One other form of this question needs brief mention. It is truly remarked that a large portion of industrial activity is engaged to-day, not in supplying productive consumption, such as food, shelter, and clothing, but in supplying the comforts and luxuries of low and high alike, or unproductive consumption; now, if there were not a demand for luxuries and comforts, many vast industries would cease to exist, and labor would be thrown out of employment. Is not a demand for such commodities, then, a cause of the present employment of labor? No, it is not. Luxuries and comforts are of course the objects of human wants; but a desire alone, without purchasing power, can not either buy or produce these commodities. To obtain a piano, one must produce goods, and this implies the possession of capital, by which to bring into existence goods, or purchasing power, to be offered for a piano. Nor is this sufficient. Even after a man, A, for example, offers purchasing power, he will not get a piano unless there exists an accumulation of unemployed capital, together with labor ready to manufacture the instrument. If capital were all previously occupied, no piano could be made, although A stood offering an equivalent in valuable goods. It may be said that A himself has the means. He has the wealth, and if he is willing to forego the use of this wealth, or, in other words, save it by devoting it to reproduction in the piano industry—that is, create the capital necessary for the purpose—then the piano can be made. But this shows again that, not a mere desire, but the existence of capital, is necessary to the production, and so to the employment of labor. An increased demand for commodities, therefore, does not give additional employment to labor, unless there be capital to support the labor.
Some important corollaries result from this proposition: (a.) When a country by legislation creates a home demand for commodities, that does not of itself give additional employment to labor. If the goods had before been purchased abroad, under free discretion, then if produced at home they must require more capital and labor, or they would not have been brought from foreign countries. If produced at home, it would require, to purchase them, more of what was formerly sent abroad; or some must do without. The legislation can not, ipso facto, create capital, and only by an increase of capital can more employment result. It is possible, however, that legislation might cause a more effective use of existing capital; but that must be a question of fact, to be settled by circumstances in each particular case. It is not a thing to be governed by principles.
(b.) It follows from the above proposition also that taxes levied on the rich, and paid by a saving from their consumption of luxuries, do not fall on the poor because of a lessened demand for commodities; since, as we have seen, that demand does not create or diminish the demand for labor. But, if the taxes levied on the rich are paid by savings from what the rich would have expended in wages, then if the Government spends the amount of revenue thus taken in the direct purchase of labor, as of soldiers and sailors, the tax does not fall on the laboring-class taken as a whole. When the Government takes that wealth which was formerly capital, burns it up, or dissipates it in war, it ceases to exist any longer as a means of again producing wealth, or of employing labor.
Chapter V. On Circulating And Fixed Capital.
§ 1. Fixed and Circulating Capital.
Of the capital engaged in the production of any commodity, there is a part which, after being once used, exists no longer as capital; is no longer capable of rendering service to production, or at least not the same service, nor to the same sort of production. Such, for example, is the portion of capital which consists of materials. The tallow and alkali of which soap is made, once used in the manufacture, are destroyed as alkali and tallow. In the same division must be placed the portion of capital which is paid as the wages, or consumed as the subsistence, of laborers. That part of the capital of a cotton-spinner which he pays away to his work-people, once so paid, exists no longer as his capital, or as a cotton-spinner's capital. Capital which in this manner fulfills the whole of its office in the production in which it is engaged, by a single use, is called Circulating Capital. The term, which is not very appropriate, is derived from the circumstance that this portion of capital requires to be constantly renewed by the sale of the finished product, and when renewed is perpetually parted with in buying materials and paying wages; so that it does its work, not by being kept, but by changing hands.
Another large portion of capital, however, consists in instruments of production, of a more or less permanent character; which produce their effect not by being parted with, but by being kept; and the efficacy of which is not exhausted by a single use. To this class belong buildings, machinery, and all or most things known by the name of implements or tools. The durability of some of these is considerable, and their function as productive instruments is prolonged through many repetitions of the productive operation. In this class must likewise be included capital sunk (as the expression is) in permanent improvements of land. So also the capital expended once for all, in the commencement of an undertaking, to prepare the way for subsequent operations: the expense of opening a mine, for example; of cutting canals, of making roads or docks. Other examples might be added, but these are sufficient. Capital which exists in any of these durable shapes, and the return to which is spread over a period of corresponding duration, is called Fixed Capital.
Of fixed capital, some kinds require to be occasionally or periodically renewed. Such are all implements and buildings: they require, at intervals, partial renewal by means of repairs, and are at last entirely worn out. In other cases the capital does not, unless as a consequence of some unusual accident, require entire renewal. A dock or a canal, once made, does not require, like a machine, to be made again, unless purposely destroyed. The most permanent of all kinds of fixed capital is that employed in giving increased productiveness to a natural agent, such as land.
To return to the theoretical distinction between fixed and circulating capital. Since all wealth which is destined to be employed for reproduction comes within the designation of capital, there are parts of capital which do not agree with the definition of either species of it; for instance, the stock of finished goods which a manufacturer or dealer at any time possesses unsold in his warehouses. But this, though capital as to its destination, is not yet capital in actual exercise; it is not engaged in production, but has first to be sold or exchanged, that is, converted into an equivalent value of some other commodities, and therefore is not yet either fixed or circulating capital, but will become either one or the other, or be eventually divided between them.