsistence fund on the one hand, and the height of wage and interest on the other. Against the inclusion of the labourers' means of subsistence in national capital Rodbertus has expressed himself in a quite classical style, Das Kapital, p. 294, and before that in his Zur Erkenntniss unser, staasw. Zustände, theorem i. Very clear and convincing, too, is Gide, Principes d'Économie Politique, Paris, 1884, p. 150. See also Sax, Grundlegung, p. 324, note.

Rechte und Verhältnisse vom Standpunkte der volks. Güterlehre, 1881, passim. Since then, see H. Dietzel (Der Ausgangspunkt der Socialwirthschaftslehre und irh Grundbegriff, in the Tübinger Zeitschrift, 1883, p. 78), and Sax (Grundlegung, pp. 39, 199), who surely goes too far in excluding personal service from the conception of goods. Neumann, on the other hand (Schönberg's Handbuch, second edition, p. 151), remains firm in recognising rights and relations as real goods on grounds which do not commend themselves to me as at all convincing. On one single a point I feel myself bound to reply. In my definition of the conception of goods, Neumann "does not find" the lines sufficiently distinctly drawn, and quotes, in a tone of irony, a number of expressions which, taken by themselves, certainly do not draw any distinct line (ibid. note 41). But Neumann can only have read portions of the work he objects to, or read it very hurriedly. Otherwise it would not have escaped him that the expressions he quotes stand at the end of a chapter Rechte, p. 29), and that the beginning and middle of that chapter (p. 13 onwards) are devoted to what he "does not find," and that, obviously, the later expressions are to be taken and understood along with what goes immediately before.

Wagner, Grundlegung, second edition, p. 42.

Roscher, Grundlagen, eighteenth edition, 42.

Hermann, Staats. Untersuchungen, second edition, p. 122.

The careful reader will, without doubt, have remarked that the statement as to the nature of capital given in the second chapter, relates solely to Social economic capital. For obvious reasons I did not wish to mix up the dogmatic statement with the terminological and critical discussion which, I am afraid, has been terribly prolix. And, for reasons as obvious, I did not wish to commence this discussion without having, at least partially, put before my readers the object to which the discussion refers. I therefore made use, for the time being, of the word Capital without any of the clauses and additions which would at once have necessitated the tedious terminological discussions I wished at the time to avoid. The more exact explanations which follow will prevent any misunderstanding to which this may, perhaps, have given rise.

Adam Smith, book ii. chap v.

Lauderdale, Enquiry, p. 181, passim.

Lauderdale, ibid. So also J. B. Say, "Il faut, pour ainsi dire, que les capitaux travaillent de concert avec l'industrie" (Traité, i. 3).

Strasburger, Hildebrand's Jahrbücher, vol. xvii. (1871), p. 325; and Carey.

Jevons, Theory of Political Economy, second edition, 1879, p. 243.

In economic literature the clearest views as to the nature of capitalist production are, in my opinion, to be found in Rodbertus, Jevons, and Carl Menger. The works of Rodbertus, where they are not directly disfigured by the influences of his one-sided Socialist standpoint, are of quite classical accuracy and clearness. Unfortunately there are certain features which very sensibly mar what he has said. This is true in particular of his omission to notice the share which the valuable natural powers take in production, and the influence of time—two things which, obviously, could not easily be fitted into the "exploitation" theory he maintained so vigorously, and so were suppressed. We shall see this more fully later on. Carl Merger, again, by his arrangement of goods according to "rank" (Grundsätze, p. 7), and his statement of the laws which connect together goods of various ranks, has given at once a brilliant proof of his clear insight into the developed phenomena of production, and an invaluable tool to the hands of succeeding investigators.

Book i. chap. ii.

Where population is scanty, of course, it is possible that land, or at least certain of the uses of land, such as the growing of timber, may be free goods, as obtainable in any quantity. But in modern communities, to which naturally I refer by preference in this statement, the uses of land—with the exception of waste land or desert—are entirely economic goods.

On the common experience that "as labour is prolonged the effort becomes, as a general rule, more and more painful;" see Jevons, Theory of Political Economy, second edition, p. 185; and Gossen, Entwicklung der Gesetze des menschlichen, Verkehrs, 1854.

This is the state of the case, as I believe, expressed with perfect clearness in the facts, and this is what Rodbertus profoundly misunderstood when he maintained, and repeated with emphasis, that labour is the sole original power with which human economy has anything to do, and drew from that the conclusion that all goods, economically, are to be conceived of as products of labour alone (Zur Erkenntniss unserer staats. Zustände, theorem i.; Zur Erklärung, second edition, p. 160; Zur Beleuchtung, p. 69). If to-day we allow a fruitful field to lie fallow, or a mine or water power to remain unexploited; if, in short, we do not act economically with valuable uses of land, we act as directly against our economic wellbeing as when we throw away labour uneconomically.

"Primary productive powers" is the more correct expression, which we must now employ instead of the partial expression "labour" used by me in the second chapter of Book I. in order to avoid tedious explanations.

It is very characteristic that Rodbertus, when describing the economical effects of adopting roundabout ways of production, chooses his illustration just out of that minority of cases where the roundabout way is the quicker (Das Kapital, p. 236). The consequence is that, on this and other occasions, he leaves in the shade all the economical elements which form the basis of the phenomenon of interest—and of these the most notable is the loss of time connected with the carrying through of productive methods—and, taking a very one-sided view, lays the origin of rent at the door of the existing circumstances of private right (e.g. p. 310). But private rights in capital would not, by themselves, do any harm to the labourers, and it would be very easy for them to avoid the toll-bars which the capitalists have erected, if the fatal lapse of time between beginning and end of the lengthy capitalist process did not make it impossible for labourers to adopt similar processes on their own account.

Inventions, so-called, generally mean the discovery of a new and more productive method of production. Frequently—probably in most cases—the new way is longer than the old, and in this case to utilise the invention requires the making of a great number of intermediate products, or, as it is usually expressed, a large investment of capital: e.g. in machinery, building of railways, and the like. But often a happy invention may lead to a better, and at the same time shorter, way of production, such as the manufacture of certain dye-stuffs from chemical instead of plant bodies. However elaborate the former may be, it is still certainly far more direct and speedy than a manufacture which has to wait on tedious processes of growth.

It may be asked here, by way of objection, why man does not fully utilise the chances offered him of increasing the technical result by the technical knowledge he has at the moment. The common explanation runs—from want of capital. With the limited amount of capital at his disposal man can only utilise those chances of employment, among the infinite number of remunerative ones, which are most remunerative, and a great number of less, but still remunerative, employments must be passed over. This explanation is not quite exact, but it is at least right in the main contention. We may therefore be content with it until, in another connection, we can examine the matter with perfect accuracy.

Der isolirte Staat, third edition, part ii. div. i. p. 97. See particularly the table on p. 101.

For instance by Roscher, Grundlagen, 183; by Mangoldt, Volkswirthschaftslehre, 1868, p. 432; by Mithoff in Schönberg's Handbuch, second edition, p. 663, and by many others. Jevons independently adopted quite similar views, Theory of Political Economy, second edition, p. 277.

In particular the "physical" or "technical productivity," which is founded on these facts (that is, the circumstance that by the assistance of capital more products can be produced than without it), was confused with a "value productivity" (that is, a pretended power of capital to produce more value than it itself possesses). See my Capital and Interest, pp. 112, 131.

Das Kapital, p. 236.

The first of the above schemes corresponds to the case of a production where one single tool is employed, and where the total process extends over ten years—for instance, the making and using of an axe of Bessemer steel. The second scheme, again, corresponds to a production where, besides the axe, a number of other capitalistic tools, auxiliary mechanism, and materials, are employed, the existence of which, however, does not date from farther back than ten years. This comparison clearly shows how, without increasing the absolute length of the production period, the degree of capitalism may be very considerably increased; all that is necessary is to alter the proportion between the number of early workers and that of the finishing ones. Whether it is ten workers employed in the final stage against one worker employed ten years before, or one worker in the final stage against ten workers ten years before, in either case the total production process extends over a period of ten years. But in the former case the finishing workers would be very sparingly provided with tools, machines, etc.; in the latter case they would be very amply provided. The latter, of course, would be far and away the more capitalistic of the two.

See the interesting calculation and graphic statement of the amount of investment of capital in Jevons's Theory of Political Economy, second edition, p. 249.

It would be somewhat different if we were to adopt the other conception of capital, and understand by it, not intermediate products only, but the entire national subsistence fund, which would therefore include the labourers' subsistence. In that case, but only in that case, one might say that capital was the cause of these profitable roundabout ways of production being adopted.

Schäffle very finely speaks of capital as "Consumption wealth as it were in the stalk, when it is still only swelling bud and ripening fruit" (Schönberg's Handbuch, second edition, vol. i. p. 208).

e.g. Say, Traité, seventh edition, p. 344.

Of older writers, e.g. B. Fulda, Grundsätze der Oek. pol. or Kameralwissenschaften, second edition, 1820, p. 135; Schön, Neue Untersuchung der National-Oekonomie, 1835, p. 47. Of later writers Cossa himself, Elementi, eighth edition, p. 34; and Gide, Principes d'Éc. Pol. 1884, pp. 101, 145.

Book i. chap. vii. i.

See Capital and Interest, p. 114.

Handbuch der Staatswirthschaftstlehre, Erlangen, 1821, i. p. 66, in note.

The dispute as to the share which Saving plays in the formation of capital is almost old as economic science. The theory which ascribed it the prominent place was the first to appear. Already suggested by the Physiocrats, it was formulated by Adam Smith in the often-quoted proposition, "Parsimony and not industry is the immediate cause of the increase of capital" (Wealth of Nations, book ii. chap. iii.) Supported by his authority it was for a long time almost the only one that held the field, and, although in later times it has suffered many reverses, it still finds some notable apostles: thus, among others, Mill—"Capital is the result of saving" (book i. chap. v. 4); Roscher—"Capital is mainly the result of saving" (Grundlagen, 45); Francis Walker—"It arises solely out of saving. It stands always for self-denial and abstinence" (Political Economy, p. 67). But from a very early period there was sharp opposition to the theory, first from Lauderdale (Inquiry, 1804, chap. iv.); then, after some time, from the socialist theorists, Rodbertus (Das Kapital, pp. 240, 267—"Just as the capital of the isolated individual originates and increases, so does the national capital,—only through labour and not through saving"); Lassalle (Kapital und Arbeit, p. 64); Marx (Das Kapital, i. second edition, p. 619). To these opinions a great many recent writers of other schools more or less incline; thus, very clearly and decidedly, Gide (Principes, p. 167); less decidedly, Kleinwächter (in Schönberg's Handbuch, second edition, p. 213), and R. Meyer (Das Wesen des Einkommens, 1887, p. 213); more by way of reconciliation, Wagner (Grundlegung, second edition, 298); and, a little obscurely and confusedly, Cohn (Grundlegung, 1885, 257). Although, however, this tendency to ascribe capital to labour is unmistakably rapidly gaining ground, that view which ascribes to saving a share in the formation of capital is still the view of the majority. But the later representatives of this view are in the habit of rightly limiting it, and expressly emphasising the fact that saving alone is not sufficient, and that there must also be "labour," or "devotion to productive purposes," or such like—which, indeed, may very well have been the true meaning of many of the older adherents of the Saving theory, and only not expressed by them because of its assumed obviousness. See, e.g., Rau (Volkswirthschaftslehre, eighth edition, i. 133), Ricca-Salerno (Sulla Teoria del Capitale, chap. iv. p. 118—"Il capitale deve la sua origins all' industria e al risparmio"), Cossa (Elementi, eighth edition, p. 39), and many others.

On the many divergent and contradictory readings of the conception of Income, see R. Meyer's Das Wesen des Einkommens, 1887, particularly pp. 1-27. I purposely avoid going into the controversy as to this conception, which Meyer's work, notwithstanding its many merits, seems to me to have by no means adequately settled. Where I use the word Income in the sequel it is to be understood, not in Meyer's sense, but in a sense very much in agreement with popular usage.

Adam Smith's celebrated proposition therefore—"Parsimony and not industry is the immediate cause of the increase of capital"—is, strictly speaking, to be turned just the other way about. The immediate cause of the origin of capital is production; the mediate cause is a previous saving.

It is only in cases where, in the meanwhile, the technique of the particular production has improved, that the transference of a less amount of productive powers to the service of the future is sufficient. If, for instance Crusoe learns how to make in fifteen days those weapons which formerly had taken thirty days, it is, of course, sufficient for the upkeep of the capital if he works only half an hour daily at the repair of his weapons, and nine and a half hours can now be spent in directly obtaining a more plentiful maintenance without prejudice to his economical position

Durable productive goods, which give off their use gradually in the course of several years, belong naturally (in various parts of their content as useful goods, or in various annual circles of their activity) to several circles simultaneously.

