Precedents for Defining Capital
by Irving Fisher
Quarterly Journal of Economics, volume 18 (pp. 386-408)


                    I

    Professor Nicholson, in his latest work writes: "On the
meaning and the functions of capital, volumes have been written,
and, to judge by the economic journals, volumes are still being
written and no doubt will continue to be written. Properly
viewed, this is not a matter for regret, as it simply indicates
that capital is one of the most far-reaching conceptions."(1*) In
mediate fulfilment of this prophecy appears an article in the
November number of this Journal by Professor Charles A.
Tuttle.(2*) This article is, I believe, a step in the right
direction, and will help ultimately to clear away much of the
confusion which still pervades this subject. But, as Professor
Tuttle seems to believe that his conception of capital is
essentially different from the one which I have advocated,(3*)
and that his definition has the indorsement of ancient usage,
while mine has not, it seems advisable, without repeating what I
have already written, to re-examine briefly some of the points at
issue. I shall at the same time take this opportunity to consider
the somewhat similar objections to my treatment of capital which
were raised a few years ago by Professor Alfred Marshall and
Professor Frank A. Fetter.
    The problem of definition is always twofold: it is partly a
matter of words and partly a matter of ideas. In short, a
definition has to meet the requirements both of terminology and
of science. The scientific procedure starts with an idea, and
seeks to find a name to fit it. The procedure of terminology, on
the other hand, starts with a name already in popular use, and
seeks some accurate idea to interpret its meaning. These two
processes, proceeding in opposite directions, do not always reach
common ground, from which fact arise most of the disputes as to
definitions. Sometimes it is impossible to satisfy the
requirements both of terminology and of science. In such a case
the scientist usually ignores the former entirely, either
discarding the popular terms or giving them meanings which are
confessedly arbitrary and independent of former usage, justifying
his high-handedness by the utility of his definitions in
scientific analysis. But, when it is possible to obey at once the
behests of usage and analysis, it is expedient, if not
obligatory, to do so. This is, I am persuaded, the case with
capital, when defined as "a stock (of wealth or property, or the
value of either) existing at an instant of time," as
distinguished from income, which is a flow through a period of
time.
    The distinguishing characteristic of this definition is that
it makes the capital-concept depend not on the classification of
wealth, but on its relation to time. For its scientific
justification it is claimed that this concept plays an important
role in the analysis of the so-called "problems of capital," in
particular the problem of interest. This role, as I conceive it,
has already been sketched briefly.(4*) and I hope soon to show
more particularly how the proposed definition is suited to the
study of the theory of interest.
    But those who have rejected this definition of capital have
usually done so, not on the ground that it was unfitted to solve
the "problems of capital," but that it was too radical a
departure from established usage; in other words, because it
failed to satisfy the requirements, not of science, but of
terminology. Says Professor Marshall:(5*) --

    If I understand his [my] position rightly, the difference
between us is very small and is mainly one of words....
Continuity of tradition is important everywhere; it is nowhere
more important than in our use of terms.... a breach with
tradition as regards notions should be deferred so long as there
remains any considerable doubt as to its wisdom. If one is in
doubt whether the landscape would be improved by cutting down an
old oak, the oak should be left yet a little while.

    Professor Fetter(6*) speaks of my definition of capital as a
"radical proposal in economic terminology.... A final objection
is that the term 'capital' is made synonymous with wealth, and
two good words are employed in the same sense."(7*)

     Professor Tuttle writes:(8*) --

    But why apply to the so-called "stock" of economic goods in
existence at a given instant the name capital? To this question
Professor Fisher has not given a convincing answer.... That the
distinction between "a stock" and "a flow" or "a rate of flow."
is an important one, the writer of this article does not doubt.
But he can find no justification in etymology or "in history or
in popular and business usage" for the application of the term
"capital" to such "a stock." The conception is adequately and
scientifically characterized by the phrase "the existing stock of
economic goods at an instant of time." To apply the term
"capital" to it is not only confusing, but arbitrary and wasteful
of terminology.

    The issue is thus squarely presented whether the application
of the term "capital" to "a stock of wealth existing at an
instant of time" is good terminology, and, in particular, whether
it is consistent with or in violation of former usage.
    To many this question, being one of words only, will not seem
to merit extended discussion. Indeed, this has been my own
opinion; and accordingly it received scant attention in the three
articles in the Economic Journal.(9*) But it is evident from the
foregoing criticisms, and others which might be mentioned, that
the principal obstacle to the acceptance of the proposed
definition and the conception which it carries with it is the
belief that it is an innovation in terminology. That Marshall
gives so much weight to tradition is, of itself, sufficient
reason for giving it a thorough and respectful hearing:
especially as he leads tradition more than he follows it.

                II

    There are two sources to which we must look for the
justification of economic terms: first, economic usage; and,
second, popular and business usage.
    As to economic usage, it must be evident to any one who has
compared the various authors that, since the time of Adam Smith,
there has been no established usage whatever.(10*) On the
contrary, the most of what has been written on this vexed subject
has consisted in making existing confusion worse confounded.
Senior said, nearly seventy years ago, --

    Capital has been so variously defined that it may be doubtful
whether it have any generally received meaning.(11*)

    And in recent years Professor Böhm-Bawerk(12*) repeats the
lament: --

    Almost every year there appears some new attempt to settle
the disputed conception, but, unfortunately, no authoritative
result has as yet followed these attempts. On the contrary, many
of them only served to put more combatants in the field and
furnish more matter to the dispute.

