At the beginning of this Book it was argued that the economist must forego the aid of a complete set of technical terms.He must make the terms in common use serve his purpose in the expression of precise thought, by the aid of qualifying adjectives or other indications in the context.If he arbitrarily assigns a rigid exact use to a word which has several more or less vague uses in the market place, he confuses business men, and he is in some danger of committing himself to untenable positions.The selection of a normal use for such terms as Income and Capital must therefore be tested by actually working with it.(8*)NOTES:
1.This and similar facts have led some people to suppose not only that some parts of the modern analysis of distribution and exchange are inapplicable to a primitive community; which is true: but also that there are no important parts of it that are applicable; which is not true.This is a striking instance of the dangers that arise from allowing ourselves to become the servants of words, avoiding the hard work that is required for discovering unity of substance under lying variety of form.
2.See a report of a Committee of the British Association, 1878, on the Income Tax.
3.Professor Clark has made the suggestion to distinguish between Pure Capital and Capital Goods: the former is to correspond to a waterfall which remains stationary; while Capital Goods are the particular things which enter and leave the business, as particular drops pass through the waterfall.He would of course connect interest with pure capital, not with capital goods.
4.See above II, iii, sec.1.
5.Adam Smith's distinction between fixed and circulating capital turned on the question whether the goods "yield a profit without changing masters" or not.Ricardo made it turn on whether they are "of slow consumption or require to be frequently reproduced";but he truly remarks that this is "a division not essential, and in which the line of demarcation cannot be accurately drawn."Mill's modification is generally accepted by modern economists.
6.Compare above II.i, sec.3.
7.Just as for practical purposes it is better not to encumber ourselves with specifying the "income" of benefit which a man derives from the labour of brushing his hat in the morning, so it is better to ignore the element of capital vested in his brush.
But no such consideration arises in a merely abstract discussion:
and therefore the logical simplicity of Jevons' dictum that commodities in the hands of consumers are capital has some advantages and no disadvantages for mathematical versions of economic doctrines.
8.A short forecast of some of this work may be given here.It will be seen how Capital needs to be considered in regard both to the embodied aggregate of the benefits derivable from its use, and to the embodied aggregate of the costs of the efforts and of the saving needed for its production: and it will be shown how these two aggregates tend to balance.Thus in V, IV, which may be taken as in some sense a continuation of the present chapter, they will be seen balancing directly in the forecasts of an individual Robinson Crusoe; and for the greater part at least in terms of money in the forecasts of a modern business man.In either case both sides of the account must be referred to the same date of time; those that come after that date being "discounted" back to it; and those that come before being "accumulated" up to it.
A similar balancing in regard to the benefits and the costs of capital at large will be found to be a chief corner stone of social economy: although it is true that in consequence of the unequal distribution of wealth, accounts cannot be made up from the social point of view with that clearness of outline that is attainable in the case of an individual, whether a Robinson Crusoe, or a modern business man.In every part of our discussion of the causes that govern the accumulation and the application of productive resources, it will appear that there is no universal rule that the use of roundabout methods of production is more efficient than direct methods; that there are some conditions under which the investment of effort in obtaining machinery and in making costly provision against future wants is economical in the long run, and others in which it is not: and that capital is accumulated in proportion to the prospectiveness of man on the one hand, and on the other to the absorption of capital by those roundabout methods, which are sufficiently productive to remunerate their adoption.See especially IV, VII, sec, 8; V, IV, VI, I, sec.8; and VI, VI, sec.1.
The broader forces, that govern the production of capital in general and its contribution to the national income, are discussed in IV, VII, IX XI: the imperfect adjustments of the money measures of benefits and costs to their real volume are discussed chieJy in III, III-V; IV, VII; and VI, III VIII; the resulting share in the total product of labour and capital, aided by natural resources, which goes to capital, is discussed chieJy in
