Value, Capital and Rent

Knut Wicksell

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781315438474
• Edition: 1
• Topic: Economics
• Subtopic: Comparative Economics
• Index: Economics

Knut Wicksell is acknowledged to be the precursor and prophet of modern macroeconomic theory and he provided some of its chief elements a generation before their power and significance were properly recognized. This book, originally published in German in 1893 and in English in 1954 brought time into the previously timeless theory of value and income distribution. The theory of the real interest rate, which he developed in Value, Capital and Rent became a central and essential element when he began to explain what determines the general level of money prices and how the changes of this level come about.

II

The New Theory of Capital

AND ITS RELATIONS TO THE THEORY OF WAGES, GROUND-RENT AND VALUES OF GOODS¹

1—The concept of capital

It is difficult, if not impossible, to define the concept of capital in a wholly satisfactory way, that is to say, in a way which would combine scientific precision with close adherence to everyday language. In the exact sciences one simply disregards the ordinary use of the language and creates an entirely new terminology; but this is not yet possible in a subject like political economy, which is and must be wholly concerned with practical problems. Considerably more harm than advantage would result from it.

But when we think of the history of the development of the concept of capital it is easy to understand why, in everyday life, the use of language became so very vague just at this point. Originally the word expressed, as we know, simply the main stock of a loan (capitale or capitalis pars debiti) as contrasted with the interest, and therefore an interest-bearing sum of money. All further meanings of the word are now obtained by more or less apt extensions of this root concept.

It was most natural to wish to apply the name capital to all interest-bearing objects of wealth—that is to say, all goods or groups of goods which procure for their possessors an income, without being consumed themselves in this process’, and all the more so, in that all sources of income excepting human abilities themselves obtained a money or capital value with the increasing money circulation.

On the other hand, I do not think it permissible to say, with Böhm-Bawerk,² that the other interest-bearing goods received the name capital because it ‘had become clear that the interest-bearing power of sterile money was, after all, a borrowed one—borrowed from the fruitful power of objects which could be bought for money.’ This was indeed a popular way of explaining the origin of money interest; but if it had been really understood ‘clearly,’ then, properly speaking, money would have had to be excluded from the concept of capital.

But this Böhm-Bawerk himself does not do, and he is right; for the interest-bearing power of money is by no means a ‘borrowed’ one. When, for instance, money serves as a medium of exchange, it really creates the value or increase in value which is later added to it as interest—and even more. It is, however, true that so-called money capital is often money only in name; in reality it merely denotes a sum of goods estimated in money.

This extension of the concept of capital, through which it comes to mean approximately fortune or at least interest-bearing fortune, may be fittingly employed in several respects. It is usually adopted in socialist and other popular writings, so that in these writings capitalists and workers are more or less the same as propertied and unpropertied classes. The ‘capital market,’ in the usual sense of the word, is made up, as we know, of all possible securities which represent interest-bearing fortune.

For most economic considerations, however, a certain limitation of this more general concept proved expedient. A concrete sum of money has obviously its analogue and counterpart not so much in landed property or other natural sources of goods as in the produced goods themselves; it is a type of stored-up wealth. The most important economic difference between landed property and produced goods seems to lie in the fact that the former yields its useful services only successively in a chronological sequence previously determined and unchangeable, but, to compensate for this, in an infinite sequence. Produced goods, on the other hand, can yield only a finite number of useful services, but in an almost optional sequence, much as a sum of money can be spent either all at once or by instalments over a longer period. This distinction, however, is not precise. An ore-mine or coalpit, for instance, which can be exhausted at very different rates, has, from this point of view, more in common with a produced store of food or clothes than with landed property agriculturally used. On the other hand, a dwelling-house, for instance, which lasts perhaps for centuries, but which can provide accommodation for only a certain number of people at one and the same time, has, from the economic point of view, very much in common with landed property. However, the above-mentioned attribute of most produced goods is important, especially with regard to further production: it can be said of the tools of production that the more they can be used optionally the more they preserve a capitalistic character (in its narrower sense); for instance, machines, which can be made to run quicker or slower, or can stop, without suffering wear and tear, etc. Other arrangements, on the contrary—for instance, certain land improvements—once carried through, become so completely part and parcel of the landed property that they lose the above-mentioned character; that is to say, they are now really rent-goods and no longer capital-goods in the narrower sense of the phrase.