    Any one who attempts to pick out from the mass of definitions
which have been proposed some common elements will find them so
vague and general as to apply to all wealth. The dividing line
between wealth which is capital and wealth which is not is
totally different in each definition, and even different in each
interpretation of the same definition. This part of the subject
was treated at length in a former article.(13*) It was there
shown, for instance, that Adam Smith's definition excludes a
dwelling occupied by the owner, as bringing no revenue, while
Hermann's definition includes dwellings as "durable" goods. On
the other hand, a fruiterer's stock in trade is capital according
to Smith, because used for profit, but is apparently not,
according to Hermann, because perishable. To Kleinwächter,
capital consists only of "tools" of production, such as a
railway, and excludes food, for instance, as passive. Jevons, on
the contrary, makes food the most typical capital, and excludes a
railway, except as representing the sustenance of the laborers
who built it. Mill makes the distinction depend upon the mind of
the capitalist; Marx and M'Culloch, on its effect on the laborer,
the effect being, according to the first, exploitation, according
to the second, maintenance; while most of the others take into
account neither of these conditions. And so we might go on
enumerating discrepancies.
    If there exists anywhere evidence of established usage among
economists, I have not been able to find it. It is certainly not
found by comparing the classical authors: Turgot, Adam Smith,
Ricardo, Malthus, Mill, Senior, M'Cullough, Say, Roscher; nor by
comparing the current text-books of, for instance, Marshall,
Sidgwick, Nicholson, Hadley, Wagner, Schmoller, Pareto,
Leroy-Beaulieu, Gide, Pierson; nor in the dictionaries of
political economy of Palgrave, Block, Lexis, and Macleod; nor
again in the popular dictionaries. On the contrary, the bulk of
what these authorities say on capital (and most of them say a
great deal) is critical and controversial. So far as any guidance
to the follower of precedent is concerned, the matter is summed
up in A. J. Schem's Deutsch-amerikanisches Conversations-Lexicon.
(New York, 1872): --

Kapital oder Capital... bei weitem der wichtigste Begriff in der
Volkswirthschaftslehre (Nationalökonomie), aber auch bei weitem
der streitigste....

    Abandoning, then, the impossible task of discovering what is
the accepted economic usage, let us turn to the usage of the
business man and the general public which is innocent of
political economy. It will surprise many academic economists, as
it certainly did me, that a study of this phase of the subject
shows: (1) that before Adam Smith no(14*) precedent is found for
definitely and avowedly dividing stock into two parts, only one
of which is capital, but that stock and capital were practically
synonymous; (2) that the definitions before the time of Adam
Smith, while they all conflict with him and most other
economists, are in substantial agreement with each other; (3)
that present popular and business usage continues to follow the
pre-Smith usage, almost wholly undisturbed by the economists; (4)
that this continuous popular and business usage for three hundred
years seems always consistent with and in many cases specifically
identical with the conception of capital here advocated.
    Since the best index of usage is in the work of
lexicographers, they being the ones who have sought from time to
time to record it, the basis of this part of our study is a
comparison of seventy-two dictionaries in the Yale University
Library (or ninety-one, if we include the different editions).
    The origin of the term "capital" in the western world is now
conceded to be "capitalis pars debiti," the principal, or
"principal part" of a debt.(15*) In this sense, capital was
defined in an early dictionary of the French Academy: --

1694, Dictionnaire de l'Académie française, Paris. -- Capital,...
Le sort principal d'une dette.(16*)

    A second and broader meaning is the value of stock in trade.
This is found in an early Venetian dictionary: --

1612, Vocabolario degli Accademici della Crusca....
Venezia.Capitale, sust. [antivo] la sorte principale, che è
quella quantità di danari, che pongono i mercatanti in sui
traffichi, che si dice anche, corpo. Lat. sors, caput.

    The edition of 1746 has practically the same wording. The
following is from the earliest English dictionary available: --

    1730, Bailey, N., Dictionarium Britannicum; Or, A more
compleat... English dictionary.... London. -- Capital stock [in
Trade, etc.] is the stock or fund of a Trading Company, or the
sum of money they jointly contribute to be employ'd in trade.

    The edition of 1755 gives the same definition. Very often the
term is applied to the sum originally put into the trade instead
of to what may exist at the moment. For instance: --

    1759, Rider, W., A New Universal English Dictionary....
London. -- Capital. Among merchants, the sum of money brought in
by each party to make up the common stock. Likewise the money
which a merchant first brings into trade on his own account.(17*)

    Sometimes, again, "capital" is applied to the sum permitted
in the charter, which is now usually called by business men the
authorized capital.

    1750, Dyche (Thomas) and Pardon (W.), A New General English
Dictionary.... 6th edition. London. --... capital stock, in
trading companies, is the fund Or quantity of money, they are by
their car allowed to employ in trade.
1818, Nicholson, W., American edition of the British
Encyclopaedia,... Philadelphia. -- Capital, among merchants,
traders, and bankers, signifies the sum of money which
individuals bring, to make up the common stock of a partnership
when it is first formed.... The word capital is opposed to that
of profit or gain, though the profit often increases the capital,
and becomes itself a part of it.

