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John Stuart Mill.

Principles of political economy with some of their application to social online

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leave the country not only poorer in the meanwhile, by all which
those labourers consume, but less rich even ultimately than if
immediate returns had been sought in the first instance, and enter-
prises for distant profit postponed.

§ 5. The distinction of Productive and Unproductive is ap-
pHcable to consumption as well as to labour. All the members
of the community are not labourers, but all are consumers, and
consume either unproductively or productively. Whoever con-
tributes nothing directly or indirectly to production, is an unpro-
ductive consumer. The only productive consumers are productive
labourers ; the labour of direction being of course included, as well
as that of execution. But the consumption even of productive
labourers is not all of it productive consumption. There is unpro-
ductive consumption by productive consumers. What they
consume in keeping up or improving their health, strength, and
capacities of work, or in rearing other productive labourers to succeed

^ [" The bankrupt states of North America " in all editions until the 7th
(1871). "It remains to be shown whether England," &c., remained two lines
below until the 5th ed. (1862).!



52 BOOK I. CHAPTER III. § 6

them, is productive consumption. But consumption on pleasures or
luxuries, whether by the idle or by the industrious, since production
is neither its object nor is any way advanced by it, must be reckoned
unproductive : with a reservation perhaps of a certain quantum of
enjoyment which may be classed among necessaries, since anything
short of it would not be consistent with the greatest efficiency of
labour. That alone is productive consumption, which goes to main-
tain and increase the productive powers of the community ; either
those residing in its soil, in its materials, in the number and
efficiency of its instruments of production, or in its people.

There are numerous products which may be said not to admit
of being consumed otherwise than unproductively. The annual
consumption of gold lace, pine apples, or champagne, must be reck-
oned unproductive, since these things give no assistance to produc-
tion, nor any support to life or strength, but what would equally be
given by things much less costly. Hence it might be supposed that
the labour employed in producing them ought not to be regarded
as productive, in the sense in which the term is understood by
political economists. I grant that no labour tends to the permanent
enrichment of society, which is employed in producing things for
the use of unproductive consumers. The tailor who makes a coat
for a man who produces nothing, is a productive labourer ; but in a
few weeks or months the coat is worn out, while the wearer has not
produced anything to replace it, and the community is then no
richer by the labour of the tailor, than if the same sum had been
paid for a stall at the opera. Nevertheless, society has been richer
by the labour while the coat lasted, that is, until society, through
one of its unproductive members, chose to consume the produce
of the labour unproductively. The case of the gold lace or the pine
apple is no further different, than that they are still further removed
than the coat from the character of necessaries. These things also
are wealth until they have been consumed.

§ 6. We see, however, by this, that there is a distinction, more
important to the wealth of a community than even that between
productive and unproductive labour ; the distinction, namely,
between labour for the supply of productive, and for the supply of
unproductive, consumption ; between labour employed in keeping
up or in adding to the productive resources of the country, and that
which is employed otherwise. Of the produce of the country, a
part only is destined to be consumed productively ; the remainder



UNPRODUCTIVE LABOUR 53

supplies the unproductive consumption of producers, and the
entire consumption of the unproductive classes. Suppose that the
proportion of the annual produce applied to the first purpose
amounts to half ; then one-half the productive labourers of the
country are all that are employed in the operations on which
the permanent wealth of the country depends. The other half are
occupied from year to year and from generation to generation in
producing things which are consumed and disappear without return ;
and whatever this half consume is as completely lost, as to any
permanent effect on the national resources, as if it were consumed
unproductively. Suppose that this second half of the labouring
population ceased to work, and that the government or their parishes
maintained them in idleness for a whole year : the first half would
suffice to produce, as they had done before, their own necessaries
and the necessaries of the second half, and to keep the stock of
materials and implements undiminished : the unproductive classes,
indeed, would be either starved or obhged to produce their own
subsistence, and the whole community would be reduced during a year
to bare necessaries ; but the sources of production would be unim-
paired, and the next year there would not necessarily be a smaller
produce than if no such interval of inactivity had occurred ; while
if the case had been reversed, if the first half of the labourers had
suspended their accustomed occupations, and the second half
had continued theirs, the country at the end of the twelvemonth
would have been entirely impoverished.