Under this name (Gegenwartsproduktion) I mean to group, for the sake of shortness, all those acts of production which agree in this, that the original productive powers which are put forth in these acts reach their goal, and turn out consumption goods, within the same economic period. This applies to two kinds of productive acts; partly and principally to those of the final stages, the labour required to transform the first circle of capital into consumption goods (e.g. agricultural labour, the labour of the miller, baker, shoemaker, tailor, etc.), partly to industries where the production process is short, and can be carried through from beginning to end within a single economic period.

If, during the current year, there should be introduced such improvements in the technique of production that the capital, which had taken six million labour-years to produce, could be fully replaced by an expenditure of five million labour-years, there would be a change in the figures of our illustration, but the principle would remain the same. It would now be possible to preserve the capital already in existence, even if five million labour-years were spent in present production, and if the produce of eleven million labour-years in all were spent in immediate consumption (see above, note to p. 109). But in any case the formation of new capital would require the renunciation of some portion of that immediate consumption which would be possible if it were only wished to preserve capital at the same level; in other words, would require that a portion of the "income," which might be consumed without diminishing the stock of capital, be not consumed but saved. Moreover, if technical improvements did not continue to be made, then, after some years—that is to say, when the capital produced according to the old methods of production was quite used up,—the old figures would come true again; capital would be kept at the same level if in any period the produce immediately consumed just corresponded to the productive powers which came forward anew in the same period.

I have neither time nor desire to go into subtle distinctions here, although there is material enough for them. Interesting investigations into the relation between national product and national income—although I cannot altogether agree with them—may be found in R. Meyer's book, pp. 5, 84. See also the investigations of Loris (which appeared while the present volume was passing through the press), entitled Ueber gewisse Werthgesammtheiten und deren Beziehungen zum Geldwerth (Tubinger Zeitschrift, forty-fourth year, part ii. p. 221), where also the yearly "consumption sum," "production sum," and "primary income sum" are treated as "quantitatively, approximately equal" amounts.

The change of disposition will, as we have seen, be made essentially easier by the adaptability of many forms of capital to various uses.

Viz. six million from the original provision of the first circle, one million diverted and added to that by changed disposition, and five millions from the current labour endowment.

The stock originally embraced the return of thirty million labour-years; it now gives seven millions to the consumption of the correct year, and it receives only five millions to replace them, whereby it falls from thirty to twenty-eight million labour-years.

This is very strongly put by the Socialist writers, as, e.g., Lassalle (Kapital und Albeit, p. 69); Rodbertus (Das Kapital, p. 271). In a somewhat diluted form the same doctrine appears in Wagner (Grundlegung, second edition, p. 600), who makes a distinction between goods in which the peculiarities of capital are inherent, and those in which they are not. The former are not, at least "directly," objects of saving. Similarly Kleinwächter (Schönberg's Handbuch, first edition, p. 173).

Lassalle.

In the second edition of Schönberg's Handbuch (p. 214) Kleinwächter comes a long way nearer our conception in assenting to it, as regards at least one of the chief forms of capital—tools of production. He allows that the making of such tools "always involves, to a certain extent, the renunciation of an immediate enjoyment," because the materials which are made use of in making the tools of production might have been employed in making some kind of consumption goods; and thus there is no reason for objecting to call such a renunciation of enjoyment by the name of Saving. But it is different, he says, with the materials of production. Such things as raw wool, stone, and lime, etc., could not in any way be objects of direct consumption, and so could not be saved; they must be looked on, therefore, economically as products of labour only, and not as the result of saving. In this Kleinwächter is not logical. As regards the tools of production he, quite correctly, does not consider whether the finished tools themselves might have been consumed, but whether, by the instruments from which the tools were made, any consumption good might have been made; and because this is the case he answers the question as to saving in the affirmative. But if he had kept to this line of thought as regards the materials of production, he must have seen that, by means of the same productive powers as man uses to quarry stone, to build a house, or obtain lime for mortar, he might have made himself goods for immediate consumption,—e.g. hunted wild animals or caught fish,—and that here, consequently, on exactly the same grounds and in exactly the same way as in the case of tools, saving does come into the question.

See above, p. 102.

See Capital and Interest, p. 3.

Das Kapital, p. 242.

Kleinwächter, in Schönberg's Handbuch, second edition, p. 215.

A very striking illustration of these words may be found in the already-mentioned utterances of Rodbertus on the subject. On p. 242, from the fact that, if the productivity of capital is too small, there can be no saving and no formation of capital, he contents himself with drawing the quite correct conclusion that "necessarily some other element besides saving must intervene." Thus he ascribes to saving its proper place, as not sufficient by itself, but, all the same, as a factor of the formation of capital. It is only on p. 243 that the fact of a certain degree of productivity of labour being indispensable is dialectically changed into the statement that only the increase of productivity, and not saving, makes the formation of capital possible.

A similar objection was urged by the old economist Lauderdale against the Saving theory, Inquiry, pp. 207, 272.

Political Economy, third edition, p. 57, where three great agents or instruments of production are distinguished—Labour, Natural Agents, and Abstinence.

Marx, Das Kapital, second edition, i. p. 619, in note (English translation, p. 608): "It has never occurred to the vulgar economist to make the simple reflection, that every human action may be viewed as 'abstinence' from its opposite. Eating is abstinence from fasting, walking abstinence from standing still, working abstinence from idling, idling abstinence from working, etc. These gentlemen would do well to ponder, once in a way, over Spinoza's Determinatio est Negatio." Gide, Principes d'Éc. Pol. p. 168: "Un act purement négatif, une abstention ne saurait produire quoi quo ce soit.... Sans doute on peut dire que si ces richesses avaient été consommées au fur, et à mésure qu'elles ont pris naissance, elles n'éxisteraient pas à cette heure, et qu'en conséquence l'épargne les a fait naître une seconde fois. Mais à ce compte, il faudrait dire qu'on produit une chose toutes les fois qu'on s'abstient d'y toucher et la non destruction devrait être classée parmi les causes de la production, ce qui serait une singulière logique."

I will not, a priori, deny that possibly one might contrive to hunt up some subtle examples where capital (particularly social capital) comes into existence without saving properly so called. But all the more strongly do I hold by my proposition that, as regards the great mass of the economic formation of capital, saving, in the way I have indicated, has its place.

My views on the subject of Value have already been published at length in another place (Grundzüge der Theorie des Wirthschaftlichen Güterwerths, in Conrad's Jahrbücher für Nationalökonomie und Statistik, vol. xiii. 1886, pp. 1-86 and 477-541). Since then I have seen no reason to change them. What I have now to say on the same subject can, therefore, offer but few new features. On the whole, what follows is an extract from my former work adapted to the requirements of the theory of capital, and, in the composition of it, I have gone on principles suggested by the nature of my present task. Those fundamental ideas on which the understanding of the whole depends, and those lines of thought with which the theory of capital is specially connected, I have taken in all their detail from my other book; and, as a simple change of form would have been as troublesome as it was useless, I have taken them, for the most part, without change. I have omitted, on the other hand, all those explications, demonstrations, and so on, which were important for the Value theory, but seemed not altogether indispensable for the understanding of the theory of Capital. In place of these I have added a good deal of matter in which I have taken advantage of the newest literature on the subject, and have tried to give a still clearer formulation to several ideas, and, particularly, to develop with more exactitude special points where the value theory comes into more intimate connection with the theory of capital. The most important additions occur in chapter vii. of the present book, and at the end of chapter v, and in chapter vii. of the next book. Readers who are interested in the theory of value and price for its own sake, I should ask to consult the statement in Conrad's Jahrbücher, which is much more complete, and which I tried to make easier by numerous references.

I frankly confess that I would gladly exchange these pedantic and clumsy expressions for terms more euphonious and popular, if they could be got to indicate the opposition referred to with even approximate correctness. But I have not been able to find such expressions. The words Use Value and Exchange Value are not suitable at all, because, as we shall see, there is a Subjective exchange value.

The foundations of the modern value theory have been laid by three writers whose work is in substantial agreement—Carl Menger, Jevons, and Walras. Of these, in clearness and completeness, Menger's statement takes the first place. Twenty years before his time, several of the most weighty and fundamental ideas had been already propounded by Gossen in his remarkable book, Entwicklung der Gesetze des menschlichen Verkerhs und der daraus fliessenden Regeln für menschliches Handeln, Brunswick, 1854. Like the book itself, these ideas sank into complete but undeserved oblivion, and had to be rediscovered by the economists just mentioned. That this was done almost simultaneously by three different men, belonging to three different nations, and quite independently of each other, is a very remarkable coincidence, and is, at the same time, no small guarantee for the correctness of the principles on which all three were certainly agreed, although in thoroughness their statement of them was unequal. Since then these principles have had a notable development, and received wide acceptance. Not long ago, in the preface to his Theorie de la Monnaie (Lausanne, 1886), Walras could give an imposing list of writers as adherents of the new theory. Since then we may add the name of E. Sax (Grundlegung der theoretischen Staatswirthschaft, Vienna, 1887, p. 250),—with whom, however, I cannot agree in many particulars, particularly in those where he tries to establish original ideas that are not in harmony with those of his predecessors; and that of R. Meyer (Das Wesen des Einkommens, Berlin, 1887).

See Conrad's Jahrbücher, vol. xiii. p. 11.

Some very interesting phenomena of value may, in certain circumstances, be exhibited by free goods also. For the explanation of this see my Grundzüge, p. 15.

Those numerous writers of whom Scharling is the latest instance (Conrad's Jahrbücher, vol. xvi. pp. 417 and 513, and particularly 424, 430, 551), who say that the distinguishing criterion of "economical" and "valuable" goods is difficulty of attainment, the necessity of expending labour, and the like, are giving a secondary ground of definition instead of the really decisive and primary one. It is only when and because we are suffering, or fear to suffer, lose of satisfaction from insufficient supply of goods that we decide, generally speaking, to submit to the hardships of acquiring them, to labour, and so on. Labour and hardship could not by themselves confer an economical character on goods were it not that, for the most part, another circumstance, and that the really decisive one, is also present; in other words, that those kinds of goods, which are difficult or troublesome to obtain, are, at the same time, the goods that remain scarce. That, however, it is not the difficulty but the scarcity that decides is vividly shown in those cases—not, I grant, very common—where the technical circumstances are of such a nature that the good can be got only, indeed, by conquering difficulties, but then in superfluous amount. When the peasant obtains good drinking water, e.g., by bringing it along a pipe to a house, it may occasion him a permanent expenditure of labour and costs for construction, upkeep, and management of the water-supply. But if this brings the water in greater quantity than he requires, it will not occur to the peasant, in spite of the labour, that he must "economise" the water.

On certain comparatively rare exceptions see Conrad's Jahrbücher, vol. xiii. p. 42.

See Menger's Grudsätze der Volkswirthschaftslehre, p. 93.

Ueber den Ursprung und die Hauptgesetze des wirtschaftlichen Werthes, p. 128. Jevons has the expressions "final degree of utility" and "terminal utility." With Menger, who first formulated the above law with entire clearness, but gets along without the convenience of a short technical expression, the law runs as follows (p. 98): "In every concrete case, accordingly, of the satisfactions of want guaranteed by the total quantity of goods, it is only those which have the smallest importance for the person that are dependent on his command over a definite part-quantity of the amount of goods at his disposal; and the value of a part-quantity of the available amount of goods is, accordingly, equal to the importance which the satisfactions of want that are least urgent among all the satisfactions guaranteed by the total quantity, and obtainable with a similar part-quantity, have for that person."

Even where men do not act egoistically but altruistically, they have occasion to consider the marginal utility, viz. that marginal utility which the goods given away have to the persons who get them. One gives donations, charities, and the like, when the importance of such, measured by their marginal utility, is very much higher as regards the wellbeing of the receiver than as regards that of the giver, and almost never when the converse is the case. I am glad to know that, in the idea expressed above, I am at one with so distinguished an economist as Walras. I can only express my entire concurrence with what he says, in the preface to his Théorie de la Monnaie, p. 11, as to the universal importance of the idea of marginal utility, both as regards theory and as regards the practice of economic life.

To guard against possible confusion it should be noted that the German writers on value generally speak of "satisfaction of want" under the metaphor of a descending scale: the increasing satisfaction creeps down the scale, and the point of saturation is zero, not 100.—W. S.

On the relation of theory and practice in the sphere of valuation see Conrad's Jahrbücher, vol. xvi. p. 74.

Generally speaking, there are two occasions on which a man is called on to form a judgment as to value. One is on parting with a good in his possession, e.g. in giving it away, or exchanging, or consuming it; the other, on acquiring a good. In the two cases the form which the valuation assumes in thought is, externally, a little different. A good which a man has he values according to the injury which he would suffer by its loss; he values it, therefore, according to the last satisfaction which is assured him by having it. A good which a man has not he values, on the contrary, according to the increment of utility which its acquisition brings; i.e. according to the most urgent among those satisfactions which, in the conditions of his fortunes up till the present time, he has not been able to obtain. Naturally we get the same result by either method, for the final satisfaction which is assured by a good is always identical with the first which would be lost without the good. In the text I have put the formula in such a way that it will sufficiently embrace either method.