    The question now arises, Are the foregoing definitions to be
interpreted as restricting the meaning of the term absolutely to
trade -- capital? Or is the phrase "in trade," by which the
definitions are often preceded, simply meant to specify the
sphere in which the term is generally found, just as the
definitions of "cornice" are under the heading "architecture,"
"inventory" under "law" or "hawser" under "nautical"? Both
interpretations are possible. That some at least of the
dictionaries merely meant to specify the sphere of ordinary use
would appear from the varying ways in which that sphere is
described, as "in trade," "among merchants," "in trading
companies," "among merchants, traders, and bankers," "the stock
invested in any business, company, or institution."(18*)
Sometimes the restrictive term is omitted altogether. But, if
there be still doubt whether any authorities intended to extend
the use of the term outside of "business," it is dispelled by the
following definitions, which expressly include all wealth
whatsoever. The earliest example appears to be that quoted in
Murray's Dictionary:(19*) --

    1611, Cotgrave. -- Capital, wealth, worth; a stocke, a man's
principall or chiefe substance.

    Another early example is: --

    1678, Dufresne du Cange, Glossarium. -- Capitale dicitur
bonum omne quod possidetur, praesertim vero bonorum species illa,
quae in pecudibus consistit.(20*)

    Other definitions of the same tenor are as follows: --

    1830, Lieber, F., Encyclopaedia Americana.... Philadelphia.
-- Capital, in political economy, is the stock of valuable
exchangeable commodities possessed by individuals or a community.
This is the usual and more limited meaning of the term; for in
comparing the capital of one individual with that of another, we
have in mind the amount of money for which the stock of each can
be exchanged.
    1841, Sandford (D. K.), Thomson (T.), and Cunningham (A.),
The Popular Encyclopaedia.... Glasgow. -- Capital, in political
economy, is the stock of valuable exchangeable commodities
possessed by individuals or a community. This is the usual and
more limited meaning of the term....
    1859, Bouillet, M. N., Dictionnaire universel des
sciences.... 4e édition, Paris. -- Capital. On donne vulgairement
ce nom à toute smme amassée et plus particulièrement à celles
qui, placées ou prêtées, pouvent produire intérêt....
    1883, Simonds, P. L., The Commercial Dictionary of Trade
Products, Manufacturing and Technical Terms.... London. --
Capital, the amount of money or property subscribed or employed
in a joint-stock association; the money assets invested in
business by a trading firm or individual; the net worth of a
party.

    Practically the same is found in several other
dictionaries.(21*)

    We see now the genesis of the term "capital." Originally
applied to the principal of a debt as distinguished from the
interest, a fund as distinct from a flow, the present wealth as
distinct from what grows out of it, it soon became applied to a
merchant's stock in contradistinction to the flow of profits, if
any, springing from it, and hence to any fund or stock whatever.

            III

This was the situation when the term "capital" was transmitted to
the economists. Turgot accepts the meaning, and amplifies it. --

Whoever, either from the revenue of his land, or from the wages
of his labour or of his industry, receives each year more values
than he needs to spend, may place this superfluity in reserve and
accumulate it: these accumulated values are what is called a
capital.... It is absolutely indifferent whether this sum of
values or this capital consists in a mass of metal or anything
else, since the money represents every kind of value, just as
every kind of value represents money.(22*)

    As I stated in a previous article:(23*) --

    Turgot regarded capital as savings. If this term be used to
include all commodities acquired, but not yet consumed, i.e., all
in existence at any one time, his conception agrees precisely
with the one here advanced. But it would seem from the passages
previously quoted that Turgot meant to exclude all goods of
"current" consumption.... Except for these differences,... his
conception was practically the one here proposed.

    I feel more doubtful now than when the above was written that
Turgot meant to exclude any part of the stock, as being used in
"current consumption." Professor Tuttle believes that he did. If
so, Turgot was, like Knies and Tuttle, guilty either of the
confusion of subtracting a flow from a fund or of an arbitrary
separation of stock into that to be used for the immediate future
and that reserved for the more remote future. But let Turgot
speak for himself. In the following passage he expressly includes
the value of land, calculating its value from its annual income
multiplied by the number of years' purchase: --

    Since an estate of land of a certain revenue is but the
equivalent of a sum of value equal to this revenue multiplied a
certain number of times, it follows that any sum whatever of
values is the equivalent of an estate of land producing a revenue
equal to a definite fraction of that sum.... We have seen that
every rich man is necessarily the possessor either of a capital
in movable riches, or of an estate in land equivalent to a
capital. Every landed estate is the equivalent of a capital;
consequently every proprietor is a capitalist.(24*)

    In the following passage he expressly includes "all the other
movable property" except debts: --

