Now, by the cash operation, he is better off at the end by £5: and by the credit operation he is better off by £4, than he was at the beginning. It is true he has not made so great a profit by credit as by cash. But still he has made a profit by his credit, which he could not have made without it. Hence, by the very definition, his credit has been capital to him, and has produced exactly the same circulation of commodities, and employed the same quantity of labour that cash would have done. Hence, we see that credit is productive capital in exactly the same way, and in the same sense, that money is.

This very simple example must suffice here to illustrate the doctrine that credit is capital, which has been strenuously denied in recent years. The credit system will demand a very full examination and exposition in a future chapter, as by means of it almost all modern commerce is carried on. The general belief and confidence that a man creates of his trustworthiness may be called Moral Capital. But this is not subject to the science of Economics until he brings it into commerce, and effects purchases by means of his Promise to pay. When this done this becomes an actual definite Right or Property, and is Incorporeal Property, which may be bought and sold like any Material Property.

The General Definition of Capital then is:-CAPITAL is any Economic Quantity used for the purpose of Profit.

Having then obtained this general conception of Capital, which is clear, simple, and comprehensive, and satisfies the canons we have laid down, we should have proceeded with the exposition of the subject, only unfortunately considerable confusion and error has been caused by employing definitions of Capital which are too limited, and confined by unphilosophical restrictions, and we must give a little time to clear away this confusion.

29. The word Capital comes to us from the Greek kɛpáλaιov, a capital, or principal sum, placed out at interest.

Thus Plato; de Leg., v. 742 :-Mỳ áπodidóvai ty daveioaμévy μήτε τόκον μήτε κεφάλαιον.

Not to return to the lender either the interest or the capital. Acts xxii., 28:—Ἐγὼ πολλοῦ κεφαλαίου τὴν πολιτείαν ταύτην ἐκτησάμην.

I bought this freedom for a great sum.

Suidas says:-Kɛpáλaia, тà xρýμara-Capital, money. We have not found any passage in which the word kepáλaiov in Greek is used metaphorically for a source or fountain in general. But in Latin the word CAPUT is constantly used not only as a sum of money put out to interest, but as the source or fountain whence things spring.

Thus in Livy, vi. 15.

meratur.

De capite deducite quod usuris pernu

Take away from the Capital what is counted as Interest. Also, vi., 36—Promulgavere legem de ære alieno, ut deducto eo de capite, quod usuris pernumeratus esset.

They published a law of debt that all that was reckoned as interest should be deducted from the capital.

So Horace, Sat., I., 2., 14-Quinas hic capiti mercedes exsecat. He squeezes out five times the usual rate of interest for his capital.

In these passages, caput is used strictly as a sum of money put out at interest. But it is also frequently used as the source or fountain of anything. Columella uses it for capital in general; xi. 1, 28-Ut et jacturam capitis amissi restituat.

So as to restore the waste of lost capital.

In classical Latin we do not find that the word capitale was used in this sense, but it was in mediæval Latin. Thus we read in Ducange

CAPITALE.-Debitæ pecuniæ caput. Papias, capitale, caput pecuniæ and it is said to be equivalent to sortes, a usual Latin word for the capital of a sum lent: and he quotes several instances in which the word is used by medieval writers in this

sense.

In process of time this word was shortened into captale, which was particularly applied to flocks and herds, because that was the principal wealth. Hence by corruption, come our words cattle, applied to animals, and chattels applied to things.

So the word Capital in Italian and French was applied to the sum of money invested in business, or put out at a profit. Now a sum of money put out to interest is only a special application of a general idea; and if we want to generalize it we may say that it is any Economic Quantity used for the purpose of profit; or the source whence a profit springs.

When the word Capital was first used by the Economists,

they first applied it to a sum of money put out at interest; afterwards, Turgot gave it a more extended meaning'"Whoever, either by the income of his land, or by the wages of his labour, or his industry, earns every year more values than he spends, can place in reserve this superfluity and accumulate it: these accumulated values are what we call a CAPITAL." He then shews how this capital in money may be invested in anything, such as an estate in land," it is absolutely indifferent whether this sum of values, or this capital, consists in a mass of metal, or in anything else, because money represents every species of value, as every species of value represents money. Thus Turgot introduced the notion of capital being the fruit of the accumulation of past labour: primarily money, and then any other things, such as farms, or merchandize3-"We have seen that money counts for almost nothing in the sum total of existing capitals, but it counts for a great deal in the formation of capitals. In fact, almost all savings are made in money; it is in money that incomes are paid to proprietors, that advances and profits return to undertakers of all sorts: it is, therefore, money that they save, and the annual increase of capitals is made in money. But the undertakers make no use of it but to change it immediately for other sorts of things, in which their enterprises turn: so this money returns into circulation; and the greatest part of capital only exists in things of different kinds."