On certain far-reaching complications which may be connected with this, see Conrad's Jahrbücher, vol. xvi. p. 34.

The latter occurs only with individual goods, or with those particular goods which may have chanced to be selected just for the most insignificant service.

In his recently published essays on Wertheorien und Werthgesetze (Conrad's Jahrbücher, N. F., vol. xvi. pp. 417-437, and 513-562) Scharling will not allow that the relation of Wants and Provision is the ultimate universal determinant of the value of goods, and would substitute Difficulty of Attainment in its place (ibid. p. 425, and particularly p. 430 in note, and p. 551). Notwithstanding some striking things in it I frankly confess—and all the more frankly that I attach so much scientific importance to the Danish economist, and so much weight to anything he says that I consider not only this proposition, but the whole treatise he has written in its proof, as a lamentable relapse in scientific analysis. Scharling has done everything possible to re-entangle certain things that had up till now scarcely escaped from confusion. And what makes it worse is that he has done it with skill, and with a certain semblance of truth. I consider "difficulty of attainment" one of those unlucky catch-words which can be stretched and stretched like an indiarubber band; it leads out of one ambiguity into another, and it either explains things falsely or (loss not explain them at all. I mean that either one connects with it a definite, limited, and narrow meaning, and holds fast by that—in which case the explanations that one would base on this narrow conception prove to be positively false; or one draws and stretches the rubber band, and, by making perverted and violent constructions, forces all sorts of foreign things under the elastic—in which case we avoid open contradiction, but at the cost of making the proposition expressed by the catch-word an insipid and weak phrase, which does not explain, but goes round about an explanation. And just this has been Scharling's fate. What does he mean by "difficulty of attainment"? He explains it as the amount of effort that every one must take on himself to obtain a good, or the effort which is spared him by the possession of the good (p. 430). And what does the word "effort;" again, mean? If any precise conception is to be attached to it, it can scarcely be understood as anything else than as some sort of exertion, pain, or labour. But if this is the meaning attached to it then the appeal to "saved effort," as the principle of the value of goods, is positively false. To give one example out of a thousand, take the case of a pensioner past work with an income of £60. He is told to value the overcoat which he possesses according to "saved effort." What kind of effort may that be? Perhaps the effort which he would have to expend to produce the overcoat himself? Certainly not; he would never himself make the coat, but always buy it. Or the effort which he would have to put forth if he were to produce those goods which he had to give away as equivalent for the coat? Neither can this be the case; for, past work as he is, he would never acquire this purchase price through effort, but simply take it from his income, and for that, of course, he must curtail the satisfaction of other less important wants. What, therefore, the possession of the overcoat spares him is not an effort, but a deprivation, and a deprivation the amount of which, as I have indicated in the work disputed by Scharling, depends exactly on the importance of those last needs which are satisfied by the good, which lose their satisfaction in losing it, and the urgency of which itself, again, is determined by the existing relation of Wants and Provision. It is only in those rare cases mentioned by me in Conrad's Jahrbücher (ibid. p. 42)—the exceptional character of which I most distinctly maintain in spite of Scharling's remarks (p. 430, note 1)—that the amount of an effort or the pain of labour can be the immediate standard of value.—Now I admit that Scharling sometimes gives the word "effort" quite another meaning from that of a pain. To avoid repetitions, however, I will show what that leads to, a little later, under the theory of price.—Finally, the illustration, with which Scharling thinks he has signally refuted my doctrine, will not mislead anyone who has rightly understood the doctrine of marginal utility. If a boy, who hitherto had only had a single apple, were allowed for once to pull as many apples as he liked in a neighbour's garden, he would, I admit, immediately reduce the value he put upon the good called "apple." But why? Not, as Scharling thinks he may assume as self-evident, because "his relish and his enjoyment in consuming the fruit remain unchanged." This enjoyment may run down a whole graduated scale from the consumption of the first and single apple to entire satiation with apples, but it is perfectly clear that the boy with the single apple sacrifices the enjoyment which stands highest in this scale, while, "with one of many apples to chose from", from, he sacrifices only a very trifling one.

See above, p. 147.

See above, p. 157.

See above, p. 154 in note 2.

See above, p. 142.

It is easy to see that we can only speak of two values in the same loose way as we spoke above of several "alternative marginal employments," for, naturally, a good can never have anything but one value to a person. Value is the importance which a good has for the wellbeing of a man, and this importance cannot be at the same time great and small, higher or lower. But we do now and then use this rather inaccurate way of thinking and speaking, and, therefore, I have here, as on the former occasion, adapted my formula to it.

Notwithstanding the objections of Diehl (P. J. Proudhon. Seine Lehre und sein Leben, vol. i., Jena, 1888, p. 109), who approves of the "traditional distinction of Use Value and Exchange Value," I must hold by everything I have said above.

Of course in this case also the peculiarities of the case decide which member is to be valued as the completing member of the group, and which as simply the isolated piece. If, for instance, the owner of the complete group is asked to sell the good A, he will value it as completing member, and the other goods B and C as isolated pieces. But if he is asked to sell C, he will value it as completing member at 100-(10+20)=70, while A and B will be valued as isolated pieces.

To put it concretely: although a load of bricks were absolutely indispensable to finish a house, the load could never obtain any higher value than that determined by the marginal utility of bricks generally; that is, as determined by all the uses to which bricks generally are put.—W. S.

If C also were replaceable by a substitute of less value the case mentioned on p. 170 would emerge, and the marginal utility of the joint use would not determine the value of the complementary group.

Not physically. It would, in most cases, be absolutely impossible to calculate the physical share—how could one be supposed to distinguish what percentage the material and what percentage the artist had contributed physically to the making of a statue?—but it is also a matter of no importance. On the other hand it is, in most cases, quite easy to determine what share of the utility, or of the value, would have to be done without if one were not in possession of a definite individual factor, and this quota, conditioned by the possession of one factor, I call its economical share in the total product.

The confusion, so common in economic literature, between the gross share assigned to the co-operation of capital (Rohzins) and net interest, has been fully discussed in my Capital and Interest (see the criticism of Lauderdale, p. 146; of Carey, p. 155; of Strasburger, p. 175; of Say, p. 189, etc.) It will not be expected of me to give a complete theory of distribution in the passing, as it were. I purposely refrain from going deeper into the subject than is necessary for my special task, the development of the Interest theory. And for this it is sufficient to sketch only in the broadest lines the principles which limit the gross share of capital, as against the shares of labour and uses of land that co-operate with it: our special task will be to lay down what is the state of the case as regards the gross share of capital. Moreover I hope that on this question of the shares allotted to the various factors, which I am compelled to treat in a very cursory way, the eagerly expected work of Wieser will very shortly shed a clear light. (Wieser's Der Natürliche Werth, Vienna, 1889, appeared while this was passing through the press.—W. S.)

Among older writers it was disputed by Say, Traité, vol. ii. chap. ix. seventh edition, p. 404: "Ce qui nous ramène à ce principe déjà établi, que les frais de production no sont pas la cause du prix des choses, mais que cette cause est dans les besoins que les produits peuvent satisfaire." In more recent literature what M'Leod has said (Elements of Political Economy, 1858, p. iii.) is worth notice. But the matter was really first grasped in its entirety by Menger, Jevons, and Walrus, whose books mark an epoch as regards the whole value theory, and of these again the work of Menger was the most profound.

Grundsätze, p. 8.

This is demanded by the principle of "economic conduct." See Wieser, Ursprung und Hauptgesetze des wirthschaftlichen Werthes, p. 148.

See above, p. 145.

See above, p. 156.

Wieser, p. 146.

Menger, Grundsätze, p. 153. Of course now and then exchanges may be made simply to show some person a kindness; perhaps to conceal a present, or a charity in the guise of an exchange. But such cases form only a quite insignificant minority.

Grundzüge, part ii., in Conrad's Jahrbücher, vol. xiii. p. 486.

Grundzüge, p. 480.

It will be observed that our author does not confine the word Price to Money price, but applies it to the equivalent good or goods obtained in exchange for what is, pre-eminently, the good—the object of demand from buyers, and of supply from sellers. The convenient word Preisgut I render by "price equivalent," or simply "equivalent."—W. S.

Say, e.g., that A values his horse at five casks of wine, while B values it at fifteen, then, if the horse goes for ten casks, each gains an amount of value represented by five casks of wine. If A values the horse at eight and B values it at twelve, each gains only a value of two casks. Finally, if both agree in valuing the horse at twelve casks of wine, B, of course, would be glad to get the horse for ten casks, or for any price under twelve casks, but A, naturally, would not give it him at that price. See Menger, Grundsätze der Volkswirthschaftslehre, p. 155.

Menger, p. 183.

Always without prejudice to the second or subsidiary upper limit formed by the valuation of the buyer, which the price can in no case go beyond. Where there is anything like full competition of sellers, however, this is seldom of practical importance.

If, e.g., a buyer erroneously imagines the number of horses brought to market to be much less than it really is, it may very well happen that he hastily consents to pay a higher price than he would have found necessary if he had given better attention to his own interests. The influence of errors like this on the formation of price must not, of course, be overlooked in a theory of price, but where we are merely trying to bring out the simplest fundamental law it is not necessary to go into such details. See Grundzüge, as before, part ii. p. 486.

The more experienced both parties are, and the more familiar with the condition of the market, the shorter will be the time spent in "trying the market" by preliminary offers. In an old and well-organised market competitors will save themselves the trouble of making offers that are not meant to be taken, and will make their first offers at least somewhere near that zone within which the market price will finally be fixed. The extreme limit of this curtailment is given in the "fixed prices" of sellers. In this case, trying the market is entirely dispensed with, and sellers undertake at one throw, as it were, to hit the very zone into which the condition of the market will force the price. They must try to hit this zone quite exactly; for if they put the price lower they lose their profit, while if they put it higher the buyers in the market get supplied by other competitors, and the sellers are left with their commodities. Fixed prices, however, are less common in the open market than in shops, where selling is never conducted under the full pressure of competition, and where, consequently, any mistake in the price asked is not so hazardous.

If the horses of B1 to B5 are sold, the most capable seller remaining is B6, who values his horse at £21:10s—that is, higher than A6. As we know, then, an exchange between A6 and B6 is economically impossible, and the same is true a fortiori of the less capable sellers B7 and B8.

It need scarcely be said that the gradual bidding up of buyers, and the gradual undur-offering of sellers, do not usually take place in two separate and succeeding stages, but generally occur simultaneously.

In the nature of things the result shown in our abstract scheme will be the more exactly realised in practice, the better known the total condition of the market is to all interested; that is to say, the more organic the market, and the more publicly the negotiations are conducted. Where, on the other hand, as is usually the case, transactions are conducted in groups that are, indeed, in communication, but are yet somewhat separated from each other either in space or time, the relations of competition that would prevail over an entire market will, naturally, not be quite active in the single groups, and this has for result that the prices formed in the single groups are frequently only more or less approximate to the ideal market price represented in our scheme, without necessarily exactly coinciding with it.

Or with one of the more capable competitors, but in no case with a weaker one. See more exactly on this point in my Grundzüge, p, 499.

In our illustration it is the valuation of the excluded parties A6 and B6. If, however, the valuation of A6, instead of being £21, had been £19, and that of B6, instead of £21:10s., had been £23, the limits would have been determined by the valuation of the last pair who actually came to terms: the price would have been fixed between £20 and £22.

Sax, who, in his theory of value and price, stands wholly and entirely on the foundation laid by Menger, repeatedly and with emphasis characterises market price as an "average of individual values" (Theoretische Grundlegung der Staatswirthschaft, p. 276 and passim). This expression, if given without commentary, is exceedingly unfortunate, indeed directly misleading. As may be seen from what follows above (and more exactly from what I wrote in my Grundzüge, pp. 505 and, particularly, 522), the characteristic thing, on the contrary, as regards the resultant price, is that it is not an "average" in the usual sense of the word.

At least under the assumption distinctly made in our inquiry, that the competitors who appear in the market have a correct knowledge of the condition of the market. If we depart from this assumption, the appearance of more than a hundred demanders might give rise to the erroneous opinion that there may be among them a great many persons of higher "capability," and this might mislead the few capable competitors who are present into rashly making higher offers.

To show this, suppose we leave A1 to A4 out of our illustration. The position of the parties, then, is as follows:—

Here we see that the last pair within which the economical conditions of exchange are present consists of A8 and B4. The buyers, therefore, are now represented in the decisive marginal pair by a weaker member, the sellers by a stronger one. Accordingly the limit of price, which in the last case stood between £21 and £21:10s., moves down to between £17 and £18.