    But though we cannot include, in calculating the riches of a
nation, the capital which corresponds to the interests of money
placed on loan without reckoning it twice over, we ought to
include all the other movable property, which, although they
formed originally the occasion of expenditure and bear no profit,
nevertheless form, from their duration, a true capital which is
constantly accumulating and which, inasmuch as it can at need be
exchanged for money, makes, as it were, a reserve fund which may
enter into commerce, and, when one pleases, make up for the loss
of other capitals. Among these may be mentioned furniture of all
kinds, jewels, plate, paintings, statues, ready money shut up in
the chests of misers: all these things have a value, and the sum
of all these values may reach a considerable amount in rich
nations; but, considerable or no, it is still true that it ought
to be added to the sum of the price of landed estates, and to
that of the advances circulating in enterprise of every kind, in
order to make up the sum total of the riches of a nation.(25*)

    It is evident that Turgot, if he excluded any consumption
goods, did not exclude much. He does not mention food in his list
to be included; and he gives, as a reason for including some
things, their durability. But as, on the other hand, he expressly
includes land, and, excepting debts, "all the other movable
property," and as he ends by calling the sum of all capital the
"sum total of the riches of a nation," it is not at all clear
that he meant to exclude anything.
    From Turgot the stream of usage bifurcates. Popular language
and business kept, with Turgot, faithful to the old tradition
which closely identified capital and stock. A few economists,
including possibly J. B. Say, did the same. But Adam Smith broke
with tradition, and the force of his example was powerful enough
to carry succeeding economists with him. Mistaking the fact that
"capital" is ordinarily a trade term for a logical restriction of
its meaning, he identified all capital with trade-capital. The
confusion resulting therefrom did not, however, reach the
dictionaries at first. The earliest example which we find of the
influence of the economists on the lexicographers is in 1826: --

    Ersch (J. S.) u. Gruber (J. G.), Allgemeine Encyclopädie....
Leipzig. -- Capital oder Erwerbvorrath (Erwerbstamm, Verlag),
wird in der Staatswirthschaft dem Verbrauchsvorrathe
eatgegengesetzt, und zu den drei Quellen des Einkommens (Land,
Arbeit und Kapital) gerechnet.

    Another early example is: --

    1843, Brande, W. T., A Dictionary of Science, Literature, and
Art.... New York. -- Capital. In Political Economy, that portion
of the produce of labour saved from immediate consumption which
is employed to maintain productive labourers, or to facilitate
production. (See Political Economy.)

    In 1846 the examples of "economic" definitions invading the
dictionaries are quite numerous; and, what is very significant,
the definitions now begin to diverge and conflict instead of
remaining in substantial agreement as was the case previously.
This lack of harmony is especially emphasized by the fact that
some of the dictionaries find it necessary to distinguish between
capital as used "in commerce" and capital as used "in political
economy." For instance: --

    1874, Colange, L., Zell's Popular Encyclopedia, a universal
dictionary.... Philadelphia. -- Capital. (Polit. Econ.) A term
applied to that portion of the produce of labor saved from
immediate consumption which is employed to maintain productive
laborers, or to facilitate production.
    (Com.) Principal stock, etc., of a bank, corporation, or
monetary undertaking; the sum of money which a merchant, trader,
or other individual, embarks in any concern to form its funded
basis, or which he contributes to the common stock of
partnership; as, a capital of one million dollars.

    1888, Chambers's Encyclopaedia.... New edition. Edinburgh. --
Capital, in the ordinary sense, is the means with which business
is carried on, and may consist either of money or of property
convertible into money. In the more accurate language of
political economy, capital is wealth appropriated to reproductive
employment...

    1889, Whitney, W. D., The Century Dictionary, Vol. I., New
York. -- Capital.... 1. In polit. econ. that part of the produce
of industry which, in the form either of national or of
individual wealth, is available for further production; an
accumulation of the products of past labor capable of being used
in the support of present or future labor. 2. Specifically, the
wealth employed in carrying on a particular trade, manufacture,
business, or undertaking; stock in trade; the actual estate,
whether in money or property, which is owned and employed by an
individual, firm, or corporation in business.... See stock. 1893.

    Peck, H. T., The International Cyclopaedia.... New York. --
Capital, in trade and political economy, is in its restricted
sense applied to the money, or the property convertible into
money, with which a trader or producer carries on his business.
In this sense Adam Smith and many other writers call it stock;
and there is a convenience in having a separate term for
expressing this sense of the word C., since it is totally
different from its wider [?] sense as an element in political
economy.

    1893, Murray, J. A. H., A New English Dictionary.... Vol. 2,
Oxford. -- Capital. B. sb. 3. A capital stock or fund. a.
Commerce. The stock of a company, corporation, or individual with
which they enter into business and on which profits or dividends
are calculated; in a joint-stock company, it consists of the
total sum of the contributions of the shareholders. b. Pol. Econ.
The accumulated wealth of an individual, company, or community,
used as a fund for carrying on fresh production; wealth in any
form used to help in producing more wealth.

