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Novalis Including Hymns to the Night

Novalis, George MacDonald, Thomas Carlyle

The Count of Monte Cristo

Alexandre Dumas

Esoteric Buddhism

A. P. Sinnett

The Secret Doctrine, Volume I Cosmogenesis

H. P. Blavatsky

Introduction to economic science

by Irving Fisher


In the foregoing chapters we have set forth several fundamental concepts of economic science, — wealth, property, benefits, price, and value. We have seen that wealth consists of material appropriated objects, and that property consists of rights in these objects; that wealth in its broadest sense includes human beings, and property in its broadest sense includes all rights whatsoever; that benefits are the desirable occurrences which happen through wealth; that prices are the ratios of exchange between quantities of wealth, property, or benefits; and that value is price multiplied by quantity. These concepts are the chief tools needed in economic study.

Little has yet been said about the relation of these various magnitudes to time — that great "independent variable" of human experience. When we speak of a certain quantity of wealth, we may refer either (i) to a quantity existing at a particular instant of time, or (2) to a quantity produced, consumed, exchanged, or transported during a particular period of time. The first is a stock of wealth; the second is a flow of wealth. A stock is fully specified by one magnitude only, namely, its amount. But a flow requires two, — the amount of what flows and the duration of its flow. From these two we derive a third, namely, the rate of flow, or the quotient of the number representing the amount divided by the number representing the duration. The rate of flow is often more important than the amount of flow. We care less to know the aggregate wages of a workman during his lifetime than his rate of wages during various periods of his life. The j most important purpose of this distinction between a stock and a flow is to differentiate between capital and income. 1 Capital is a stock, and income a flow. This, however, is not the only difference between capital and income. There is another, equally important; namely, that capital is wealth, and income is the benefit of wealth. We have, therefore, the following definitions: A stock of wealth existing at a given instant of time is called capital.1 A flow of benefits through a period of time is called income. A dwelling house now existing is capital; the shelter or the rent it affords is its income. The railways of the country are capital; their benefits (in the. form of transportation) are the income they yield.

§ 2. Senses of the Term "Capital"

We have defined capital as a quantity of wealth existing at a given point of time. An instantaneous photograph of wealth would reveal, not only a stock of durable wealth, but also a stock of wealth of rapid consumption. It would disclose, not the annual procession of such goods, but the members of that procession that had not yet been transmuted in form or had not yet passed off the stage of existence, however swiftly they might be moving across it. It would show trainloads of meat, eggs, and milk in transit, cargoes of fish, spices, and sugar, as well as the contents of private pantries, ice chests, and wine cellars. Even the supplies on the table of a man bolting his dinner would find a place. So the clothes in one's wardrobe or on one's back, the tobacco in a smoker's pouch or pipe, the oil in the can or lamp, would all be elements in this flashlight picture.

1 Many authors restrict the name capital to a particular kind or species of wealth, or to wealth used for a particular purpose, such as the production of new wealth; in short, to some specific part of wealth instead of any or all of it. Such a limitation, however, is not only difficult to make, but cripples the usefulness of the concept in economic analysis.

Not only is a stock of wealth called capital, but a stock of property is also called capital. The two may be distinguished as capital-wealth and capital-property. Again, the value of either is called capital; and this third kind of capital may be distinguished as capital-value.

A capital account is a statement of the amount and value of the property of a specific owner at any instant of time. It consists of two columns, — the assets and the liabilities, — the positive and negative items of capital. The liabilities of an owner are his debts and obligations to others; that is, they are the property rights of others for which this owner is responsible. The assets or resources of the owner are all his property rights, irrespective of his liabilities. The assets include both the property which makes good the liabilities, and the property, if any, in excess of the liabilities. They also include, if exhaustively considered, the person of the owner himself, if that owner is a real person and not an artificial person, such as a corporation.

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