Students of economic literature will not fail to notice an interesting relation in which the above theory stands to certain doctrines that have for long obtained full recognition. When Thünen—and with him the whole body of economic doctrine—said that the rate of interest was determined by the productivity of the "portion of capital last applied," and the rate of wage by the return of the "last worker employed in the undertaking"; or when, much earlier, the question as to which, among several costs, regulates market price was decided in favour of the "highest costs of production that were still necessary to provide for the market," i.e. in favour of the "last seller,"—we recognise in all these, without difficulty, adaptations to special cases of the same principle on which we have built the doctrine of marginal utility and the theory of the formation of price. The only thing is that at that time economists were not yet conscious of the universal importance of these peculiar lines of thought. They meant simply to state a couple of special rules of limited range, while in reality they had hit upon the dominating Leitmotiv, which underlies the entire mechanism of industry carried on under the guidance of self-interest, and which, therefore, runs through the entire formation of value and price.

I need scarcely say in so many words that it is not the number of persons wishing to buy and sell on which the formation of price depends, but the mass of commodities desired and offered, and that in the typical scheme it is only for simplicity's sake that I have assumed each person to desire and offer for sale only one commodity, whereby number of persona and mass of commodities go pari passu.

See my Grundzüge, p. 525.

On the relation of the above theory of price to the old doctrine of Supply and Demand, as well as on the truth and error contained in that doctrine, I have already written at length in my Grundzüge, pp. 524-534; here it is sufficient to refer to that work.

Without being a blind adherent of the "Quantity theory," I believe that, along with other important circumstances, the quantity of money, the amount of the supply of money, exerts a powerful influence on its purchasing power. But the supply of money has exactly the peculiarity described in the text, that, rather than let money lie entirely unused, holders will be content with a comparatively unremunerative employment, and that, at the same time, the entire given quantity of money strives to realise itself in the purchase of an unlimited quantity of commodities—the more the better.

I should like to say that I here bring forward the theory of the determinants of price only in the briefest of epitomes, because the details of it have no immediate interest for the theory of capital. Any one interested in the theory of price as such, I would refer to the full statement in Conrad's Jahrbücher, vol. xiii. pp. 508-524.

The older theory was misled by this into substituting, for the determinant "subjective valuation of the equivalent price," the "ability to pay" of the buyers, which is not exactly false, but is very one-sided. See the more exact statement in Conrad's Jahrbücher, pp. 520, 527.

This, and not subjective exchange value, is the important thing for the formation of price. See the Grundzüge, p. 516.

This may be a suitable place to finish the analysis of Scharling's argument, which I began on p. 160. Scharling explains (Conrad's Jahrbücher, vol. xvi. p. 542) that in all essential respects he can agree with my theory of price; only, he says, it does not go far enough. My "determinants," and even the determinants of these determinants, do not go to the very root of the explanation; there is still something wanting; and this something, this Schlussstein or "element which, in the last resort, determines the conditions for an exchange," Scharling thinks that he has found in the "exertion (Anstrengung) which is spared the man who wishes... to obtain possession of a good by the fact that the good is transferred to him, in the case in question, by the other party in the exchange" (p. 551). If Scharling here were to mean by Anstrengung the toil of production which must otherwise be expended, directly or indirectly, for the acquisition of the good, his proposition would be positively false (see above, p. 160 in note), and this, indeed, Scharling himself seems to see and, indirectly at least, to admit (pp. 531, 554). But he goes on to give this expression a wider meaning. Under it he now embraces, among other things, the exertion which it costs to induce an owner to part with his commodity (p. 554), or "to meet competitors" (p. 558), or "to meet other suitors by overbidding" (p. 558), or "to overcome the indisposition of the owner to part with the good" (p. 558), and so on. "The right of the owner to possess the good," explains Scharling in the most significant passage of this kind, "is the last hindrance which stands in the way of the buyer's acquisition of the same, and this is now the thing to remove. The exertion which is required for this determines the value, the conditions for the exchange" (p. 558). Now, what kind of "exertion" is this? Scharling himself speaks of it more than once with all desirable plainness (e.g. p. 555, line 15; p. 558, lines 5, 16, etc.) It consists simply in the offering of a sufficiently high or higher price, in a bidding up or bidding higher. And now I ask: First, is there any justification, material or linguistic, for calling the offering of a price an "exertion," and, specially, for calling the offering of a price of £20 twice as great an exertion as offering a price of £10? Second, is the "exertion" which consists in offering the purchase price, e.g. at an auction, spared the purchaser, or must he not rather take the exertion on himself if he is to obtain the good? And, third and principally, is it explaining the formation of price, or going round about the explanation in a manifest circle, to account for the height of price by the amount of the exertion which the meeting of competition and the inducing of the owner cost, and then explain this exertion again as the offering of a sufficiently high or higher price? Is this not rather to say directly;—the price is high when and because much must be paid to get the good, and it is low in another case when and because but little need be paid? Who will be inclined to accept this as "der Weisheit letzen Schluss," as the long-sought-for coping-stone of the theory of price?—And now one more remark in case of misunderstanding. I am very far from denying that "difficulty of attainment" or "amount of toil of production" may, and very often actually does, afford one single important secondary determinant for the relation of want and provision for want, thereby for the height of marginal utility, and so, finally, for the amount of value. But this determinant only works in the way, and within the limits, which I have indicated in my theory (see in particular the statement of the "exceptional case," where the amount of a pain or strain averted determines the value of a good, Grundzüge, p. 42, and especially the statement of the influence of costs of production on value and price, p. 61; then pp. 521, 532, 534). On the other hand, the more extensive claim that Scharling puts forward with so much emphasis (vol. xvi. pp. 551, 552), that difficulty of attainment by itself alone is the last universal determinant and measure of value, I can only most emphatically reject.

Thus the question as to costs of production or costs of reproduction; whether, in the case of a variety of costs, it is the highest, the lowest, or an average cost that is to be taken as standard; what elements are to be reckoned among costs, and so on.

To simplify the matter, we shall omit for the moment the co-operation of any other complementary means of production.

Again, for simplicity's sake, I leave out the other requisites of production.

It must be remembered that here we are making abstraction of the co-operation of other complementary means of production, as Labour, Tools, Coal, etc. If otherwise, of course, recording to the principles laid down above (p. 170) on the value of complementary goods, we should have to put a portion of the value of the product to the account of the other co-operating goods, and assign only a quota of the product's value to the iron. But, in that case, exactly the same relations, as are shown in the text to exist between the value of iron and the full value of the product, would hold between the value of the iron and that quota of the product's value.

See above, p. 221.

That these two, unfortunately, are not usually the same I have shown at length in Conrad's Jahrbücher, pp. 510-513, when discussing the causes and effects of this fact.

It is possible that the amount of costs may itself be shifted—raised, for instance—by the process of correction just described. It may happen, that is to say, that in order to satisfy the demand, hitherto unsatisfied, which is desirous of buying iron products at a higher price than 6s., so much iron is taken out of the iron market that the stock is no longer sufficient for the demand that is willing to pay just 6s. This latter, then, will, of course, be shut out by the stronger competitors, and the market price settles at a higher figure than 6s.—another proof that costs are not the fixed point to which the price of products adapts itself, but vice versâ.

It must not be forgotten that we are simplifying the matter by leaving out of account the co-operation of other complementary goods in the production of iron products. If we were to take these into consideration, and assume, for instance, that, to change the iron into the iron product, the expenditure of other two days of immediate or mediate labour was necessary, then 8s., as the price of iron product, would correspond to 4s. as the price of iron, and of this, according to the law of complementary goods, 4s. would be reckoned to the productive good, iron, as its share.

A history of the theory of this subject—which I have no intention of writing here—would probably start with Adam Smith's emphatic opposition of "present enjoyment" to "future profit" (ii. 1). In more recent times there are some good observations on the subject in Senior (Political Economy, third edition, p. 58) under the headings of "Abstinence" and "Capital"; in Rae (New Principles of Political Economy, quoted in Mill's Principles, book i. chap. xi.); and in Menger (Grundsätze der Volkswirthschaftslehre, p. 127). The first, so far as I know, to treat it as a subject by itself, was Jevons (Theory of Political Economy, 1871, second edition, 1879). Jevons's work is exceedingly interesting and suggestive, but, on the whole, it is rather imperfect—as could scarcely be otherwise in a first attempt, and on a field of speculation hitherto all but untouched. It shows a good deal of incorrectness, a good many contradictions, and, in particular, many obvious gaps. Jevous may be said rather to have shown, by a bold stroke of genius, that here was a new circle of ideas waiting to be taken up, than shown what was to be done with them. Closely following Jevons, without going beyond their master, are, quite recently, Launhardt Mathematische Begründung der Volkswirthschaftslehre, 1885) and Emil has (Grundlegung der theoretischen Staatswirthschaft, 1887, pp. 178, 313). A little before these G. Gross (Die Zeit in der Volkswirthschaft, in the Zeitschrift für die ges. Staatswissenschaft, 1883, p. 126) had made a well-meant suggestion,—which, however, was by that time carried out by Jevons and then by myself,—that the element of time in economical theory was worthy of a fuller consideration. Finally, as concerns my own work, I owe it to myself to say that I arrived at my views on this subject in complete independence, and altogether uninfluenced by Jevons—and, naturally, still less by later writers. I first became acquainted with Jevons's writings in 1883,—shortly before the printing of my Capital and Interest,—when completing the historical material already collected in that work by a review of the latest English literature on the subject. The principles of my own theory of capital, on the other hand, were laid down by me as early as 1876. In that year I first suggested them in a youthful work never published. In later writings I gave many plain, if still cautious, hints of my leading ideas (e.g. in Rechte und Verhältnisse, p. 68 in note on the phenomenon of Abnützung, pp. 76 and particularly 109, 115 in note, on the computation of the future rise, and p. 152; in Capital and Interest, pp. 257, 276, 343, 424, and particularly on p. 428 where I formulated the programme of my positive theory in saying that the explanation of interest was to be deduced from the influence of Time on human valuations of goods). The cautious tone which I still deliberately adopted in giving these hints was due to my desire not to compromise my new ideas by any premature or incomplete formulation of them. I meant that they should not go before the public till I was in a position to produce them as a finished whole, all harmoniously fitted in to a system of carefully planned economic doctrine. That is why I preferred to work for ten years at laying the foundation of the present theory by completing the theory of goods (1881), the criticism of the theories of capital (1884), and the theory of value (1886), rather than snatch, as I might easily have done, at the glory of priority by publishing original but still immature ideas a decade earlier. Moreover my theory, if it touches that of Jevons at several points, by no means agrees with it in essence; and in the most important points, such as the explanation of interest, it is in distinct opposition to his.

When Jevons calls that intellectual phenomenon which impels us to provide for future wants and to value future goods, a "present anticipated feeling" (Political Economy, second edition, p. 37), the expression is very apt to be misleading. We must distinguish between two fundamentally distinct things, which Jevons seems to me not to have sufficiently kept apart. It is one thing to represent to ourselves, or imagine, a future pleasure or future pain, and to estimate its presumable intensity on the ground of this imagination. It is quite another thing to experience, in this imagination itself, a pleasure, an actual present pleasure of anticipation. To give an example. I think of taking a pleasure trip to Italy. From personal experiences, or from travellers' tales heard or read, I represent to myself the pleasures of the journey, and I put the intensity of these pleasures so high, that it seems to me worth the sacrifice of £50 to realise them. But, beyond this, in picturing to myself the future pleasure of the journey, a real present pleasure of anticipation is kindled. Thinking on the journey affords me an actual pleasure, but, in any case, it is an entirely different pleasure and, in all probability, its intensity is ever so much less than the pleasure of the journey itself. If I value the latter at £50, the pleasure of anticipation is, perhaps, not worth more than 10s.—of which it may be sufficient proof that I am willing to lay out so much money, and no more, in buying a book of travels that lifts me into the pleasant world of thought. The concrete figures here are of no moment. No constant or normal quantitative relation can be established between an anticipated pleasure and a pleasure of anticipation: the relation will vary in the wildest way according to persons, motives, and circumstances. With dreamy imaginative men, for instance, who are apt to be strongly excited by their own imaginings, the pleasures of anticipation may be relatively strong; with hard-headed unimpassioned men, on the other hand, they will be disproportionately weak. For our purpose it is sufficient to establish two things: first, that the intensity of the represented future pleasure and that of the actually felt pleasure of anticipation, are two different quantities; and second, in the vast majority of cases, the intensity of the pleasure of anticipation is less than the anticipated pleasure, not by a few per cent, but infinitely.