    These dictionaries would seem to show that the original
meaning of capital as stock still prevails in commercial and
popular use. Business men who have been consulted confirm this.
It would astonish a business man to have an economist strike out
from his assets as non-capital his raw materials, as would
Kleinwächter, his perishable goods, as would Hermann, his fuel,
as would Walras, or, above all, his land, as would most of the
classical economists. That land is capital they all emphatically
declare. As a manufacturer expressed it, the land is the very
first thing into which the paid in capital of a new concern is
converted. Again, they maintain that the function of capital has
nothing to do with its meaning. It need not be "for production"
or "for sustaining laborers," nor for any particular object
whatever. The only point on which some of them hesitate is
whether or not all articles in consumers' hands are capital. The
reason for this hesitation may possibly be found in the customs
of bookkeeping. As one business friend expressed it, "Capital is
simply a book-keeping term." The business man naturally
associates the term with his shop and not his home, for he keeps
a balance sheet in the former and not in the latter; but, once
given a balance sheet, it does not matter what purpose is behind
it. A social club, an art gallery, or a hospital, may have a
capital. It is even said that in one year a joint stock company
with capital stock was organized to build the yacht for defending
the America's cup. If a private family should call itself a joint
stock company and draw up a balance sheet, entering all its
property, house, furniture, provisions, etc., on one side, with
the debts on the other, no business man, I imagine, would
hesitate to call the balance of assets over liabilities
"capital." Even as it is, business men do not object, when their
attention is called to the matter, to extend the application of
the term capital beyond the limits of trade-capital. One
representative business man said, "Capital isn't a part of
wealth, but all a man has got, including his automobile." "Is
that cigar in your mouth capital?" I asked. "No," he said
hesitatingly. But this opinion he quickly reversed as
inconsistent with his first statement, and because he was made to
see that a box of cigars and each cigar in it, or out of it for
that matter, was a part of his stock or reserve.
    It ought now to be clear what the course of history has been.
Business and popular usage has preserved a very consistent
tradition from 1678 -- when capital meant, among other things,
"all goods which are possessed" -- to 1883, when it still meant
"the net worth of a party." The other meanings, principal loaned,
stock in trade, capital stock, etc., were special applications
rather than contradictions of this broader meaning. But Adam
Smith turned aside from this beaten track. Following him came the
other economists; but, as their master's trail led nowhere, each
set out through trackless wilds on a path of his own. This
wandering in the wilderness has now continued so long that a
return to the beaten track seems itself a desertion of tradition!
And yet in no other way can economists get into that harmonious
relation with business facts and methods which most of us so
earnestly desire.
    It is true that a few seem to think that the needs of
business men and economists are so different that "capital"
should have a distinct meaning in the two fields. Professor
Nicholson objects to identifying capital with stock, because this
definition" seems rather adapted to accounting than
economics."(26*) Now if there is any feature of the business
world which contains lessons for the economist, it is business
book-keeping. Long and hard practical experience has developed
the business man's methods of accounting. He has acquired in
these matters an almost unerring instinct for truth. The
wage-fund theory could scarcely have befogged economists, had
they known how to keep reckoning of funds in "capital accounts"
and of wages in "income accounts." So also the confused double
counting of "income" by economists can be obviated by a little
familiarity with double entry book-keeping.(27*)

