THE CONTROVERSY OVER THE CONCEPT OF CAPITAL

an excerpt from "Capital and Interest" by Eugen von Bohm-Bawerk
(Libertarian Press, South Holland, Illinois, 1959)

capitale dicitur bonum omne quod possidetur*

The word capital is derived directly from the Latin capitale, the adjective corresponding to the noun caput meaning "head." It was originally used to designate the principal sum of a money loan, which was termed the capitalis pars debiti, that is to say, the head or chief part of the debt, as distinguished from the interest. It became thoroughly naturalized in mediaeval Latin and appears to have remained the only sense in which the word was used, well on into the modern era. Accordingly, the word denoted the equivalent of "an interest-bearing sum of money."

Gradually the meaning of the name underwent important amplification, and at first this took place, it would seem, in the normal course of the development of popular linguistic usage. For it became the practice for capital sums of money not only to be loaned out but also to be invested by the borrowers to whom it had been loaned, or alternatively, to be invested directly by the owners in lieu of being put out to loan. Such investing meant putting the money into mercantile or industrial projects, into factories, seagoing vessels, farms, rentable dwellings and the like. There then followed a thought transfer which was as easy to make as it was, for some purposes, expedient. This transfer consisted in regarding the money capital as if it were still in hand and operative, and, furthermore, in looking upon the yield from the investment as interest on the invested capital. One such purpose, for instance, would be computation of the rate of earnings to be derived from the investment. A further step along the same line of thought led to the application of this concept not only to such income-producing sums as had come into existence through a literal conversion of money capital, but also to cases in which the conversion had taken place only in the mind, as it were, by virtue of the fact that the income-producing aggregation of wealth was evaluated in terms of money. In either case the yield-producing wealth could be looked upon as representing capital, and its yield could be regarded as the interest derived from the capital. By means of such a combination of ideas the point was gradually reached where not only interest bearing sums of money were considered capitals, but all sorts of other collections of wealth were so considered, provided only that it was possible to link them as the embodiment of interest-bearing sums of money, that is to say, as "money at work."

........ Goods which would lay claim to being capital must be a source of income. The yield from these goods must be measurable in monetary terms.

Menger ... defines capitals as "such aggregates of economic goods of higher order" which are at our present disposal for use in future periods.

Kleinwachter ... discerns a characteristic mark of capital in the faculty he claims for it of lightening the burden of acquisition, that is to say, of making productive labor easier.

Walras .... divides all economic goods into "capital" and "income." All kinds of goods which can be used more than once he calls capital, irrespective of the purpose they serve - in a word, all durable goods.

Kuhnast ... submits the emphatic declaration that capital is incorporeal in nature, that it by no manner of means consists of concrete objects, of the goods themselves, but only of their value. "Capital is ... the value of the production power residing in material goods ...."

J. B. Clark .... lays great emphasis on the necessity of distinguishing "true capital" from the material capital goods of which it does, indeed, consist. True capital .... is a durable permanent fund of "productive wealth" or a "fund of value" which leads to a permanent and continuous existence in contrast to the concrete capital goods which comprise it and which are continually being destroyed or consumed.

Irving Fisher .... says [capital] includes all the wealth in existence, without exception of any kind. .... and .. not the stock of goods comprising the wealth, but the value of those goods.

Alfred Marshall .... [became] ever more fully convinced, that any thoroughgoing differentiation between "capital" and other forms of wealth is bound to contain elements of artificiality.

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"When economists reach agreement on the theory of capital they will shortly reach agreement on everything. Happily, for those who enjoy a diversity of views and beliefs, there is very little danger of this outcome" (Bliss, 1975)

capitale dicitur bonum omne quod possidetur ~ Every good which is possessed is called capital