The question now is: When we value future goods, and when in conformity with that valuation we are making these economical determinations on which we provide for future wants, with which of these two intensities have we to do? On this, at any rate, there call be no doubt: we shall all agree that it is the intensity of the future pleasure (or of the averted future pain) valued on the representation or imagination of it. A good which I have every reason to expect will bring me all intensity of satisfaction indicated by 100, I shall value at 100 and not at 1, even if, in anticipating the same, I experience only all actual pleasure of anticipation of the intensity 1. And, in the same way, in choosing whether I shall provide for any definite future want, in general, or to which of several I should give the preference, I shall try to decide, as impartially as possible, according to my reasonable valuation of the future pleasure, and not according to the degree of my momentary feeling of pleasure. (That we not seldom have our clear judgment clouded by the latter, and that it thus obtains an indirect influence on our determinations, is a phenomenon which belongs to quite another sphere.) If, after what has been said, there should still be any doubt on the subject—which I do not anticipate—it may be removed by pointing to the well-known fact, that enthusiastic dreamers, in whom the anticipation of future events excite very lively present emotions, are not at all the sort of people who are given to provide economically for their future needs in the most efficient way. On the contrary, it is the cold calculating men who do so; men whose sober intellectual judgment of future situations is little or not at all affected by accompanying excitement.

Now Jevons has fundamentally confused these things. He makes out that our economical transactions have for their motive present feelings, which, according to the distance of time, remain a few per cent behind the intensity of future pleasures and pains—standing to the latter, perhaps, in the ratio of 95 to 100. But nothing is more certain than that, while we represent to ourselves feelings of that intensity and anticipate them, we do not experience them as present feelings. Sax, again, who, in this respect, has obviously followed Jevons without proving the facts of the case for himself, has made the same blunder in a ruder way. He speaks of a Vorempfindung of future wants—to be distinguished from a simple prescience (Grundlegung, p. 178), and out of these "previous feelings" he even construes actual "present wants" and "feelings of want," which should be only a little weaker, according to the distance of time, than the corresponding immediate want of the present itself (p. 314). Surely Sax has scarcely considered what tortures aye must constantly endure if all the future pleasures and pains, against which we protect ourselves by forethought, are really to be experienced by us in anticipation, and only a few per cent less vividly than in reality!—Let me add the following remark. I am quite aware that the psychologists attach two distinct conceptions to the words "feeling" and "sensation" (Gefühl and Empfindung). The speech of economics, however, has not yet carried out this distinction and it is usual to speak either of sensations or feelings of want, pain, and so on. I retain these common expressions because, by giving them up, I should probably lose more, among economic readers, in plainness, than I could gain in exactness.

NOTE BY TRANSLATOR.—I may suggest here that, so far as concerns Jevons, the above criticism scarcely applies. It is based on a literal reading of two unfortunate expressions, "present anticipated feeling" and "vague though powerful feeling of the future." The whole passage, however, shows that Jevons did not mean the present feeling, but the represented future feeling—what he himself calls the "actual amount of feeling anticipated." The criticism, however, probably finds its mark in those German writers who have too faithfully followed the letter of Jevons.—W. S.

On the conception of Material Services see Capital and Interest, p. 223.

Menger, Grundsätze, p. 124.

This proposition has lately been disputed by Mataja (Das Recht des Schadenersatzes vom Standpunkte der Nationalökonomie, Leipsic, 1888, p. 149, note 1) on the ground that, in the selling of such goods, one might actually obtain their average return as price, and therefore, quite correctly, value them according to this. But Mataja forgets that the market price is not the cause, but is itself the result of the fact that the individuals, who appear as buyers and sellers of such goods, value them in the first instance—that is, in the individual case, objectively falsely—according to the average return.

See my former tract on Rechte and Verhältnisse, p. 85, where I brought out the same idea in a somewhat different connection: also Mataja, ibid. p. 139.

It embraces also goods which, materially, are present, but are intended for future consumption; for instance, productive goods, the technical transformation of which into consumption goods is accompanied by a danger of not succeeding.

The proverb bis dat qui cito dat has therefore a quite sound economical basis.

For this reason the well-known postponement of university fees in the case of poor students in Germany (Stundung) is found to be a relief not much inferior to the total exemption of the same class in Austria (Befreiung). Or we may think of the conditions of the contract which the impresario makes with the singers he educates and brings out.

According to the law laid down above on p. 162, for the case of alternative employments with different marginal utilities.

I need scarcely say that, in practical life, we seldom or never make out our valuations with such minute exactitude as in the above illustration. But it does give a faithful picture of the kind of considerations of which we avail ourselves in such cases.

See above, p. 245.

If there is objective uncertainty as well as subjective there will, naturally, be two deductions. Of these the one made on account of objective uncertainty, as a particular phenomenon of certain kinds of goods, has nothing to do with interest; we have only to deal with the deduction on account of subjective uncertainty.

An effect analogous to that of the uncertainty of life might be exerted by the uncertainty of the duration of our capacity of enjoyment; but in any case the limits of the efficiency of this motive are much more closely drawn.

Jevons, like his follower Sax, as we saw in the note to p. 239, fell into a misunderstanding as to the entire nature of the phenomenon mentioned in the text, in confusing the representations and valuations which we make as regards future feelings with actually present feelings. We need not wonder, then, at not finding in these writers any sound thorough-going explanation of the phenomena, or even an attempt at such. They accept the supposed "weakened anticipated feelings" of future needs simply as fact, as a " well-known psychological fact," and they pass over much of its detail—which really very much requires explanation—without comment as "self-evident" (see e.g., Sax as before, p. 178).

Indirectly this effect will be strengthened by the fact that, through the under-valuation of the future utility, men will refrain from providing for the future so amply as they would otherwise have done. In other words, this underestimate acts to the prejudice of saving and accumulation of wealth, and still further reduces the number of persons who have to throw an accumulated surplus of present goods on the market.

See Capital and Interest, p. 111.

See above, pp. 18, 84.

Naturally, in the case of lengthier processes, the labour first expended requires that the production should be continued by the addition of new labour. By the figures given in the text is always meant that share in the product which, of the total product, falls to the productive unit—in this case the thirty days' labour. If, e.g., in the case of a one year's process, other eleven months of labour follow the one first expended, this would involve, in terms of our illustration, that a total product of 2400 units was obtained in the twelve months taken together, and thus, to the one month, would be ascribed a product of 200 units.

On the same analogy, as a present month of labour is technically superior to a future, so is a past month to a present. According to our scheme a month of the period 1883, e.g., would give for 1888, in a 5 years' process, 440 units, while a month of the year 1888 would give only 100 units. But, naturally, the past years would realise their technical superiority, as against the present, only under the condition that they also were actually invested in correspondingly lengthy and roundabout processes. But this is seldom the case as regards long past years. And, therefore, one need not be frightened at the consequences which, of course, the above theory involves; that, for instance, a month's labour of the fifteenth century is, perhaps, a hundred times, and a month's labour of the year of our Lord, perhaps, a thousand times more fruitful than a month's labour of the present year; that, accordingly, to a certain extent, the productive powers of the past were gigantic beside those of to-day, and to-day's productive powers gigantic compared to those of future centuries—a view which would seem to give us but a dreary outlook to a continuous degeneracy of our productive powers. Certainly, if any one in the year I had expended a month of labour with a view to the marginal utility of the year 1888, and had arranged for the systematic continuation of the work during all the 1888 years intervening, in that case, thanks to the natural powers impressed into the service in the course of such a roundabout journey, the product of that long past month would be mountains high beside the product of a month of the present year. But, as things are, trees do not grow up till they meet the sky. The productive powers are too necessary for the wants of the living, to let us employ them in advance for the behoof of future centuries or future thousands of years. And thus the year of those future wants to which we look forward and work, and by which we get the measure of the productiveness of the powers, moves forward very much parallel with the year when the productive powers are exerted. It is quite certain that our productive powers of 1888 do for the wants, say, of the year 1898, as much as and more than the productive powers of the year 1 A.D. did for the wants of the year 11 A.D. And thus the productive powers of giants do not degenerate into those of pigmies, as a sophistical dialectic might easily delude us into believing: in all ages, the productive powers, according to the advance of technique, do as much or, rather, increasingly more for the wants of their own circle of provision.

See above, p. 179.

See above, p. 163. To prevent a mistake which is very apt to arise through the similarity of the words, I again emphasise here that the proposition in the text is not in contradiction with the fundamental proposition on p. 186, that, for productive goods, the value of the least valuable of their products, the value of the "marginal product," is the standard. The marginal product, that is to say, is the last of several products which may all be made from the available means of production; but, in the case we are now considering, it is not a matter of employing a month's labour in one and more years' production, but in one or more years' production. And of these alternative employments, naturally, the most important has the preference.

e.g. the economic centre of gravity for the month's labour of 1888 in the former case lay in the product attainable for the year 1890; it now lies in that attainable for 1894.

But here, all the same, the month's labour of 1888 remains superior to that of 1889. For, as regards any one remote period, say, the year 1988, the former, as employed in a process longer by one year, could produce a somewhat greater product than the latter.

Those who prefer somewhat more venturous generalisations might, perhaps, be inclined to put the first and the third cause together under one common category, that of the "technical superiority" of present goods. For the preference given to present goods in virtue of the different relations of provision also rests peculiarly on a technical circumstance; namely, that they allow of a greater choice of employments, both as regards present and future wants, while future goods, naturally, are adapted to serve future wants only. At all events, this technical superiority is so essentially distinct from the other, of the greater technical productivity, that the two elements would require again to be kept separate from each other. It appears to me, therefore, in the interests of clearness that they should be kept entirely distinct from the first.

Grundlagen, 189.

Suppose, e.g., that a man has 6 units of goods, say 6 five-pound notes, at his disposal. There are present groups of wants, which these notes could supply, and their importance is indicated by the figures 10, 9, 8, 7, 6, 5. Now there appear opportunities of employing these in business transactions which will not yield any result for a year, but are so profitable that, even after deducting the necessary dis-agio on account of the year's delay, they are equal to a present utility of 7. The following will evidently be the disposition of the notes. Four of them will go to the present wants which bear the utility 10, 9, 8, 7, the remaining two to the future employments which, likewise, show the (reduced) figure 7. The marginal utility which attaches to the present five-pound note is, therefore, 7, while, without the competition of the profitable future employments, it would have been only 5.

The statement of how the productivity of capital works into and together with the other two grounds of the higher valuation of present goods, I consider one of the most difficult points in the theory of interest, and, at the same time, the one which must decide the fate of that theory. It is just at this point that we discover the chief weakness in Jevons's otherwise suggestive work. None of the groups of phenomena concerned escaped his keen observation; what did escape him was the way in which they work into one another. Consequently his work remains an eclectic piece of patchwork instead of being welded into an organic theory. He gathers together quite correctly all the primary phenomena required for the explanation. But he does not find the common channel through which they all work together to the one common end, and so he explains it differently from each different point of view, with a result that is eclectic and self-contradictory. After a most promising beginning he quite loses sight of the element of the different valuations put upon present and future wants, and for the rest gives a double explanation, full of contradictions, and scarcely rising much above the level of the old classical economy,—part of it taken from the Abstinence, part from the Productivity theory. (See my Capital and Interest, p. 400.) The not very independent treatment which the subject has received from Sax is in one respect better, while in another it is even more incomplete than that of Jevons. It shows an advance to find the element of the undervaluation of future wants generally interwoven into the explanation of interest. (See also on this point Launhardt, Mathematische Begründung der Volkswirthschaftslehre, Leipsic, 1885, 2, and again my Capital and Interest, pp. 344, 427.) But, on the other hand, it is a sensible omission that the difference between the values of present and future goods is traced exclusively to this factor, and that the much more important factor that co-operates with it, that of the greater productiveness, does not get even the scanty consideration it gets from Jevons. (Sax, Grundlegung, p. 314.)

See above, p. 195.

For reasons with which we are now familiar almost all the competitors, whether buyers or sellers, will value present goods, absolutely, above future. But the valuation will be higher on the part of the buyers, as a class, than on the part of the sellers.

See my Capital and Interest, p. 29.

See Capital and Interest, pp. 214-259.

See Capital and Interest, p. 239. It goes without saying that I could mean nothing else than an involuntary dialectical confusion in the writer's mind, and nothing was further from my intention than to charge a scholar, so much esteemed by myself and by all the world, with wilfully misleading his readers. I should have thought that the very sincere expressions, in that and other writings, of the respect in which I have always held the person of that past master of our science, and particularly the express recognition of his "thorough and conscientious efforts" with which I introduced this very criticism (p. 239), might have sufficiently protected me against any such misconception. I was therefore more than astonished to learn that Professor Knies had taken my words as conveying an offensive imputation of wilful misleading of his readers. Although I scarcely think that any one of my readers will have understood me in this sense, I do not hesitate to explain here, emphatically and publicly, not only that I had not the slightest intention of any offensive imputation, but that I am exceedingly sorry if my inconsiderate choice of words should unwittingly have made such an interpretation possible.

P. 229, and pp. 235-239.

Capital and Interest, pp. 228, 247.

