Capital is a result of serial methods of produc tion, is valued because of forethought, and is preserved by abstinence. The physical basis of capital is the serial method in which industry is carried Many persons working together, though unconscious of any partnership in their labors, find that they can produce more efficiently by separating the process of production into many parts, some directly, others more remotely, connected with the object. Notice, for example, how any good is produced. Certain persons make tools ; others make the tools by which these tools are made ; others cultivate the crops necessary to provide food for all who work, whether on the land or in the factory ; others work at the numerous parts of the long series of processes required to clothe the workers ; still others, finally, wearing the clothes thus produced, living on the food thus provided, using the tools furnished by the workers who were themselves 1 See 65.
provided with tools made by others, and draw ing in countless other ways upon the capital of society, are able to put the finishing touches on the particular good in question. Capital is a result of this method of industry. Value is attached to these intermediate goods because of the forethought of man in thus taking initial steps a longer or shorter time in advance of the final act of production. Not because the unfin ished or intermediate good can satisfy a want, but because there will be wants in the future which can be supplied only by the production of these goods now, does it become worth while to produce them. As the future wants become more vivid, future goods rise in value as com pared with present goods, and the sacrifice involved in a proper distribution of labor be tween the production of present and the pro duction of future goods becomes less. At the same time the actual advantage which comes to society through the possession of capital goods becomes greater. Even if the members of society should eventually place as high an esti mate on future goods as on present goods, so that there would be no room left for interest, there would still be a physical advantage in se rial methods of production, and the community which followed those methods to the fullest ex tent would have so great an advantage over their rivals that there would be little danger of their falling back into more primitive methods.
It is essential in this system of industry that capital goods should be produced. It is no less essential that those into whose hands these goods come should refrain from converting them into present goods and thus use up in personal enjoyment the wealth which is capa ble of aiding in industry as capital. The man who is in possession of a given fund may, if he so desire, spend it in gratifying his immediate wants. He may purchase a fine residence, build a yacht, or squander it in more reckless ways. He may, on the other hand, invest the fund in some industrial enterprise, putting entirely be yond his reach, so long as he continues the in vestment, the enjoyment which he might have obtained as an alternative. If his investment
is successful, he obtains a share in its product, and this he may exchange regularly for such present goods as it will purchase.
The giving up of the satisfactions which might have been obtained by the expenditure of the original fund is called abstinence, and the share in the product which is accepted in its stead is interest. It is sometimes said that interest is obtained as a reward for abstinence, and this is true from the individual standpoint, but it is not a complete explanation of interest. The part which capital actually plays in industry and the reason why value is attached to it are a part of that explanation. Capital is created by the adoption of serial methods of production, it is valued because of the importance which society learns to attach to future wants, and it is pre served by abstinence.
The increase of capital does not involve decrease of present goods. This proposition may seem to be in contradiction with that of the preceding paragraph, but it is really a direct consequence of it. When we look only at the accumulation of capital, we see that it is made by the constant sacrifice of present enjoyments. This process of abstinence or saving may be carried so far as to bring great personal hardship. Every increase of capital does involve abstinence from present enjoyments, and so a decrease in the number of present goods. An individual may spend a long lifetime in saving, adding the annual increase to his original fund, and enjoying present goods no further than to supply the bare necessities of life. But the true effect of capital is seen only when we look at the industrial organization as a whole. When the serial processes are car ried to completion, they do result in a larger product, and the final product is present goods. The individual capitalist may add to his fund each year, but if so he only increases the final product, and if he merely keep is fund intact, it is still contributing to the industrial output to such an extent that there will ultimately be more present goods than if the capital had not been saved. This difference between the amount of the product before and after an introduction of additional capital has no direct relation to in terest or the share of the capitalist. That share is governed by the demand for and supply of capital ; by the ratio between the need for sav ing and the amount of saving which members of society are ready to make ; or, in still other words, by the ratio between the estimate of pres ent and that of future wants. It is possible to knit stockings by hand with only so much capital as is represented by a set of knitting needles. When the industry is transferred to a factory, and an extensive capital is invested, the relative part played by capital is enormously increased. We might safely conclude that nine-tenths of the product is now due to the employment of capital in the industry. But the capitalist may or may not obtain this share of the product. This will depend upon the quantity of free capital seeking investment.