The seemingly paradoxical phenomenon, that consumable goods—that is to say, goods which exhaust or seem to exhaust their whole content of usefulness in a limited series of acts of use—can nevertheless be employed ‘capitalistically,’ so that their entire value remains stored up for the owner, and yet provides him with an income—this perpetuum mobile of the economic mechanism forms, as was said previously, the real pith of the theory of capital, which we shall now consider more closely.¹

On the whole, of course, this can only happen through the re-creation by production (in the widest sense of the word, which includes traffic) of the consumable goods or their equivalent in value. Their former existence must, in this case, be a necessary condition of the production, otherwise a part of the produced goods could not possibly fall to the owner of the capital as owner.

But according to the usual conception, other means of acquisition are supposed to exist besides production (in the above-mentioned widest sense), and accordingly a further distinction should be made between ‘private capital’ and ‘national capital’—or as it ought to be called, according to Böhm-Bawerk, ‘social capital’—where the former category comprises all means of acquisition (usually with the exception of landed property), whilst the latter comprises only the real means of production.

I am doubtful whether this distinction is really a scientifically fruitful one. It is, of course, allowable in this as well as in other economic spheres to keep the point of view of private enterprise separate from the social point of view. But I think there is little justification for the attempt to draw up certain categories of goods, some of which are supposed to be capital only from the point of view of private enterprise, whilst others are supposed to be capital from the social point of view as well.

In Böhm-Bawerk’s opinion, dwelling-houses, for instance, can only represent private capital (if they are let to others)— not social capital, because they are only consumption goods, not productive goods. It is true that they yield their useful services spontaneously, without considerable addition of labour. But the same is true to a large extent of meadows, woods, preserves, etc., which, however, cannot be denied the name of capital—in the ‘social’ sense of the word—if one wants to extend this concept to landed property at all. Therefore it seems best to me to put dwelling-houses in the same category as landed property. However, if they are to be regarded as capital at all, it seems clear to me that they must be considered as belonging to social capital.

This would indeed still be contrary to the remark of Adam Smith quoted by Böhm-Bawerk, that the community (as contrasted with a single individual) ‘can only enrich itself by production.’ But the enrichment of the community is a matter of comparative detail. Nor, by the way, is the private capitalist primarily enriched by interest, but lives on it. The chief aim of economic life, for the community as well as for the individual, is obviously to maintain the level of well-being already achieved. And this end is served not only by real production, but by the mere storing-up of durable utility goods regardless of whether these are produced or were the direct gift of Nature. The opinion that durable goods cease to be capital the moment they are consumed by their owner and consequently no longer provide him with a money income, is, as A. Marshall remarks,¹ really nothing but a relic of the prejudices of the old mercantile system.

It is not quite clear to me in what way exactly the poor circulating libraries have offended, which, along with articles for hire (e.g. fancy-dresses and the like), must serve as standing examples of things which represent only private, but not social capital. As long as social conditions do not make it possible for everybody to possess an extensive collection of books, public libraries, whether they can be used free of charge or for a fee, are certainly an ingredient, and a not unimportant one, in social capital. The keeping of a lending library is a business, like all the others. If now, w...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Original Title Page
• Original Copyright Page
• Foreword
• Translator’s Note
• Table of Contents
• Preface
• Introduction
• I. The New Theory of Value
• II. The New Theory of Capital and its Relations to the Theory of Wages, Ground-Rent and Values of Goods
• Bibliography of Knut Wicksell’s Published Works
• Index