CAPITAL (Fr. capital, :Med. Lat. capitula, from Lat. •apitalis, pertaining to the head, from caput, head: for the origin of the meaning ef. principal, in the sense of capital). In political economy, the money, or the property convertible into money, with which a trader carries on his business. Adam Smith defined it as "that part of a noun's stock which he expects to convert into revenue." In the wider sense in \\Ilia the term is employed in political economy, it indicates wealth set apart for purposes of p•ialu•tion. In this latter acceptation it is sometimes regarded as the produce of past labor stored up and ap plied to the maintenance of future labor. This view, however, is not altogether correct, because any body of wealth may be employed as capital, and wealth is not always the result of labor. Thus if a diamond be accidentally found and then sold by its possessor and its produce applied to production, capital has come into existence without further labor than was incidental to the picking up of the stone. Capital is said to be the result of abstinence, since its existence im plies that the owner of a certain amount of wealth abstains from the unprofitable consump tion of it in order to consume productively, that is in such a way that it shall reproduce itself. But if it reproduce no more than itself there would be no incentive to the possessor to abstain from the consumption of it in his own personal gratification. Consequently lie expects a reward for his self-denial. This reward is termed inter est, being the remuneration for the use of capital and arising from the fact that the owner foregoes an immediate gratification or surrenders to an other an essential agent of productbm. Wherever something is withheld from immediate consump tion, and made to serve in future production, there is capital.
An important fact in the history of capital in modern civilized countries is its constant in •rease and the consequent lowering of the rate of interest. Capital is, with land and labor, a re quisite in the production of wealth, for without some wealth stored up for the subsistence of la bor a community could never advance beyond the band-to-mouth stage of production. In the cider
school of economists there was no distinction made between the capitalist and the entrepreneur or employer of labor. According to these econo mists, the capitalist received profits, including not only interest on capital, but compensation for risk and wages of superintendence. :Modern writers consider the share of the capitalist me•e ly as the interest on his capital and limit the term profits to the remuneration of the entre preneur. Belief in the so-called antagonism be tween labor and capital has been fostered lit- the writings of the old economists, who held the view that a certain fixed fund, called the wage fund, was set apart by certain economic forces for the payment of labor, and that during a definite period this fund could not be increased. From this it appeared that the interest of the laborer was of necessity opposed to that of his capitalist employer. The demolition of the old wage fund theory and the establishment of the doctrine that wages are paid out of product has done much to remove the misapprehension con cerning this hostility between the two factors of production.
Capital may be divided into three elements, subsistence, tools, and material, the first of course being the primary and most An other division is into fixed and circulating capi tal, the former being that trliich is tied up in plant, that is, buildings, machinery, etc., and the latter being that portion which is turned over in the course of trade, as in the payment of wages and in the purchase of goods which are soon to be sold again. The concentration of a large amount of fixed capital is one of the rea sons 1014..11 obstruct the operation of the law that capital flows into its most productive chan nel. for it is obvious that wealth of this sort can not he readily applied to other purposes and that its owner will prefer to go on selling for a time at a loss rather than to sacrifice his property by smIdenly throwing his plant upon the market.