Thus Capital was extended to mean anything which gave a profit, but it was held to be the result of anterior labour. Adam Smith says" When the stock which a man possesses is no more than sufficient to maintain him for a few days, or a few weeks, he seldom thinks of clearing any revenue from it. He consumes it as sparingly as he can, and endeavours by his labour to acquire something, which may supply its place before it be consumed altogether. His revenue is in this case derived from his labour only. This is the state of the labouring poor in all countries.

"But when he possesses stock sufficient to maintain him for months or years, he naturally endeavours to derive a revenue from the greater part of it, reserving only so much for his immediate consumption as may maintain him till the revenue begins 1 Sur la formation et la distribution des Richesses, § 59.

2 Ibid., § 59. 3 Ibid., § 100. Wealth of Nations, B. ii., c. 1.

to come in. His whole stock, therefore, is divided into two parts. That part which he expects to afford him this revenue is called his Capital. The other is that which supplies his immediate consumption, and which consists either, first, in that portion of his whole stock which was originally reserved for this purpose; or, secondly, in his revenue, from whatever source derived, as it gradually comes in; or, thirdly, in such things as had been purchased by either of these in former years, and which are yet not entirely consumed, such as a stock of clothes, household furniture, and the like."

Thus Smith shews that he considers Capital to be an Economic Quantity employed in a particular way, and his description certainly implies the necessity of anterior accumulation.

1

Smith, however, could not help perceiving that a trader may derive profits from something else besides his stock. He says -"Trade can be extended as stock increases, and the CREDIT of a frugal and thriving man increases much faster than his stock. His trade is extended in proportion to the amount of both, and the sum or amount of his profits is in proportion to the extent of his trade; and his annual accumulation in proportion to the amount of his profits." Thus Smith sees here that Credit is a source of profit just in the same way that stock is, and as we shall see very shortly, Smith enumerates paper currency of all kinds under the head of floating Capital. He also enumerates the intellectual qualities and talents of the people as capital because they make a profit by them.

So J. B. Say, after enumerating in several places the various things of which capital consists, includes in it the various sciences and professions, and in fine, everything which is employed in a productive operation-"That is why from the moment in which this value resides in objects employed in a productive operation, I call it a Capital, whatever be the objects in which it resides." 2

3

The qualification "the result of past labour" has been added by nearly all English writers to the definition of Capital. Ricardo says "Even in that early state to which Adam Smith refers, some capital, though possibly made and accumulated by the hunter himself, would be necessary to enable him to kill his 1 Wealth of Nations, B. I., c. 10.

Cours, Part I., c. 8.

Principles of Political Economy and Taxation, p. 16.

game"; but we find no explanation of this word Capital till p. 89-" Capital is that part of the Wealth of a country which is employed in production, and consists of food, clothing, tools, raw materials, machinery, &c., necessary to give effect to labour." But Ricardo has not told us what he means by Wealth or Production, so that we are really left in the dark on the subject.

Senior says "The term Capital has been so variously employed that it may be doubted whether it has any received meaning. We think, however, in popular acceptation, and in that of Economists themselves when they are not reminded of their definitions, that word signifies an article of wealth, the result of human exertion, employed in the production or distribution of wealth. We say the result of human exertion in order to exclude those productive instruments to which we have given the name of natural agents, and which afford not profit, in the scientific sense of that word, but rent."

This definition of Capital, however, does not agree with what Senior said elsewhere, which we have already quoted, that Economists are agreed that whatever gives a profit is properly termed Capital.

Mr. J. S. Mill says 2 "It has been seen in the preceding chapters that besides the primary and universal requisites of production, labour and natural agents, there is another requisite without which no productive operations beyond the rude and scanty beginnings of primitive industry are possible: namely, a stock previously accumulated of the products of former labour. This accumulated stock of the produce of labour is termed Capital. The function of Capital in production, it is of the utmost importance thoroughly to understand, since a number of the erroneous notions with which our subject is infested originate in an imperfect and confused apprehension of this point.

"Capital, by persons wholly unused to reflect on the subject, is supposed to be synonymous with money. To expose this misapprehension would be to repeat what has been said in the introductory chapter. Money is no more synonymous with 1 Political Economy, p. 59. Principles of Political Economy, B I., c. 4.