It would be a great error to regret the large proportion of the
annual produce, which in an opulent country goes to supply unpro-
ductive consumption. It would be to lament that the community
has so much to spare from its necessities, for its pleasures and for all
higher uses. This portion of the produce is the fund from which
all the wants of the community, other than that of mere Hving, are
provided for ; the measure of its means of enjoyment, and of its
power of accomphshing all purposes not productive. That so great a^
surplus should be available for such purposes, and that it should be
applied to them, can only be a subject of congratulation. The things
to be regretted, and which are not incapable of being remedied,
are the prodigious inequahty with which this surplus is distributed,
the Httle worth of the objects to which the greater part of it is
devoted, and the large share which falls to the lot of persons who
render no equivalent service in return. ^

^ [See Appendix D. ProdticUve and Unproductive.}



CHAPTER IV



OF CAPITAL



§ 1. 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 pro-
ductive operations, beyond the rude and scanty beginnings of primi-
tive 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 whoUy unused to reflect on the subject, is
supposed to be synonymous with money. To expose this mis-
apprehension, would be to repeat what has been said in the intro-
ductory chapter. Money is no more synonymous with capital than
it is with wealth. Money cannot in itself perform any part of the
office of capital, since it can afford no assistance to production. To
do this, it must be exchanged for other things ; and anything, which
is susceptible of being exchanged for other things, is capable of
contributing to production in the same degree. What capital does
for production, is to afford the shelter, protection, tools and materials
which the work requires, and to feed and otherwise maintain the
labourers during the process. These are the services which present
labour requires from past, and from the produce of past, labour.
Whatever things are destined for this use — destined to supply
productive labour with these various prerequisites — are Capital.

To famiUarize ourselves with the conception, let us consider
what is done with the capital invested in any of the branches of
business which compose the productive industry of a country. A
manufacturer, for example, has one part of his capital in the form



CAPITAL 55

of buildings, fitted and destined for carrying on his branch of manu-
facture. Another part he has in the form of machinery. A third
consists, if he be a spinner, of raw cotton, flax, or wool ; if a weaver,
of flaxen, woollen, silk, or cotton, thread ; and the Uke, according
to the nature of the manufacture. Food and clothing for his opera-
tives it is not the custom of the present age that he should directly
provide ; and few capitalists, except the producers of food or
clothing, have any portion worth mentioning of their capital in
that shape. Instead of this, each capitalist has money, which he
pays to his workpeople, and so enables them to supply themselves :
he has also finished goods in his warehouses, by the sale of which he
obtains more money, to employ in the same manner, as well as to
replenish his stock of materials, to keep his buildings and machinery
in repair, and to replace them when worn out. His money and
finished goods, however, are not wholly capital, for he does not w"holly
devote them to these purposes : he employs a part of the one, and
of the proceeds of the other, in supplying his personal consumption
and that of his family, or in hiring grooms and valets, or maintaining
hunters and hounds, or in educating his children, or in paying taxes,
or in charity. What then is his capital ? Precisely that part of his /
possessions, whatever it be, which is to constitute his fund for|
carrying on fresh production. It is of no consequence that a part,"
or even the whole of it, is in a form in which it cannot directly
supply the wants of labourers. **^

Suppose, for instance, that the capitalist is a hardware manu-
facturer, and that his stock in trade, over and above his machinery,
consists at present wholly in iron goods. Iron goods cannot feed
labourers. Nevertheless, by a mere change of the destination of
these iron goods, he can cause labourers to be fed. Suppose that
with a portion of the proceeds he intended to maintain a pack of
homids, or an establishment of servants ; and that he changes his
intention, and employs it in his business, paying it in wages to
additional workpeople. These workpeople are enabled to buy and
consume the food which would otherwise have been consumed by the
hounds or by the servants ; and thus, without the employer's ha\dng
seen or touched one particle of the food, his conduct has determined
that so much more of the food existing in the country has been
devoted to the use of productive labourers, and so much less con-
sumed in a manner wholly miproductive. Now vary the hypothesis,
and suppose that what is thus paid in wages would otherwise have
been laid out not in feeding servants or hounds, but in buying plate



56 BOOK I. CHAPTER IV. § 2

and jewels ; and in order to' render the effect perceptible, let us
suppose that the change takes place on a considerable scale, and
that a large sum is diverted from buying plate and jewels to employ-
ing productive labourers, whom we shall suppose to have been
previously, Uke the Irish peasantry [1848], only half employed
and half fed. The labourers, on receiving their increased wages,
will not lay them out in plate and jewels, but in food. There is not,
however, additional food in the country ; nor any unproductive
labourers or animals, as in the former case, whose food is set free
for productive purposes. Food will therefore be imported if possible ;
if not possible, the labourers will remain for a season on their short
allowance : but the consequence of this change in the demand for
commodities, occasioned by the change in the expenditure of
capitalists from unproductive to productive, is that next year more
food will be produced, and less plate and jewellery. So that again,
without having had anything to do with the food of the labourers
directly, the conversion by individuals of a portion of their property,
no matter of what sort, from an unproductive destination to a pro-
ductive, has had the effect of causing more food to be appropriated
to the consumption of productive labourers. The distinction, then,
between Capital and Not-capital, does not He in the kind of commo-
dities, but in the mind of the capitaHst — in his will to employ them
for one purpose rather than another ; and all property, however
ill adapted in itself for the use of labourers, is a part of capital,
so soon as it, or the value to be received from it, is set apart for
productive reinvestment. The sum of all the values so destined
by their respective possessors, composes the capital of the country.
Whether all those values are in a shape directly applicable to pro-
ductive uses, makes no difference. Their shape, whatever it may
be, is a temporary accident : but once destined for production, they
do not fail to find a way of transforming themselves into things
capable of being applied to it.