Ibid. p. 264.

The criticism which Knies directs against me in the note to page 106 of his second edition is limited unfortunately to a few passing remarks on points which are, for the most part, of secondary importance. Moreover, several errors of fact have slipped into these, and two of them I cannot let pass unchallenged. First, I cannot admit that I have done what Knies ascribes to me, and explained that the replaceableness of goods—that is to say, the fact that one sample of a class can be adequately replaced and represented by another—is simply a legal fiction. I only said that the actual identity of replaceable goods was a legal fiction (Capital and Interest, p. 253); and these are two very different statements. And, further, in my book I do not regard it as certain that, if a person speaks of uses in respect to perishable goods, he ought to point out, and wishes to point out, exactly the same kind of process of use as is to be observed in non-perishable goods. On the contrary, my entire criticism of Say and Schäffle (p. 232), of Hermann and even of Knies himself (p. 233), rests on the idea that it was a matter for the opposed theory to point out the existence of a something otherwise constituted than the usual material services, and that it had not succeeded in this attempt.

Der Kredit, part i., Berlin, 1876, p. 10: shortly repeated without new arguments in the second edition of the book Das Geld, p. 106, note 1.

I may note that it would be easy to multiply examples in which the same state of things occurs. Grain merchants, e.g., may find it to their advantage to exchange stocks held in different stores; bankers, to exchange sums of money disposable at different places, etc.

"A loan without interest is a gift of the use of so much capital," Roscher, Grundlagen, 189.

See above, p. 251.

Similar cases may perhaps occur after very abundant harvests, where the producers have not enough storage accommodation to secure the surplus.

Of course it may happen in individual cases, that, outside of the reasons for apparently cheap buying discussed in the text, there may be other reasons for really abnormal cheap buying; as, e.g., skilful utilising of favourable conjunctures, usurious oppression of the seller, and, in particular, of the labourer. The emergence of such factors in this case results in a still further limitation of the purchase price, and in the obtaining of an extra profit. This extra profit is to be distinguished from normal profit on capital in every respect: in its nature—for it is not a true profit on capital but strictly a profit of the undertaker; in its theoretical explanation—for it owes its origin to other and quite special causes: and, finally, in the social and political judgment we must form of it. I need scarcely say in so many words that what is said in the text has only to do with profit on capital pure and simple.

Not quite exactly: for easier understanding the figures in the text are calculated roughly, and without consideration of compound interest.

The analysis which follows is devoted to the circumnavigation of one of those hidden rocks which, I suspect, might rise suddenly in the way of those readers who venture on their own account to go further into the circle of ideas here opened up. The digression which it necessitates forms one of the numerous sacrifices of time which I imagine myself compelled to make with a view to the safety of my theory, at the cost of brevity and ease of comprehension.

In order to remain true to actual cases, so far as possible within the narrow limits of the illustration, I purposely assume that the value of product decreases as production in the same branch increases—the more units the less the value of each unit. The fact that even the most remunerative branch of production ceases to be remunerative when it is over-stocked, is the very thing that makes it possible for means of production to seek different employments simultaneously.

To be accurate it is 21.65%, or as 100 : 78.35.

If 200 pieces of the good are produced naturally all the pieces obtain one equal value, and not only the second hundred but the first hundred gets its value according to the lower rate of 8, at which the second hundred can be made remunerative.

By varying the figures the reader may very easily convince himself that exactly the same result emerges if the marginal utility, which determines the value, lies within the sphere, not of the immediately remunerative, but of the productive employments. The only difference is that, in this case, the chances of a temporary "conjuncture profit" between the individual branches of employment, are somewhat altered. That production which itself yields just the marginal utility bears no conjuncture profit, while such a profit is now possible temporarily in the present employments, and in the other branches of production.

See above, p. 230.

Whether it take the form of completing the two years' production process from beginning to end by their own labour, or that of introducing their own labour at a later stage,—e.g. in the fourth half-year of the total production process,—and buying the fruits of the preparatory labour,—raw materials, tools, etc.,—from the others who have performed that previous labour.

The pleasure of an independent position may indeed very often create a preference for labour on one's own account, even although the labourer might obtain a somewhat greater income by taking a wage. Influences of this kind, however, can alter only the figures, not the principle.

Of course the possibility open to the labourer in question of realising his labour in other branches of activity, can do little or nothing to alter the position of circumstances assumed in the text. For if the other branches are such as likewise demand a somewhat long production period the matter stands just the same with the labourer of this branch; and the few branches which a man with no capital, or almost no capital, can take up with any result,—such as in particular the performance of personal services, domestic service, and the like,—can, from their nature, afford a remunerative refuge only to a limited number of workers, while any strong pressure would immediately result in overstocking and a corresponding entailment of the advantage.

See above, p. 250.

16s. 8d. : 20s. = £104 : £124:16s.

It will perhaps be objected that the purchase amounts which the undertakers of the previous stages receive contain, not only a simple replacement of the advances of subsistence paid by them to workers, but frequently also replacement of the uses of land consumed, and, in any case, some profit on capital. The fact is correct, but it makes no difference in the conclusions which I think are to be drawn from what I have said above. The necessity of paying in advance for uses of land, the return of which will not be obtained till after long methods of production have been completed, has the same effect on the price relation between finished present goods and original productive powers, as the necessity of paying for labour in advance has. The market for uses of land is only a third part-market in addition to the market for credit and the market for labour, where, in similar ways, present goods are sold against future goods (see above, p. 313), and, consequently, as regards its effects on price, the demand of this market for present goods mutually assists, and is assisted by, the demand of the other part-markets. This, however, will be made clearer as we go on. Finally, I must here leave out of consideration the profit of the undertaker, if I would not beg the question. Its existence is the result of a certain market condition in the subsistence market, and therefore cannot be assumed. It is not because the profits of the undertaker absorb a part of the available means of subsistence that the supply of means of subsistence is so weak as to give them an agio as against productive goods. It is because the supply of means of subsistence, even without consideration of profit, is insufficient, that these means of subsistence receive an agio, and the undertakers who advance them receive a profit. Moreover it is easily seen that, by eliminating profit from the argument with which I started in the text, I do not make it any easier to reach the final result, that of giving a reason for the agio on means of subsistence, but make it more difficult. That is to say, if, as I assume, the whole stock of means of subsistence is disposable for the granting of advances to labourers, it will be more difficult in any case for this more ample supply to be exceeded by the demand, than if a portion of the supply appears to be already hypothecated to profit.

The much more important matter of the consumption of the income from capital does not belong to the present question: as was shown in last note it is only a result of the supply of wealth being insufficient as against the demand.

The figures are, of course, only chosen for illustration.

It would be erroneous to assume that, after the demand of the current year is covered, the current labour must be directed to the demand of the next annual period till such time as this is fully covered; that, e.g., if 5/10 of the demand of 1889 is covered by existing wealth, the labour of 1888 must, or even might, immediately prepare the remaining 5/10. But in 1888 the maturing of finished products is carried forward only one stage, and is itself fully terminated only in the year 1889 by an addition of the labour of 1889.

It is all the same as regards the effect whether the same persons perform the labour of all stages of production successively, or whether—as is the case under the division of labour—certain persons remain constantly occupied in one and the same stage.

Not to cumber the text I have done this in Appendix. [This appendix is titled in the original the "Appendix to page 327."—Econlib Editor.]

Of course many productions are, for technical reasons, very little divided up into stages; agriculture, e.g., yielding its harvests only from year to year. All the same the above formula will be found to give an approximately correct presentation of the case, and we may be the better pleased with it that I do not intend to draw a single deduction in which anything depends on definite figures. What I have to do with is rather the mere negative recognition, that the period of time, for which the accumulated subsistence fund must contain provision, need not be so great as the average economical production period.

I repeat again that it is quite true that, during the period of the national production process, the idle capitalists and rentiers also must be maintained by advances of wealth, and, indeed, as a rule maintained at a pretty fair rate. Their claims on subsistence, however, are not causes but effects of the condition of the market creating an agio on present goods. If there is no agio, and so no interest, then no one could live in idleness as a rentier; he would either have to work or positively consume his parent wealth. See above, p. 320 in note.

It is scarcely necessary to note that we have now changed the names of the parties who enter the market. So long as we were considering the special relations of the labour market, we thought of labour as the commodity offered, and of the means of subsistence as the equivalent price. Now, conversely, the means of subsistence appear as the commodity looking for a market, or as Supply.

Never, of course, quite 20s.; otherwise they would have no advantage from the exchange, and consequently no motive to conclude it; but, perhaps, 19s. 6d. or 19s. 9d.—a difference so insignificant that it may be entirely neglected in our inquiry.

I might name, as a fourth group of demand, those landowners who live, not on the return of their labour but on their rents, and who, like the labourers, get the price of a future commodity sold by them—in this case the productive good, use of land—advanced them in the form of subsistence. I intentionally, however, make no mention here of this group of demand since there need not be in every economy landowners living on their rents, and since, in any case, the emergence of interest which we have to prove in the text is quite independent of the simultaneous existence of rent from land.

The deficiency is grater, because it is well confirmed by experience that the surplus return constantly tends to decrease as the production period is extended. (See above, p. 84.) The difference between the return which can be obtained in a five years', and that which can be obtained in a ten years' production period, is greater than the difference between the returns of a ten and a fifteen years' period. If now, in a community where the stock of wealth is such as to allow of an average ten years' period, one branch is forced to limit its own period to five years because another branch has extended its period to fifteen years, the greater difference is lost to the community, and the lesser one is won. The total result of such a procedure is, therefore, uneconomic.

The fact that the agio stands at a certain height may now and then lead to the appearance of there being a deficiency in remunerative opportunities of employment, and a "glut of capital." The truth is that there is always a surplus of remunerative opportunities of employment, and a deficiency of capital; only that the high agio, which is the result of the deficiency of capital, excludes a mass of remunerative opportunities as not remunerative enough economically. It is exactly the same as when, in a year of bad crops, sufficient buyers cannot at the moment be found in some one market for the strongly appreciated grain, on account of the price being so high. It cannot be truly said that there is a surplus of grain and a deficiency of demand; on the contrary, there is so great a deficiency of grain that, after the weeding out which has resulted from the war of competition, only a very small part of the demand finds, economically, admittance to the scanty stocks.

See above, pp. 316, 317.

I assume that the figures of the return in a six years' period are a little, but not very much higher than those in a three years; in harmony with the experience, so often alluded to, that gradual extension of the production period tends to always decreasing surplus returns.

Capital and Interest, p. 219. Also Rechte und Verhältnisse, p. 57.

Are Material Services themselves "Goods"?—Many writers will have it so, as Hermann (Staatswirthschaftliche Untersuchungen, second edition, p. 109), or Menger (Grundsätze, p. 132). Other recent writers, like Sax (Grundlegung, p. 209) and R. Meyer (Das Wesen des Einkommens, p. 155, 168), emphatically exclude the services themselves from the conception of Goods. (Sax speaks primarily of personal services, but what is true of them must logically be true of material services.) To my mind the matter appears to stand as follows. First of all, the whole question is not one of scientific knowledge, but simply one of terminology. And provided that the nature and the place of material services in economies were really and properly recognised, in the end it would not much matter whether the name Good was attached to them or not. Those authors who refuse to recognise material services as goods appear to me, however, to have some notions that are not really and properly correct. Thus Meyer (pp. 158, 157, note 4) denies to material services the character of economic means, and explains them rather as "satisfactions of want." Now the material service, as I understand it, is a real mean towards the satisfaction of want, not that satisfaction of want itself. It stands as independent intermediary between the good from which it comes, and the satisfaction of want which it is intended to cause but does not by any means always cause. If, e.g., I hire an oven for the baking of bread—that is to say, buy its use or its material service—what kind of thing is it I really have bought? Have I directly bought the satisfaction of want, the allaying of hunger?—Certainly not. Or the oven itself?—No. Or, perhaps, the bread that is to be made by the oven?—Again, no. But what I have bought is just one material service, or group of services, of the good called Oven; these services are means to the production of bread, and thus, beyond that, to the satisfaction of one of the needs of subsistence. The material services are, therefore, true and—according to the sense indicated in the text—independent economical instruments and objects.—If now, with the view of settling the terminological question, we inquire as to the position of the material services among the other economical instruments, we seem to arrive at the following. There can be no doubt as to the inventory of the causes of wellbeing,—the causes which we summon to the satisfaction of our wants. Our wellbeing is furthered, on the one side, by persons who are useful to us (such as teachers, guardians, clergymen, artists, workers, domestics, etc.), and, on the other side, by useful things. And the use of both comes to us through the exertion of their useful powers,—that is, through useful services. In the sphere of material instruments of wellbeing we treat both the things and their services as economical objects: in the sphere of personal instruments of wellbeing, since the abolition of slavery, we do not treat the useful persons themselves, but only their services, as economical objects. Thus the scheme of our economical means of satisfaction would receive something like the following shape:

And now it is a question of appropriate terminology to which of these categories the name "Good" should be attached. Personally I believe that the science has great need of one short expression which would embrace all kinds of means of satisfaction. Now, since, the word "good" is quite suitable for this purpose, and has already long been used for this purpose, I see no reason why it should now be deposed. Of course there is quite as strong a need to keep the material services in their turn separate from the material goods which bear these services. But this can be done, both simply and sufficiently, by instituting the distinction, inside the universal conception of the "Good," between "Material Goods" and "Material Services."—Things like Rights, Relations, Properties, would, for good reasons, find no room even in the widened conception.

