theorem respecting Capital which is, perhaps, oftener overlooked or misconceived than even any of the foregoing. What supports and employs productive labour is the capital expended in setting it to work, and not the demand of purchasers for the produce of the labour when completed. Demand for commodities is not demand for labour." As the discussion which the consideration of this proposition gives rise to seems to us to belong more properly to the remuneration of labour, we shall defer it till the Chapter on Wages.

On Fixed and Floating Capital.

31. The true definition of Capital, then, is any Economic. Quantity whatsoever used for the purpose of profit. But capital itself may be used in two different ways so as to produce a profit. It may either remain in the owner's possession,-and then it is usually called FIXED CAPITAL-or he may part with the possession of it, and it may be replaced to him with a profit; in this case it is called FLOATING or CIRCULATING CAPITAL.

Smith, B. ii., c. i., enumerates four species of fixed capital. 1st. Useful machines and instruments of trade; 2ndly. Buildings used in all sorts of trade; 3rdly. Improvements of land; 4thly. The acquired and useful abilities of the members of the Society.

He also enumerates four species of floating capital. 1st. The money by means of which the other three are circulated and distributed to their proper consumers; 2ndly. The stock of provisions in the hands of various dealers; 3rdly. The materials in the hands of different work-people to be made up; 4thly. The same materials when made up into finished products and ready for sale.

It is clear that this enumeration is very far from being complete, because there are many species of property omitted, which yet are capital. But under the term floating capital he enumerates money. And under the term money, he always includes paper money of all sorts and descriptions. Since Smith's day a distinction has arisen between "6 paper money" and "paper currency," but he always includes every species of paper under the term money, or the wheel of circulation, which he terms floating capital. Now this paper currency is simply CREDIT.

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And hence we see that Smith expressly enumerates credit under the title of capital.

It is clear that if the return be made in one operation, it must include the whole sum necessary to replace the article, as well as the intended profits. But if the return be made by instalments at fixed periods, say a year, each instalment must consist of a sum partly to replace the deterioration of the article itself during that period, and partly to form the excess, or profit, of the capitalist, so at the end of the term, when the article is worn out, the sum of all these instalments should be sufficient to replace the original article together with the profits.

It is clearly to be understood, that it is according to the intention of the person who produces an article, and the purpose for which it is produced, that it receives either of these names, and not according to the nature of the article itself. The same article may receive different names, according as it passes to different owners, who produce it, or cause it to be produced for different purposes. The same article may be floating capital in the hands of one man, and fixed capital in the hands of its next possessor, if the first produces it for the purpose of selling it, and the second purchases it for the purpose of deriving an income from its use.

This distinction may also be stated thus. That if the whole

price of the article is paid out of the current income of the || country, it is floating capital; but if only the interest, or revenue

derived from its use, then it is fixed capital. This distinction is often overlooked, and the term fixed capital is applied to articles of a certain nature, and floating capital to articles of another nature. Thus, houses and lands, machinery, railways, and ships are frequently termed fixed capital. But this is extremely erroneous. If a person employs his capital in building houses for the purpose of selling them immediately, they are

En floating capital in his hands, for their price is paid in one opera

tion.

But if another man buys them for the purpose of letting them out to tenants, and so only deriving a revenue from his capital, they become fixed capital in his hands. Many persons buy land on speculation, for the purpose of selling it again at a profit. The land in the hands of these jobbers is floating capital, but if another buys that land for the purpose of letting it out to farmers, or cultivating it himself, and so only making a revenue

of it, it becomes fixed capital to him. So with machinery; to the machine maker, who makes it for the purpose of selling it to the manufacturer, it is floating capital. In the hands of the manufacturer, who buys it for the purpose of increasing the quantity of his productions by its use, and so only making a profit of it, it becomes fixed capital. Hence, we may state generally, that all articles, whatever be their nature, while they are in the hands of a person who deals in them, that is who produces or buys them for the purpose of selling them again, as soon as he can, are floating capital. As soon as they pass into the hands of a person who only makes a profit by interest derivable from their use, they are fixed capital.