§ 2. As whatever of the produce of the country is devoted to
production is capital, so, conversely, the whole of the capital of the
country is devoted to production. This second proposition, however,
must be taken with some limitations and explanations. A fund may
be seeking for productive employment, and find none, adapted to
the inclinations of its possessor : it then is capital still, but unem-
ployed capital. Or the stock may consist of unsold goods, not
susceptible of direct application to productive uses, and not, at the



CAPITAL 57

moment, marketable : these, until sold, are in the condition of
miemployed capital. Again, artificial or accidental circumstances
may render it necessary to possess a larger stock in advance, that
is, a larger capital before entering on production, than is required
by the nature of things. Suppose that the government lays a tax on
the production in one of its earlier stages, as for instance by taxing
the material. The manufacturer has to advance the tax, before
commencing the manufacture, and is therefore under a necessity of
having a larger accumulated fund than is required for, or is
actually employed in, the production which he carries on. He
must have a larger capital, to maintain the same quantity of
productive labour ; or (what is equivalent) with a given capital
he maintains less labour. This mode of levying taxes, therefore,
limits unnecessarily the industry of the country : a portion of
the fund destined by its owners for production being diverted
from its purpose, and kept in a constant state of advance to the
government.

For another example : a farmer may enter on his farm at such
a time of the year, that he may be required to pay one, two, or even
three quarters' rent before obtaining any return from the produce.
This, therefore, must be paid out of his capital. Now rent, when
paid for the land itself, and not for improvements made in it by labour,
is not a productive expenditure. It is not an outlay for the
support of labour, or for the provision of implements or materials
the produce of labour. It is the price paid for the use of an
appropriated natural agent. This natural agent is indeed as in-
dispensable (and even more so) as any implement : but the
having to pay a price for it, is not. In the case of the implement
(a thing produced by labour) a price of some sort is the necessary
condition of its existence : but the land exists by nature. The
payment for it, therefore, is not one of the expenses of pro-
duction ; and the necessity of making the payment out of capital
makes it requisite that there should be a greater capital, a greater
antecedent accumulation of the produce of past labour, than is
naturally necessary, or than is needed where land is occupied on a
difierent system. This extra capital, though intended by its owners
for production, is in reality employed unproductively, and annually
replaced, not from any produce of its own, but from the produce of
the labour supported by the remainder of the farmer's capital.

Finally, that large portion of the productive capital of a country
which is employed in paying the wages and salaries of labourers



58 BOOK I. CHAPTER IV. § 2

evidently is not, all of it, strictly and indispensably necessary for
production. As much of it as exceeds tlie actual necessaries of life
and health (an excess which in the case of skilled labourers is
usually considerable) is not expended in supporting labour, but
in remunerating it, and the labourers could wait for this part of their
remuneration until the production is completed ; it needs not
necessarily pre-exist as capital : and if they unfortunately had to
forego it altogether, the same amount of production might take
place. In order that the whole remuneration of the labourers should
be advanced to them in daily or weekly payments, there must exist
in advance, and be appropriated to productive use, a greater stock,
or capital, than would suffice to carry on the existing extent of
production : greater, by whatever amount of remuneration the
labourers received, beyond what the self-interest of a prudent slave-
master would assign to his slaves. In truth, it is only after an
abundant capital had already been accumulated, that the practice
of paying in advance any remuneration of labour beyond a bare
subsistence could possibly have arisen : since whatever is so paid,
is not really applied to production, but to the unproductive consump-
tion of productive labourers, indicating a fund for production
sufficiently ample to admit of habitually diverting a part of it to a
mere convenience.

It will be observed that I have assumed, that the labourers are
always subsisted from capital : and this is obviously the fact,
though the capital needs not necessarily be furnished by a person
called a capitalist. When the labourer maintains himself by funds
of his own, as when a peasant-farmer or proprietor Hves on the
produce of his land, or an artisan works on his own account, they are
still supported by capital, that is, by funds provided in advance.
The peasant does not subsist this year on the produce of this year's
harvest, but on that of the last. The artisan is not hving on the
proceeds of the work he has in hand, but on those of work previously
executed and disposed of. Each is supported by a small capital of
his own, which he periodically replaces from the produce of his
labour. The large capitalist is, in hke manner, maintained from
funds provided in advance. If he personally conducts his operations,
as much of his personal or household expenditure as does not exceed
a fair remuneration of his labour at the market price must be con-
sidered a part of his capital, expended, hke any other capital, for
production : and his personal consumption, so far as it consists of
necessaries, is productive consumption.