                    IV

    But for those who prefer academic tradition to business
tradition it may be argued that, among the contradictory
definitions in the text-books, the definition of capital here
advocated finds almost as much favor among economists as most of
its competitors. Following Turgot came possibly J. B. Say,(28*)
and certainly Courcelle-Seneuil(29*) and Guyot.(30*) Edwin
Cannan, among present economists, reintroduced it. To-day it is
used in four or five standard works,(31*) as well as in some
minor writings. Many economists have orally expressed their
approval of the proposed definition.
    Others virtually or nearly adopt it, as, for instance, Knies,
Clark, Pareto,(32*) Giffen,(33*) De Foville,(34*) Nicholson,(35*)
as well as my three critics. Professor Marshall says that in
earlier years he "invariably thought of capital as the whole
stock of goods, and of interest as the whole of the usance or
benefits derived from the Use of that stock";(36*) that, "when
one approaches the problem of distribution from the mathematical
point of view, there is practically no choice"(37*) but to do so;
and that "wealth in the form of houses or private carriages
helped to give employment to labour as much as when in the form
of hotels or cabs."(38*) He expressly concedes what is really my
chief contention when he says, "I concur in his [my] conclusion
that whatever we do with the word capital, we cannot solve
problems of capital by classifying wealth."(39*) Yet he
"concluded, not without doubt, that it is best to"(40*) base his
definition of capital on such a classification, purely out of
deference to what he conceives to be the dominant usage.
    Professor Fetter includes under capital all wealth when
converted into money value. "Wealth and capital consist in
precisely the same things."(41*) By wealth he means stocks of
wealth, each kind being measured in its own unit, -- yards, tons,
acres, etc., -- and by capital the value of this stock. His
capital is therefore identical with one of my senses of capital;
namely, "capital-value."(42*) In a very excellent paper,(43*)
which has recently appeared, Fetter emphasizes, with Clark, the
fact that rent and interest apply equally to all goods, the one
to the things themselves, the other to their value.
    Professor Tuttle includes under capital the value of land,
dwellings, automobiles, and all considerable stores of wealth of
any kind, and yet not quite all wealth. I confess I do not
understand what, or rather how much, he intends to exclude. His
definition of capital, "surplus wealth(44*) as a possession,"
although somewhat vague, seems entirely acceptable, and, if
literally interpreted, is exactly equivalent to the value of the
"stock of wealth existing at an instant of time." But the term
"surplus" has been used in so many senses that it always needs
interpretation. Business men use it in both income accounts and
capital accounts. A natural interpretation would seem to be what
still remains over and above what has been already consumed, or,
in other words, what at any instant of time survives destruction.
"Surplus wealth as a possession" would then mean simply surviving
or existing wealth. But this interpretation Professor Tuttle
expressly rejects. He omits from a stock of wealth "what is
required for the satisfaction of current wants."(45*) But it is
evident that wealth used for "current" consumption must mean
either what has been or is to be consumed. No finite amount can
be consumed in "the present"; for the present is only a point,
and all consumption requires time. If, then, surplus wealth does
not mean what is left after past consumption, it must mean what
is left after subtracting from the present stock some amount
which is destined for future consumption. But are we to subtract
what is to be used to-day, next week, next month, or next
year?(46*) Unless this question be definitely answered, the
restriction that capital must be a surplus seems to be little
more than the Hibernian statement that no one has any capital
unless he has a great deal. It is, of course, true that "capital"
is popularly applied to large rather than small amounts; and
"capitalist" is popularly opposed to laborer, even if the latter
has a savings-bank deposit. But such a use of terms is too loose
to serve as a basis for definition. Among all the dictionaries
which have attempted to reflect the popular use of the term
"capital," only four have been found which distinguish capital as
a "large" stock. All of these are Russian.(47*)
    Professor Tuttle's reference to the simile of the lake and
river and his criticism of my use of it(48*) sound somewhat like
the oft-met-with confusion between a stock and a flow. Most
certainly should the contents, at any instant, of "the inflowing
and outflowing streams"(49*) be added to the contents of the
lake. The distinction between capital and income is not like the
mere relative distinction between lakes and rivers, but is like
the absolute distinction between the amount of water at an
instant of time (in lake or river), on the one hand, and the flow
of water during a period of time (through lake or river), on the
other. The two sets of distinctions are not in the least
coincident. A lake has a flow as truly as a river, and a river
has a stock as truly as a lake.(50*) Rivers and lakes differ only
in degree: stocks and flows differ in kind. The one distinction
is merely classificatory, and is used in descriptive geography:
the other is analytical, and is used in rational physics. It is
precisely for the purpose of ridding rational economics of
classificatory definitions of capital and substituting an
analytical one -- to show that capital and income differ in kind,
not in degree -- that I have been striving in this and former
articles.
    Distinctions of classification of course have their place. In
fact, most of the distinctions which have partitioned stock into
so-called capital and non-capital are valid for descriptive
purposes, even when the line cannot be drawn with precision.
"Land" is different from other wealth; "durable" goods are a
fairly distinct category; there is a difference between goods
associated with production and those associated with consumption.
Of all such dividing lines one of the most natural and important
seems to be that which separates business wealth from private
wealth. I should call the two trade-capital and personal-capital.
This distinction, as Komorzynski(51*) says, is what many
definitions of "capital" are seeking. But I submit that neither
this nor any other line of demarcation helps us in the least to
solve "the problems of capital." For this purpose they are as
barren as is the distinction between lakes and rivers to solve
the problems of hydrodynamics.
    Except for the few differences in points of doctrine already
mentioned, the disagreements between my critics and myself are
purely as to terms. Professor Marshall and Professor Fetter
object to my use of the term " capital " because it is thereby
made a synonym of wealth. This, however, is scarcely correct. The
quantity of wheat exported during 1903 was certainly wealth, yet
it was not a stock of wealth existing at an instant of time.
Again, Professor Tuttle and Professor Fetter, following Professor
Clark's example, are very insistent that capital should be
applied only to the value of stock, and not to the concrete
objects of which it is composed, rightly remarking that the two
concepts play a totally different role. But it would seem that
the important distinction between them is even more explicitly
marked by calling the concrete stock capital-wealth, and its
value, capital-value. It seems to be thought that business men
never apply the term "capital" to concrete wealth; but this is an
error. The dictionaries also supply precedent for so applying the
term.(52*)
    In spite of all the differences between us, verbal or actual,
the writings of my three critics follow a common trend of thought
away from the partial views of capital which we have inherited
from Adam Smith. In fact, on the really important issue we are
all, I think, agreed; namely , that we cannot solve the problems
of capital by classifying wealth in kinds or categories. But
Professor Marshall hesitates to harmonize his use of the term
"capital" with his conception of the problems of capital, while
Professor Fetter and Professor Tuttle restrict the application of
the term to the value of the stock as against the concrete
objects of which it is composed. Finally, Professor Tuttle
restricts the term still further by striking out stocks too small
to be called a "surplus."
    Thus, under slightly different terms, we find essentially the
same conceptions; and unity of conceptions is chiefly important.
Be it said that this paper is written not in the interests of a
purist nomenclature, but in the hope of removing certain verbal
obstacles which now block the way to important ideas. What
meanings are attached to the words "capital" and "income" would
be of slight consequence were it not that the present usage (or
lack of usage) prevents economists from exploiting the ideas of
"stock" and "flow." Words and ideas usually move together, and it
can scarcely be expected that those who feel obliged to define
the word "capital" as a part of stock will nevertheless, like
Marshall, proceed to treat the "problems of capital" with
reference to the whole.(53*) It is simpler and less confusing to
first square our words with our ideas. We now see that this can
be done with a clear conscience, for to do so will square them
with precedent also.