The articles we have just mentioned are, it is true, generally produced with the intention of their ultimately becoming fixed capital, but we have shown that they may, or they may not, be fixed capital, when they are produced, according to different circumstances; and, unless we know what those circumstances are, it is impossible to decide which name is to be given to them. It may also be easily shown how articles which are usually classed as floating capital may become fixed capital. Furniture and clothes would usually be termed floating capital, because they are generally made for the purpose of being sold. But if a person made them for the purpose of only letting them out for hire, they would become fixed capital in his hands. An ordinary tailor usually makes clothes to be sold to his customers, so they are floating capital to him. But in the hands of Nathan, who lets out uniforms and dresses for particular occasions, they become fixed capital, just as much as a house or a mill. So, if a cabinet-maker makes furniture, for the purpose of letting it out for hire, that furniture is as much fixed capital as any railway.

We thus see how improper it is to apply the term either of floating or fixed capital to any object, whatever be its nature, unless we know the intention of its owner in using it. And unless an article is incapable of being applied to more than one of these purposes, it is not correct to call it by either name. There are very few articles to which the name of fixed capital may be invariably applied, the only one to which it is necessarily applied is the knowledge, skill, and capacity of an individual. Those to which it may be applied with the least risk of error are Railways, Canals, Docks, and agricultural improvements. The

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instances are very rare in which such things as Railways, &c., are made for the purpose of being sold. If that did happen, they would have to be called floating capital, in the hands of such a person or company. So that we may safely say that there are no articles which are necessarily fixed capital. Nor are there any which are necessarily floating capital. The mode of expending capital, which is almost invariably floating capital, is the wages of labour. In all ordinary cases in this country, the wages of labour are floating capital. But in slave countries the case is different. There the slaves are fixed capital. The same thing occurs in this country, where people sometimes enter, as it were, into a species of modified servitude. Sometimes people. hire themselves out to others for a certain period, who are allowed to let them out for particular occasions, and receive the money for their performances. Thus, it is not unusual for the most eminent singers and musicians to agree to serve the large music-sellers for a definite period, during which their employer has the right to let them out on occasions, just like instruments or plate.

To the capitalist who lives merely on the profits of his capital, it may make very little difference whether he reaps that profit in one operation or in many, as the result must always be the same to him in the end. But to the class of persons who live by their daily labour-the workmen in his business-the difference in the mode of employing capital is of vital importance. Thus, if the builder of a ship means to sell it immediately, and be paid the whole price of it at once, he will employ that money in building another ship, and the full amount of the price of the ship, deducting the part which goes to support himself, will be expended in the wages of the shipwrights, and on the producers of the materials for the new ship. In this case it is floating capital. But if the builder of the ship means only to let it out for hire, and receive a periodical instalment for its use, he can only employ the part of that instalment which represents its deterioration in building a new ship; consequently, if he changes the nature of his business very suddenly, that is, if he suddenly turns his floating into fixed capital, the fund applicable to the promotion of labour will be greatly diminished, and it must infallibly cause great distress among the persons who were dependent on him for their support. By seeking other employments they

may, perhaps, ultimately be as well off as before; but it is quite clear that if a large number of persons have been accustomed to have a particular kind of labour found for them, any sudden change by which the system is disorganized, must produce at least temporary distress. It might be said that the capital of the purchaser of the ship, instead of going to the builder of the ship, and being spent among that class of workmen, might be employed in encouraging other species of industry, so that the result to the whole community would be the same. But the overthrow of any system upon which a great number of people depend, must be followed by much suffering. It appears then, that the conversion of floating into fixed capital, requires to be done with great caution, and only in certain quantities, to avoid its being injurious to the interests of large classes of persons. And if a large class of the public are seized with a sudden mania to convert an unusual quantity of their floating into fixed capital, it must inevitably be followed by at least temporary distress.

32. We have observed that, if the owner of an article disposes of its use for ever, or sells it, the price should be sufficient to replace the article, together with the profits. When he only lets it, the rent or hire is composed of one part for the deterioration of the article, and the other for the necessary profits. From this it follows, that the more permanent the article is, the lower will be the rent, or hire, compared to the price, because, assuming the profits to be the same, the deterioration is less during any given time. If it be of a perishable nature, the hire will be high compared to the price, because the deterioration will be great. A few cases will verify this remark. The rent of land is very low, compared with its price, usually not more than 3 or 4 per cent., because, among other reasons, the deterioration is very small. The rent of houses is much greater compared to their price, usually 7 or 8 per cent., because the deterioration is greater; the hire of furniture is considerably more, usually 15 or 20 per cent., because the deterioration is greater still, and so on, so that the hire must always be greater as the deterioration increases. From this it follows, that the hire of any article is by no means proportional to its value. Some important questions connected with these considerations will occur hereafter.