CAPITAL 59

§ 3. Ax, the risk of being tedious, I must add a few more illus-
trations, to bring out into a still clearer and stronger light the idea
of Capital. As M. Say truly remarks, it is on the very elements of
our subject that illustration is most usefully bestowed, since the
greatest errors which prevail in it may be traced to the want of a
thorough mastery over the elementary ideas. Nor is this surprising :
a branch may be diseased and all the rest healthy, but unsoundness
at the root diffuses unheal thiness through the whole tree.

Let us therefore consider whether, and in what cases, the property
of those who live on the interest of what they possess, without being
personally engaged in production, can be regarded as capital. It is
so called in common language, and, with reference to the individual,
not improperly. All funds from which the possessor derives an
income, which income he can use without sinking and dissipating
the fund itself, are to him equivalent to capital. But to transfer
hastily and inconsiderately to the general point of view propositions
which are true of the individual has been a source of innumerable
errors in political economy. In the present instance, that which is
virtually capital to the individual, is or is not capital to the nation,
according as the fund which by the supposition he has not dissipated,
has or has not been dissipated by somebody else.

For example, let property of the value of ten thousand pounds
belonging to A, be lent to B, a farmer or manufacturer, and employed
profitably in B's occupation. It is as much capital as if it belonged
to B. A is really a farmer or manufacturer, not personally, but in
respect of his property. Capital worth ten thousand pounds is
employed in production — in maintaining labourers and providing
tools and materials ; which capital belongs to A, while B takes the
trouble of employing it, and receives for his remuneration the differ-
ence between the profit which it yields and the interest he pays
to A. This is the simplest case.

Suppose next that A's ten thousand pounds, instead of being
lent to B, are lent on mortgage to C, a landed proprietor, by whom
they are employed in improving the productive powers of his estate,
by fencing, draining, road-making, or permanent manures. This
is productive employment. The ten thousand pounds are sunk,
but not dissipated. They yield a permanent return ; the land now
affords an increase of produce, sufficient, in a few years, if the outlay
has been judicious, to replace the amount, and in time to multiply
it manifold. Here, then, is the value of ten thousand pounds,
employed in increasing the produce of the country. This constitutes



60 BOOK I. CHAPTER IV. § 3

a capital, tor wMcli C, if he lets his land, receives the returns m the
nominal form of increased rent ; and the mortgage entitles A to
receive from these returns, in the shape of interest, such annual sum
as has been agreed on. We will now vary the circumstances, and
suppose that C does not employ the loan in improving his land, but
in paying off a former mortgage, or in making a provision for children.
Whether the ten thousand pounds thus employed are capital or not,
will depend on what is done with the amount by the ultimate receiver.
If the children invest their fortunes in a productive employment, or
the mortgagee on being paid off lends the amount to another land-
holder to improve his land, or to a manufacturer to extend his
business, it is still capital, because productively employed.

Suppose, however, that C, the borrowing landlord, is a spend-
thrift, who burdens his land not to increase his fortune but to
squander it, expending the amount in equipages and entertainments.
In a year or two it is dissipated, and without return. A is as rich
as before ; he has no longer his ten thousand pounds, but he has a
hen on the land, which he could still sell for that amount. C,
however, is 10,000L poorer than formerly ; and nobody is richer.
It may be said that those are richer who have made profit
out of the money while it was being spent. No doubt if C lost
it by gaming, or was cheated of it by his servants, that is a mere
transfer, not a destruction, and those who have gained the
amount may employ it productively. But if C has received the
fair value for his expenditure in articles of subsistence or luxury,
which he has consumed on himself, or by means of his servants or
guests, these articles have ceased to exist, arid nothing has been
produced to replace them : while if the same sum had been employed
in farming or manufacturing, the consumption which would have
taken place would have been more than balanced at the end of the
year by new products, created by the labour of those who would in
that case have been the consumers. By C's prodigahty, that which
would have been consumed with a return, is consumed without
return. C's tradesmen may have made a profit during the process ;
but if the capital had been expended productively, an equivalent
profit would have been made by builders, fencers, tool-makers, and
the tradespeople who supply the consumption of the labouring classes ;
while at the expiration of the time (to say nothing of any increase)/
C would have had the ten thousand pounds or its value replaced
to him, which now he has not. There is, therefore, on the general
result, a difference to the disadvantage of the community, of



CAPITAL 61

at least ten thousand pounds, being the amount of C's unproductive



Online LibraryJohn Stuart MillPrinciples of political economy with some of their application to social → online text (page 10 of 112)