The perception of the above is made very difficult by the usual method of valuation according to "Costs" which, naturally, is always directed to the unit of goods as a whole (see my Rechte und Verhältnisse, p. 64, note 1). The reader, however, who has followed our conception of what the nature of the law of costs is, and has, consequently, recognised that, even where goods seem to get their value from their costs, the utility of the goods always stands in the background as the true source of value, and that, in any case, the "costs" must always be in harmony with the—independently established—marginal utility of the goods, will not be misled by any appearance to the contrary. Even in the consideration, for instance, of whether a durable good in general is worth its cost, and whether, consequently, we should produce or buy it, we must form an opinion to ourselves as to its utility, and I should be puzzled to know how this opinion is to be formed if not on the basis of the value which the material services of the good—singly and taken together—have for us.—On the whole question treated in the text see also my Rechte und Verhältnisse, pp. 61-68.

These figures are based on the assumption that the whole year's utility is obtained all at once, and, indeed, obtained in anticipation at the beginning of the year; e.g. by hiring the good at a year's interest of 100 payable on each 1st January. If, on the other hand, the year's rise can only be had at the end of the year, a valuation undertaken at the beginning of the year will show figures not inconsiderably lower. That is to say, on 1st January 1888, the present year's use which will be obtained only by 31st December,—that is, practically, a whole year later,—will not be valued at the full 100, but at 95.23 only; and again the "next year's use," that obtainable 31st December 1889,that is, practically, two years later,—will be valued at 90.70, and so on. Now this shows, for the whole good, a sum of value of 95.23 + 90.70 + 86.38 + 82.27 + 78.35 + 74.62 = 507.55. If, finally, the utility were always obtainable in the middle of the year, or, what comes to the same thing, were to be spread equally over the whole year, the figures would be—for a valuation taken on the 1st January—97.56 + 92.85 + 88.38 + 84.12 + 80.07 + 76.21 = 519.19.—That the figures should alter according as the date of the valuation stands nearer or farther from the date of obtaining the utility, is an entirely natural thing, and one quite familiar in financial life. The value of paper—which is just a "durable good" with annual uses—always stands a little higher shortly before the interest or dividend terms than some time before. I may note that the above figures are taken as before from Spitzer's Tables, and are based on an interest rate of 5%.

On the part return of 100, which was separated off from the good on the first day of the year, the good naturally will no longer yield any interest. If, on the other hand, the year's utility is only obtainable at the end of the year, it must naturally pay interest on the full initial value of the bearer of the utility, us will be brought out somewhat more fully later on.

Of 354.58, because again the 100 taken off at the beginning of the year—which may independently obtain interest—need no longer obtain interest through the good.

If the year's service can be obtained only at the year's end, the figures of the valuation, and with them the figures of the interest, will be altered, but the principle of the process, and, in particular, the reduction of value by the amount of the then last service, remains unchanged. I shall put together in the following tables the course of the value movement for one such case. The initial value of a good which will last six years, and has an annual utility, obtainable at the end of the year, of 100, is, as stated above (p. 343 in note), equal to 95.23 + 90.70 + 86.38 + 82.27 + 78.35 + 74.62 = 507.55.

See Capital and Interest, p. 194, and particularly p. 233.

A very noteworthy fact, which theory up till now has left entirely without notice and entirely without explanation. I have already called attention to it in my book Rechte und Verhältnisse, p. 68, note 6. As to the actual fact that the successive diminution of value, which a good suffers in the course of its wear and tear, does not go parallel with the degree of its physical wear and tear, but is slower at the beginning and quicker as time goes on, there can be no doubt. It may be seen in its purest form, because there it is not confused through subjective inexactnesses or caprice, in the rating of valuable paper which brings in a fixed annual amount for a limited number of years. A bond, e.g., which assures its owner the right of drawing ten years' coupons of £1000, and possesses (on a calculation of 5% compound interest) an initial course value of £7722 (Spitzer's Tables, p. 274), does not lose £772.2 for each of the ten years which make up its lifetime, although in each of these years it loses exactly one-tenth of its content. In the first year it loses £614, in the second £645, in the third £677, and so on successively £710, £747, £783, £823, £864, £907, and, finally, in the tenth year, £952, the sum it was still worth at the beginning of this latter year. But in all other kinds of durable goods the same course of wear and tear may be observed with sufficient accuracy, although, for obvious reasons, we seldom make so exact and mathematical a calculation. Later on I shall have another occasion to mention cases of this kind. Now in all the literature known to me I have found no attempt to give an explanation of this fact,—which is certainly notable enough to deserve explanation. Indeed, such an explanation is simply not to be got from the machinery of previous theories, particularly the "Use theory," while it offers itself unsolicited on the lines of my theory.

See above, p. 343.

In Menger's most valuable contribution Zur Theorie des Kapitales (Conrad's Jahrbücher, vol. xvii. p. 47), which appeared while this was passing through the press, the author likewise has urged against the Use theory that, in its conception of capitalisation, it has not solved its problems, but only gone round about them.

After deducting the share of the co-operating complementary factors.

Here I must assume that the utility is not obtained in advance, but at the expiry of the particular period, because, in the case of durable productive goods employed in a personal undertaking—with which the comparison is to be made—there is, in the nature of things, no anticipative use. The utility, e.g., which an agricultural implement affords in farming, cannot possibly be obtained on 1st January, for the whole year in advance: obviously it can be realised only at the end of the year, in the harvest.

P. 343, note 1. At a different interest rate, of course, the figures would be different.

This is most clearly shown when the intermediate product made by the assistance of the durable good—e.g. the cotton yarn spun by a machine—is immediately sold to another undertaker by whom the process is completed, and the yarn made into thread or cloth. All increment of value which the intermediate product, the yarn, thus obtains, is now naturally put to the account of this particular intermediate product (or the money capital for which it is sold) and not to that of the parent durable good.

See above, p. 305.

In the later years the "wear and tear" increases progressively, because the last service, which is not replaceable by any one coming after it, gets always nearer to the present, and becomes, therefore, always higher in value. See above, particularly the table on p. 348, note 1.

Spitzer's Tables, p. 121.

On the relation of Ricardo's rent theory to the modern value theory, see Dr. James Bonar's suggestive remark; in an article entitled "The Austrian economists and their view of value" in the Quarterly Journal of Economics, October 1888.

Manifestly the fact that Rent of Land and Rent of Capital have one common final cause is not a sufficient reason for abolishing every distinction between them. Between land and capital there are so many important differences, both theoretical and practical, that, notwithstanding the common feature just described, we are justified in adhering to the decision made in a former chapter to keep land out of the conception of capital.—Quite lately Carl Menger, in Conrad's Jahrbücher, vol. xvii. p. 48, has ably put forward the necessity of a comprehensive "universal theory of the return to wealth." I trust that, in the contents of the present chapter, he will see an earnest attempt to develop such a theory.

The incorrectness of a theory is shown in its not being able to give a satisfactory solution for all given cases. I have already had frequent occasion to point to cases which could not be satisfactorily explained by means of the—to my mind—incorrect "Use theory" (see above, pp. 287, 347). Here I have to add another instance;—the buying of a perpetual interest, e.g. Consols, where the original debt can neither be called up nor paid back. In these annual payments the Use theory would see the price for a "use of capital" perpetually transferred. But what has happened with the capital stock? It has of course been transferred. But it is not simply lent, for it will never be paid back. Nor, in the view of the Use theorists, can it be transferred against payment, for the annual interest is the price of the "use," and there is nothing paid beyond that. Nor, finally, is it transferred without payment,—presented as a gift: the rentiers, the representatives of those who made the loan, have no intention of making any such present, and the government which received the loan certainly does not feel that it has received a gift.—Now what the Use theory could not explain, or explained only in a most artificial way, is explained perfectly simply by our theory: it is just an exchange of present goods (the original capital) against a series of future sums of goods (the annual interest payments).

See below on the Rate of Interest.

I gladly embrace this opportunity to repair an omission in my Capital and Interest. At the time when I published that work I unfortunately had not made the acquaintance of Loria's La Rendita Fondiaria (Mailand, 1880). It contains (pp. 610-624) an unusually spirited and subtle variation of the Abstinence theory, of which I can only say that, if the Abstinence theory were tenable—which, of course, I do not believe it to be—Loria's setting of it would be the first to gain recognition.

See above, p. 114.

See above, p. 335.

It may, perhaps, be pointed out in reply that, owing to the increasing supply of wood, its value would be pressed down, and so, by and by, forestry would become only as remunerative as baking and such like. I would, however, suggest that this result would only be reached when the value of hundred-year-old timber had come down to a halfpenny; and to press down the value of wood so low, in the midst of a dense population, an enormous portion of the country would require to be turned into forest again!

See above, p. 310.

The levelling up of wages—that is, up to the value of the future product of the most remuneratively employed labour—is, of course, impossible, because the national product would not suffice for that.

I may remark in passing that the same position holds in the case of land rent. It is obvious that, even in the Socialist state, a labourer working on a peculiarly fruitful piece of land, e.g. in a Rüdesheim vineyard, will produce a greater or more valuable product than one who puts forth the same exertion and skill on a common piece of land or vineyard. But it is as evident that it would be insufferable "protection" to allow the former labourers their entire greater product as wage. To avoid injustice the wage here must be levelled down; that is to say, of the product of the more fruitful lands, the "land rent" must be first of all retained for the common purse, to be divided afterwards to all the citizens in their capacity as joint owners of the national land. Land rent, therefore, even in the Socialist state, would exist, would come into operation as against the labourers cultivating superior land, and would only be divided according to another plan than new, on account of the equal share of all in the nationalised land.

On these forms of organisation see Anton Menger, Das Recht auf den vollen Arbeitsertrag, Stuttgart, 1888, pp. 104, 112.

An assumption which, for the reasons shown on p. 315, holds very widely;—that is to say, among all persons who own more wealth than they can or will spend in their own productive equipment.

As regards the sellers of present goods, for simplicity's sake, we shall adhere throughout the argument to the assumption that their personal circumstances are such that they value present and future commodities alike.

We may take the case, e.g., of a youth standing on the brink of manhood, kept very short of cash at the moment by his tutor, but with the prospect of a great fortune coming into his absolute disposal in a few months.

The total surplus return, due to the loan, figures out at £20, since, in each of the two years of the extended production period, the surplus return to labour is £10. But this surplus return is all the same divided over two years, so that only the amount of £10 is to be reckoned to one year. In more skilful disposition, however, the borrower need not take up, at the beginning of the production period, the whole amount of the loan from which he defrays his subsistence during that period: he may raise the loan by successive instalments, and this has for result that the loan is outstanding and requires to pay interest only for half the production period. If such a disposition is arranged the yearly surplus return may in the most extreme case be offered as a half-year's interest on the subsistence loan, and in this case the most extreme interest rate economically possible is double the figures given is the text. The raising of such subsistence loans by instalments thus exerts exactly the same influence on the relation between subsistence fund and surplus return, and, at the same time, on the height of the interest rate, as does a suitable "Staffelung" of production (see above, p. 325), with which phenomenon, as may be easily seen, it is closely and intimately connected.

Up to a certain point the surplus return may now and then increase even in a greater ratio than the duration of the production period. It may, e.g., happen that the transition from rod-fishing to net-fishing shows a greater advance than the transition from primitive modes of fishing to rod-fishing. But beyond a certain point this cannot be maintained, and the surplus returns show a decreasing ratio.

See above, p. 319, and particularly p. 330.

The case of production carried on entirely without capital, which, according to the scheme, would return only £15, we may leave out of account as practically of no importance.

Only the wages of the first month are outstanding nearly a whole year; those of the second month are outstanding only eleven months, and so on; all wages of the first six months outstanding more than half a year. Against this the wages of the second six months are outstanding for as much less than the half-year.

The calculation is exactly similar to the foregoing.

