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Free and Specialized Capital.-Some of the material aids to production are capable of many uses, and such capital goods are free capital. An ordinary building may be used for several purposes and such raw materials as wood, coal, and iron can be used in making a great variety of goods. Highly specialized machinery or a building suitable to only one kind of industry is specialized capital. For example, a type-setting machine can be used for one purpose only and is specialized capital, but the dynamo that furnishes power to run the machine is free capital and could be used in other industries. Public and Private Capital.-Capital may be classified as to ownership into public and private capital. Public roads, bridges, canals, as well as public buildings used in the production of wealth are examples of public capital. Inasmuch as court-houses, public records, jails, and schools are all necessary to the production of wealth, they may well be included under public capital. The Roundabout Process of Production.—The capitalistic process of production is an indirect or roundabout method. The direct method of getting fish would be to catch them in the hands, but this method seldom produces large returns. To make a line, fashion a hook, and secure bait is an indirect method of getting fish, but it results in more fish being caught. To build steam trawlers, make nets and other apparatus is still more indirect, but the returns are correspondingly larger. Similarly all employment of capital is an indirect method of production. Capital Formation.—It is evident that no capital would be formed if men consumed all they produced. Capital is the result of saving, and a person who saves is rendering a social service by this thrift. One of the causes of the high cost of living during, and following, the Great War, was the extravagant habits that led men and women to spend most of what they produced, and thus checked capital formation. It is an error to think that capital is owned only by the wealthy. Every person who owns a tool is a capitalist. Every one who has a savings-bank account is a capitalist and his capital enables the bank to lend money which is used in industry. For the formation of new capital the first essential is production, then there must be saving. Then the investing of savings in some form of production must follow. Whether this process is completed by the same person makes no difference. The person who saves and lets others invest his savings is as truly adding to the capital of the country as though he directly constructed a factory. Replacement Funds.-Inasmuch as capital goods wear out by use, all business men must include as a part of the costs of production, a replacement fund. If a machine wears out in five years, there must be set aside during these five years not only enough to keep the machine in repair but enough to replace it when worn out. All losses incident to the conduct of business must be made good by replacement funds supplied directly or by means of insurance. War destroys much capital and for such unusual destruction no provision of replacement funds is ordinarily made or can be made. Even in countries outside the zone of conflict, the energies of the people are directed to war industries and replacement funds are largely neglected. The railroads of the United States came out of the war not quite a wreck, but in a badly demoralized condition, short of motive power, rolling stock, and general equipment. Summary.—Capital is “the produced means of production.” It is necessary to all modern production of wealth. Fixed capital may be used many times, but circulating capital is consumed in one process. Specialized capital can be used for one thing only, but free capital is capable of several different uses. Most capital is owned by private persons or corporations. Public capital consists of roads, bridges, canals, and other direct aids to the production of wealth. Since the maintenance of order and the enforcement of contracts is necessary, court-houses and halls of records are public capital. Hospitals, asylums, public schools, public libraries, museums, parks, and other public property aid directly and indirectly in the production of wealth and are public capital. The capitalistic production of wealth is a roundabout process. The direct way to go from Marion, Ohio, to Terre Haute, Indiana, is to walk. The building of a railroad or an automobile is an indirect method. When Robinson Crusoe wanted a pair of shoes he killed a pair of rabbits and wrapped their hides around his feet. We build factories, buy machinery, and produce shoes in a roundabout method. The formation of capital depends upon savings. If we consume all we produce there can be no increase in capital. Every one who has a bank-account is a capitalist and so is every one who owns a tool or a piece of machinery which is used in the production of wealth. Most capital is private, but public capital is also important. The capitalistic method of production is a roundabout process. Capital is the result of saving.


I. Is capital necessary in all production of wealth 2 If a boy kills a pheasant with a stone has capital been employed? Mention some other instances of production of wealth without capital. 2. Name some specialized capital that is in use in your own city. Give some instances of capital that has been diverted from one use to another. 3. Why might a jail be considered public capital? A schoolhouse? A court-house? Show the indirect method of supplying water in your city. 5. What are the chief methods by which savings are encouraged in your city ? 6. What method did Robinson Crusoe follow to get a new suit of clothes? Show how the capitalistic method would be introduced as population and capital grew.



Any place where buyers and sellers come together to transact business is a market. In early times open spaces in each city were set apart for markets and here came buyers and sellers. The Forum at Rome was originally a market-place and so was the Agora at Athens. Markets like those of the ancient times may still be seen in many parts of America. The farmers drive into town on marketday and the townsfolk go to the market-place to buy. Prices are fixed by demand and supply. For example, the farmers may first offer potatoes at two dollars a bushel, but if there are more potatoes than can be sold at this price, some farmer, rather than take his potatoes home, will offer them at $1.75 and the other farmers must meet this price. On the other hand, if purchasers are eager to buy, the farmers will raise the price.

Markets were once local, and prices in one place might be very different from prices in a town thirty miles away. With increased means of transportation markets came to serve a larger area, and prices in one place influenced prices in a distant market.

Now most goods are sold in stores, but the same principle holds as in an open-air market. Each store is influenced by the prices of other stores, and if goods cannot be

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