The distinction between circulating and fixed capital has long been current and is useful for Panics have sometimes ensued when too much of the national capital is in railroads. It becomes under such circum stances both fixed and specialized. See next two paragraphs.
certain practical purposes. Circulating capital consists of such future goods as fulfil the whole of their office, in the production in which they are engaged, by a single use ; fixed capital of such as exist in any durable shape, and the use of which in production is spread over a period of corresponding duration.' Much of what is ordinarily classed as circulating capital is, how ever, excluded entirely from the category of future goods, and consequently of capital as above defined. Nothing is more common in the political economy of the wage-fund period than discussions as to whether laborers suffer from the transformation of circulating capital into fixed capital. This discussion has no mean ing unless we understand by circulating cap ital mainly subsistence. But food and clothing are present goods —not capitalistic products— and they should not be reckoned as capital. The line between fixed and circulating capital has always been a very uncertain one, and since the line which separates future from present goods can be more distinctly drawn, the utility of the older distinction is questionable. If it is re f mill, Principles of Politicalconomy, Bk. I., Chapter VI.
tained, and we seek an illustration in steamship transportation, we would place the vessel itself, as well as the permanent offices and the docks of the steamship company, on the side of fixed capital; while the fuel consumed in the steamer, the supply of provisions necessary for the voy age,' and all those portions of the equipment of vessels, docks, or offices which need to be con tinually renewed, furnish the circulating capital. The paint renewed at every port would figure in the circulating capital of the steamship line, though it would be less " circulating " than the fuel which lasts in the furnace but a few minutes.
Specialized capital, by which is meant those future goods which, to avoid waste, must be carried forward to a particular goal, as print ing-presses to the production of books and newspapers, steam engines to some form of production in which steam power is required, and steel to the form of edged tools, rails, I Until they are prepared for the table and actually placed before passengers, when they become present goods, and con stitute an integral part of the "good" for which the passage money has been paid.
steel-plate, etc., is distinguished from free capital, which may with almost equal economy be employed in any one of many different kinds of production. This distinction is also purely relative. A factory which can be transformed at small expense into one suited to the production of a different commodity, is less specialized than one which, if the transformation were necessary, would require a greater outlay in effecting required changes. Individuals suffer at times from changes in demand which leave them in possession of specialized and useless capital. Production will be in this respect most efficient when changes are so successfully anticipated as to prevent at such points a too great preponder ance of specialized capital over that which is free.
If capital in its origin is not a result of saving, but rather a result of the adoption of a new and more efficient method of produc tion, then it is evident that it is increased, not by reducing consumption, but by turning the productive capacity of society into new channels. An addition.to the stock of capi tal is an incidental result of the new activity, not its cause. In apparent conflict with this statement of the relation of capital to the growth of industry are the first two of Mill's four fundamental propositions concerning capi tal, viz. : that industry is limited by capital ; and that capital is the result of saving. But the word "saving" is used by Mill in a tech nical sense, denoting not necessarily abstinence or privation, but merely " excess of produc tion over consumption." The essential ment is even here the activity which calls the new products into being. It is of course implied that they then be devoted to the end for which they were produced and not to some other, —that they be "saved " from loss, waste and unproductive consumption ; but it is wholly irrelevant to say that they are a result of this Non-destruction cannot be regarded 1 "If a child asked whence chickens came, and was told that to produce chickens he must refrain from eating eggs, we should he justified in regarding the answer as excellent advice, but as an exceedingly absurd explanation. We are not a whit better satisfied by the train of reasoning which makes saving the original cause of the formation of capital." — Gide, Principles of Political Economy, Amer. ed., p. 139.