NOTES:

1. Elements of Political Economy (Macmillan, 1903), p. 41.

2. "The Real Capital Concept", pp. 54-96.

3. "What is Capital?" Economic Journal, December, 1896: "Senses
of Capital", ibid., June 1897; "The Role of Capital in Economic
Theory", ibid., December, 1897.

4. "The Role of Capital in Economic Theory", Economic Journal,
December, 1897.

5. "Distribution and Exchange," Economic Journal, vol. viii.,
1898, pp. 55-56.

6. Quarterly Journal of Economics, November, 1900, p. 18.

7. Besides these objections on the ground of terminology,
Professor Fetter raises others on the ground of scientific
expediency; but these are evidently due to a misunderstanding on
his part. He seems to think that I restrict the meaning of
capital to concrete wealth rather than the value of wealth, and
that I do not admit "services" under income. But these are both
prominent theses of mine, the former in the second Economic
Journal article, the latter in the third. Possibly Professor
Fetter conceived his objections after reading the first of the
three articles, without sufficiently examining the other two.

8. "The Real Capital Concept", p. 75.

9. See "What is Capital?" Economic Journal, December, 1896, p.
517.

10. For a fuller presentation of this phase of the subject see
"What is Capital?" Economic Journal, December, 1896, p. 520;
also, Tuttle, "The Real Capital Concept", Quarterly Journal of
Economics, November, 1903, p. 54.

11. Encyclopaedia Metropolitrana, vol. vi. p. 153.

12. Positive Theory of Capital, English translation, London,
1891, p. 23.

13. "What is Capital?" Economic Journal, December, 1896.

14. Since the above was written, I note a probable exception
quoted by Umfenbach, Das Kapital in seiner Kulturbedeutung
(Würzburg, 1879), p. 32:
    1776, Krünitz, Encyclopädie, Band 7, "Capital (lat. sors.)
nennt man sins Summe Geldes sofern sie dazu bestimmt ist, Gewinn
zu bringen, im Gegensatz dieses Gawinnes."
    As the date of this Encyclopaedia is the same as that of the
appearance of The Wealth of Nations, it is possible, though not
probable, that the author was influenced by Adam Smith. We not
that he contrasts capital with "Gewinn" a flow and not a part of
stock.

15. Böhm-Bawerk, Positive Theory of Capital, English translation,
1891, p. 24.
    Knies, Das Geld (Berlin, 1885), 2nd edition, p. 25.
    Some of the other terms to signify capital have a broader
etymology, e.g.: the German Haupstamm; the Chinese "root or trunk
of a tree," "root money," "mother money"; and the Japanese "stem"
or "origin."

16. Other early dictionaries containing the same definition are:
1733, Grosses vollständiges universal Lexicon,... Hale u.
Leipzig: 1771, Dictionnaire universel... de Trévoux, nouveau
édition. Paris.

17. Other early examples giving practically the same definition
as the fore-going are: 1763, D. Fenning, The Royal English
Dictionary,... 2d edition, London; 1766, Samuel Johnson, A
Dictionary of the English Language, 3d edition, London; 1774,
Proctor (P.) and Castieau (W.), The Modern Dictionary of Arts and
Sciences... London.

18. Worcester (Universal and Critical Dictionary, Boston, 1846).

19. J.A.H. Murray, A New English Dictionary, vol. ii., Oxford,
1893.

20. Quoted by Umfenbach, Das Kapital in seiner Kulturbedeutung
(Würzburg, 1879), p. 32.

21. Namely: 1855, Clarke, H., A New and Comprehensive Dictionary
of the English Language, London; 1881, Dal. V., Defining
Dictionary of the Living Great-Russian Languages, 2d edition, St.
Petersburg; 1882, Skeat, W.W., An Etymological Dictionary...
Oxford.

22. The Formation and Distribution of Riches, § lviii., Ashley's
translation (Macmillan, New York), pp. 50-59.

23. "What is Capital?" Economic Journal, 1896, vol. vi. p. 517.

24. The Formation and Distribution of Riches, §§ lviii and xciv,
pp. 50, 91.

25. The Formation and Distribution of Riches, § xcii, pp. 89, 90.

26. Elements of Political Economy (Macmillan, 1903), p. 44.

27. See "The Role of Capital in Economic Theory", Economic
Journal, December 1897; Economics and Accountancy, by Victor
Branford, London (Gee & Co., 62 Moorgate Street, E.C.) 1901.

28. See Tuttle "The Real Capital Concept" Quarterly Journal of
Economics, November, 1903, p. 83; but of Böhm-Bawerk, Positive
Theory, English translation, p. 59 n.

29. Traité théorique et pratique d'économie politique, 1867, tome
i. p. 47.

30. Principles of Social Economics, English translation, p. 50.

31. Among those which now occur to me are Cannan's History of
Theories of Distribution, Hadley's Economics, Smart's
Distribution of Income, Daniels's Finance.