Perhaps one or other of my readers will take exception to my looking upon the production period, in which the work of undertaking is carried on, as not a fixed immovable amount. It will be said that each undertaker has made the arrangements for his production on a quite definite footing, and works in any case in the production period corresponding to and determined by these given arrangements. This is not the case. Even where the visible outlines of the arrangements, such as workshops, number and kind of employés, and so on, may be pretty permanent, yet, within these fixed lines, a number of little noticed alterations are possible, by which the length of the production period might be changed not inconsiderably. In the simplest shoemaking shop, e.g., the buying of a new machine-made tool, the wholesale purchase of finished uppers, or, above all, the acquiring of labour-saving instruments such as sewing-machines and the like, involves no unimportant extension of the production period. True, in the shoemaking shop itself one does not notice that the production of shoes has now become a more lengthy process. But all the more noticeable will it be in those preparatory stages of production where, on account of the shoemaker's demand—not, of course, the demand of the one shoemaker, but of many,—people must now stretch away back in time, as it were, and invest original productive powers in machine-making, founding of factories, and so on. The shoemaker, therefore, according as he covers his demand for the instruments of his business in one way or the other, may as a fact cause a lengthening or shortening of the total production period, and naturally he makes the choice which, in the circumstances, is economically the more advantageous. If, e.g., the level of wages is very high, he will prefer to buy machine-made uppers, put up a sewing-machine in his own shop, etc.; that is to say, in entire correspondence with the statement given in the text, he will prolong the production period: while, if the level of wages is low, he will prefer directly to employ the cheap hand labour—that is to say, so far as in him lies, to keep the production period short.

On the assumption of a production arranged in the form of stages, whereby (as shown on p. 328, and in Appendix I.) the initial fund need only contain subsistence for half the production period.

If, e.g., the existing stock of subsistence is so great as to defray four million years pay—in which case, as we know, where production is by stages, an initial capital amounting to two millions of wages only would be required—and if there are one million labourers in the country, then it is shown that an average four years' production period must be taken. For if, say, a three years' period were taken, the three years' payment of one million of workers would take up only a capital of one and a half millions of wage, and the rest of the capital would have to go idle. In a five years' production, again, an initial fund of two millions of wages would only defray the subsistence of 800,000 labourers for five years, and the remaining 200,000 would go starving—a position which evidently is as untenable.

I here assume a well-organised production by stages, where no portion of the capital remains idle, and where, consequently, the initial fund need only contain something like half the amount of subsistence required during the course of the whole production period. I may note, however, that the correctness of the conclusions drawn in the text is quite independent of the pure question of fact whether the initial capital must be exactly half, or something more than half, or, perhaps, just so much as the amount of subsistence successively consumed by the workers during the production period. According as this is determined the figures puat down in the following tables will, of course, vary—they have no value, indeed, but as illustrative—but not the laws that underlie these figures. With other figures representing the productiveness and the capital, the calculation would lead to different concrete rates of interest, but to the same laws as regards height of the interest rate, as will be shown more clearly further on.

Leaving out of account special disturbing causes, the influence of which I cannot pursue here: my business just now is to develop the fundamental law of the interest rate, just as I have already developed the fundamental law of the formation of price. See Conrad's Jahrbücher, vol. xiii. p. 480.

Always assuming a complete arrangement of production by stages. I may add the mathematical proof of this somewhat paradoxical thesis. To employ 30 labourers in a 5 years' period arranged by yearly stages, the 6 labourers of the first stage need an advance of wage over full 5 years, that is, in all, 30 annual wages: the 6 labourers of the second stage require an advance over 4 years, that is, 24 wages: similarly, the labourers of the third stage require 18, those of the fourth 12, those of the fifth 6: a total of 90 wages. To support the same 30 labourers in a 6 years' production, the first stage, now embracing only 5 labourers, requires the advance for 6 years, that is, 30 wages; the second stage, 25; the third, 20; the others, respectively, 15, 10, and 5 wages: in all, 105 wages. The extension of the production period for 30 labourers by a whole year requires therefore, as a fact, the augmenting of the wage fund by the amount of only 15 wages, which gives the case maintained in the text.

From this formulation it will be seen why the law now deduced does not depend, and has no need to depend, for its correctness on the concrete numerical ratio between the amount of the wage fund and the length of the production period. (See above, p. 387, note 1.) Suppose, e.g., that not a half but a whole year's wage were necessary to extend the production period by a year, all the same a capital sufficient to defray the wages of a whole year would require to bear something like the return of the last extension of the production period as interest. The figures may change as they will, but the typical relation holds, that the interest of that unit of capital required for a definite extension of the production period lies between the surplus return of the last permissible and the first non-permissible extension.

See above, p. 217.

See above, p. 221.

Der isolirte Staat, second edition, part ii. div. i. p. 100. It is very notable that Thünen, without knowing the law of marginal utility, without any general price theory based on that law, and, finally, even without any clear insight into the origin of interest, was able to solve the special problem of the rate of interest with almost entire correctness, and in the sense of those general theories of which he had perhaps a dim

See above, p. 218.

As, e.g., in the familiar proposition that an increase of the national capital tends to reduce the interest rate. In the points here raised, I am in very thorough agreement with Walras, who, like Thünen, starts from a theory of interest which, in my opinion, is essentially wrong, and yet is able to arrive at many details correctly and with fine scientific feeling. The coming second edition of his Élements,d'Économie Politique Pure, the proof sheets of which, by the kindness of the author, I was permitted to see, contains many forcible and noteworthy passages on this subject. I can only regret that they are expressed in the troublesome and difficult language of mathematics. The conception of political economy as pre-eminently a mathematical science is one on which, notwithstanding what the distinguished economist has recently said (p. 191 in new edition), I fear we shall never be able to agree.

In this case it falls considerably nearer the under limit on account of the relative abundance of the capital, which would be almost sufficient for general adoption of a nine years' production period.

That is to say, with £1000 capital, as the table shows, 11.905 labourers could be employed in four years' production. To employ all the existing ten million labourers, therefore, a capital is required which follows this proportion

1000 : x = 11.905 : 10,000,000.

The solution of this proportion gives

x = 10,000,000,000 : 11.905 = 840,000,000.

With £1000 capital 9.524 labourers are employed in five years' production; with 1000 millions of capital, therefore, 9.524 millions of labourers.

I may call attention to the fact that now we arrive at the figure 19.048 by a quite different way, by quite different lines of thought, and by quite different calculations, than in the above table. There we sought and found empirically the figures of wage and interest at which, under the given assumptions, the equilibrium of Supply and Demand may be established. Now, applying the law of the marginal pair to the concrete case, we have deduced that the interest must lie between the surplus returns of the last extension of production still permissible, and the first excluded, and arrived thereby exactly at the same figure 19.048. In the former case we get our figures immediately by multiplication of the number employed by the gain made per labourer (11.905 × 16 and 9.524 × 20). Here we get the same figure by dividing the dependent last surplus product by half the wage (4 : 21). I may, therefore, take this agreement as a proof that our deductive reasoning correctly expressed the results empirically established.—Here also it may be the most suitable place to point out the error into which Jevons fell as regards this question. Jevons recognises perfectly correctly that the "last surplus return" decides the interest rate; but, owing to an oversight in principle, he makes the mistake of fixing on that other amount to which this surplus return must be put in relation, and deduces the rate of interest, not from the relation of the last surplus return to the sum of subsistence which allows the last extension of production, but from the quite different relation in which that surplus return stands to the value of the whole product which might have been obtained without the last extension of production. "The interest of capital is the rate of increase of the produce divided by the whole produce" (Pol. Econ. second edition, p. 267). The seriousness of this oversight will be best seen from a concrete example, which, for the sake of easier comprehension, I shall take from the case of isolated exchange spoken of above (p. 378). Remembering what was then said, let us suppose the case of an undertaker whose means would allow him to carry through an eight years' production period with a yearly return of £68:10s., and who, by a loan of £30, which would guarantee him subsistence for a ninth year, is put in a position to go on to a nine years' production period with a return of £69:10s., or a surplus return of 20s. According to Jevons this should allow an interest rate of £1 on £68:10s., or 1.46%. But evidently there is no ground whatever why the suitor for the loan should be ready to offer £1 per year and no more as interest for a sum of £68:10s. It is not the amount of £68:10s., but that of £30, whose acquisition makes the extension of production possible, calls forth the surplus return of £1, and, consequently, maybe paid, in the most extreme case, by £l, but, on the assumption noted on p. 378, note 1, by as much as £2 per year. As a fact, then, in the case of this illustration, it is not, as Jevons assumed, an interest of £1 on £68:10s., or 1.46%, that is economically possible, but an interest of £1 on £30, or 3 1/3%, indeed, on the above assumption, a rate of £1 on £15, or 6 2/3%. A certain very modest kernel of truth may be found, all the same, in Jevons's t error; but to point it out I should require to go still further afield into discussions in which I could not assume that the majority of many readers would find sufficient interest.

See above, p. 392.

See what was said above on p. 334: the two passages mutually supplement each other.

See above, p. 394.

See above,p. 376.

Which can be quite easily calculated from our tabular examples. See, too, close connection of what was said on p. 382.

See above, p. 319.

Members of the community not here mentioned, as women, children, persons who occupy themselves with the performance of personal services, as artists, officials, domestics; must also, of course, get part of the subsistence fund. But they are not to be counted separately, for the reason that they are not a direct charge on the social subsistence fund, but on the portions secured by the economical classes already mentioned in the text. Violin-players, e.g., receive a portion of the subsistence obtained by concert-goers; the establishment of a rich landowner is supported and paid out of his rent, and so on

I must guard myself against a misunderstanding very apt to occur. What I maintain is that the position of land rent as a form of income—the absorption of a portion of the national product by landowners who live without working,—tends to raise the rate of interest. On the other hand, I do not say that the causes which call forth land rent, and raise it, raise also the rate of interest. On the contrary, the well-known law of Diminishing Returns, according to which (in the absence of technical discoveries or improvements) new additions of capital and labour in agriculture lead to a decreasing surplus return, while it exerts an upward influence on land rent, certainly exerts a depressing influence on interest (see point 3 in the text). The full bearing of my contention is best expressed in this;—that in event of the taking away of private right to land, or heavy and confiscatory taxation of land rent, interest in that community would stand lower than it would otherwise. The causes of land rent, in themselves, would depress interest, but land rent, as one of the shares in the division, through its effects on the division, makes up for a portion of these influences.

It may, perhaps, have been noticed that the often-mentioned factor of Insurance or Risk, which plays so great a part in practical life, especially in determining the rate of interest on loans, is missed out in my enumeration. This factor, however, has no place here. For the surplus return which this gives the capitalist, if to all appearance it raises the rate of interest, is in truth no real interest,—no net income accruing from the possession of capital,—but only a replacement for a loss of parent stock which shows itself as unavoidable over a great average of cases.—Finally, from the whole course of my research, it will be self-evident that it was not my intention to introduce exhaustively all the secondary determinants of the rate of interest. I have contented myself intentionally with enumerating the most important of those determinants which come into view as typical if the economical interests of the market are followed without let and hindrance. On the other hand, the influence of motives such as generosity, national prejudice, vanity, etc. (see Conrad's Jahrbücher, vol. xiii. p. 486) I have purposely left out of account here. See also below.

The possibility of a complete harmony of satisfaction is only now and then prevented through an imperfect divisibility of wants on the one side, and of units of goods on the other. See my Grundzüge in Conrad's Jahrbücher, vol. xiii. p. 68, and in particular Wieser's Ursprung und Hauptgesetze, p. 148.

It must not be thought that this equilibrium of provision is reached if the available sum of goods is divided over the various periods of time in entirely equal amounts, so that each period obtains, allotted to its consumption, exactly the same quantity of goods. The position of wants also changes. A bachelor has to provide for fewer wants than the father of a family; a healthy man has to make much less expenditure on the preservation of his health than an invalid and frail old man, and so on. Now, obviously, any one would make a very unsymmetrical provision for his wants, who proposed to consume mechanically the same amount of goods during all periods of his life, whether as bachelor, father of a family, or old man. To secure anything like harmonious provision a man must anticipate a probable increase of wants, and meet it by an increase of provision.

I That is to say;—the utility of £105 in the future is equal to the utility of £100 now, only on the condition that the community's wealth is increasing.

See my Grundzüge in Conrad's Jahrbücher, vol. xiii. p. 74.

See the short and clear statement by Mithoff in Schönberg's Handbuch, second edition, vol. i. p. 643, particularly note 53.

I do not at all pretend, in the somewhat sketchy suggestions which this chapter contains on the subject of wage, to have given a perfect theory of that matter. In particular, my occasional remarks have only dealt—in a half-complete sort of way—with one of the sides that comes into consideration as regards wages; viz. the relation of wage and interest. On the other hand, I have given no express consideration to another side which is at least as important,—the question as to the influence exerted on the rate of wages by the difficulty that exists, in consonance with the law of diminishing returns, for an increased number of people to obtain the necessary subsistence from the earth. All the same, the attentive reader may find in this book, if in scattered form yet tolerably completely, the foundation-stones on which the principles of a theory of wage might be built; partly in the theory of complementary goods (p. 170), partly in my explanation of the law of costs (p. 223), partly in the present chapter.