32. See "What is Capital?" Economic Journal, December, 1896.

33. In his Growth of Capital.

34. In his "Wealth of France and of other Countries." English
translation, Journal of the Royal Statistical Society, 1894.

35. In his Elements, pp. 42, 43.

36. "Distribution and Exchange", Economic Journal, 1898, p. 56.

37. Ibid., p. 56.

38. Ibid., p. 57.

39. "Distribution and Exchange" Economic Journal, 1898, p. 59.

40. Ibid., p. 56.

41. "Recent Discussion of the Capital Concept" Quarterly Journal
of Economics, vol. xv. p. 42, November, 1900.

42. See "Senses of Capital" Economic Journal, June, 1897.

43. "The Relations between Rent and Interest" a paper presented
before the American Economic Association, December, 1903. Cf.
Clark, Capital and its Earnings, p. 27, and Distribution of
Wealth (Macmillan, 1899), chaps. ix and xiii. Cannan developed
the same idea in "What is Capital?" Economic Journal, June 1897.
Cf. my "Role of Capital" Economic Journal, December, 1897, pp.
524, 526.

44. By "wealth" Professor Tuttle means its value.

45. Quarterly Journal of Economics, November, 1903 p. 78; see
also pp. 60, 79.

46. At one point (p. 79) Professor Tuttle seems to refer to
Böhm-Bawerk's "production period" as the time in question. He can
scarcely intend this, however, since the amount consumed during
that period is about double the whole stock of wealth itself
(excluding land)! See Böhm-Bawerk, Positive Theory of Capital,
English translation (Macmillan, 1891), pp. 327, 426.

47. 1867, St. Petersburg, Imp. Acad. of Sci., Dictionary of the
Slavonic and Russian Language, 2d edition. -- Kapital. 1. A
considerable sum of money.
    1874, Berezin, I.N., Russian Encyclopedic Dictionary. --
Kapital, a large sum of money bearing interest.
    1878, Kliushnikov, V., Universal Cyclopedic Dictionary. --
Kapital, a large sum of money bearing interest.
    1881-82, Kartashev & Balski. -- Kapital... 1. Large sum of
ready money.

48. "It is important to note that Professor Fisher's conception
of a 'stock' is much broader than that of Adam Smith. To the
latter the idea of a surplus is the fundamental characteristic of
stock, while to the former 'stock' comprises all economic goods
in existence at a given instant. To illustrate, while to Adam
Smith, on the one hand 'stock' corresponds to the pond of water
-- the accumulated surplus of the inflow over the outflow, -- to
Professor Fisher, on the other hand it is the pond of water plus
the inflowing and outflowing streams at an instant of time. Yet,
in spite of his definition, Professor Fisher unconsciously lapses
into Adam Smith's conception of 'stock'. He does this when he
illustrates that his distinction between a 'stock' and a 'rate of
flow' 'brings capital into the simplest and most intimate
relation to interest.' He says: --
    "'When a stock of goods or capital is exchanged for a
perpetual flow of goods or income, the ratio of exchange
constitutes the rate of interest. If £100 will buy an income of
£3 per year, or if 100 tons of beef are worth a perpetual supply
of 2 tons annually, the rate of interest is 2 per cent per year.'
    "What makes it possible, we ask, to exchange £100 for an
income of £3 per year? Is it simply the fact that £100 is in
'existence at a given instant of time'? Certainly not: it is
because £100 exists under such conditions that it is possible to
use it to buy an income. In other words, it must exist as a
surplus." "The Real Capital Concept" Quarterly Journal of
Economics, vol. xviii., November, 1903, pp. 75, 76.
    The answer to this last is: All wealth is used "to buy (or
otherwise obtain) an income." whether use-income or
contract-interest. Existence as wealth is sufficient to make this
possible. See Economic Journal, December, 1897, p. 525.

49. See last note.

50. Cf. "What is Capital?" Economic Journal, December, 1896, pp.
516, 517.

51. Die Nationalökonomische Lehre vom Credit (Innsbruck, 1903),
p. 135.

52. See for instance: --
    1857, G. Ripley and B. Taylor, The Home Cyclopedia, New York.
    1879, Stormouth, Etymological and Pronouncing Dictionary.
    1883, Simmonds, Commercial Dictionary, London.
    1888, Chambers's Encyclopaedia, new edition, Edinburgh.
    1890, Century Dictionary, New York.
    1893, Funk's Standard Dictionary, New York.
    1901, Webster's International Dictionary.
    All these admit concrete stock as one of the senses of
capital employed in commerce. Many other dictionaries admit it as
used "in political economy."

53. Among those who have pursued this paradoxical course,
however, must be included: John Rae, whose definition of capital
(New Principles of Political Economy, 1834, p. 171) has nothing
to do with his thoroughgoing and admirable analysis of interest,
which he connects entirely with "stock"; and Böhm-Bawerk, the
inadequacy of whose definition of capital is manifested by
frequent extension of his principles of capital to land (e.g.
Positive Theory, English translation, p. 320 n.) and by recourse
to "the subsistence fund", or general stock of wealth, for
essential parts of his interest theory (ibid., pp. 322, 325,
etc.)