SupposenextthatA’stenthousandpounds，insteadofbeing
lenttoB，arelentonmortgagetoC，alandedproprietor，by
whomtheyareemployedinimprovingtheproductivepowersofhis
estate，byfencing，draining，road—making，orpermanentmanures。
Thisisproductiveemployment。Thetenthousandpoundsaresunk，
butnotdissipated。Theyyieldapermanentreturn;thelandnow
affordsanincreaseofproduce，sufficient，inafewyears，if
theoutlayhasbeenjudicious，toreplacetheamount，andintime
tomultiplyitmanifold。Here，then，isavalueoftenthousand
pounds，employedinincreasingtheproduceofthecountry。This
constitutesacapital，forwhichC，ifheletshisland，receives
thereturnsinthenominalformofincreasedrent;andthe
mortgageentitlesAtoreceivefromthesereturns，intheshape
ofinterest，suchannualsumashasbeenagreedon。Wewillnow
varythecircumstances，andsupposethatCdoesnotemploythe
loaninimprovinghisland，butinpayingoffaformermortgage
orinmakingaprovisionforchildren。Whetherthetenthousand
poundsthusemployedarecapitalornot，willdependonwhatis
donewiththeamountbytheultimatereceiver。Ifthechildren
investtheirfortunesinaproductiveemployment，orthe
mortgageeonbeingpaidofflendstheamounttoanother
landholdertoimprovehisland，ortoamanufacturertoextend
hisbusiness，itisstillcapital，becauseproductivelyemployed。
Suppose，however，thatC，theborrowinglandlord，isa
spendthrift，whoburdenshislandnottoincreasehisfortunebut
tosquanderit，expendingtheamountinequipagesand
entertainments。Inayearortwoitisdissipated，andwithout
return。Aisasrichasbefore;hehasnolongerhistenthousand
pounds，buthehasalienontheland，whichhecouldstillsell
forthatamount。C，however，is10，000l。poorerthanformerly;
andnobodyisricher。Itmaybesaidthatthosearericherwho
havemadeprofitoutofthemoneywhileitwasbeingspent。No
doubtifClostitbygaming，orwascheatedofitbyhis
servants，thatisameretransfer，notadestruction，andthose
whohavegainedtheamountmayemployitproductively。ButifC
hasreceivedthefairvalueforhisexpenditureinarticlesof
subsistenceorluxury，whichhehasconsumedonhimself，orby
meansofhisservantsorguests，thesearticleshaveceasedto
exist，andnothinghasbeenproducedtoreplacethem:whileif
thesamesumhadbeenemployedinfarmingormanufacturing，the
consumptionwhichwouldhavetakenplacewouldhavebeenmore
thanbalancedattheendoftheyearbynewproducts，createdby
thelabourofthosewhowouldinthatcasehavebeenthe
consumers。ByC’sprodigality，thatwhichwouldhavebeen
consumedwithareturn，isconsumedwithoutreturn。C’stradesmen
mayhavemadeaprofitduringtheprocess;butifthecapitalhad
beenexpendedproductively，anequivalentprofitwouldhavebeen
madebybuilders，fencers，tool—makers，andthetradespeoplewho
supplytheconsumptionofthelabouringclasses;whileatthe
expirationofthetime（tosaynothingofanyincrease），Cwould
havehadthetenthousandpoundsoritsvaluereplacedtohim，
whichnowhehasnot。Thereis，therefore，onthegeneralresult，
adifferencetothedisadvantageofthecommunity，ofatleast
tenthousandpounds，beingtheamountofC’sunproductive
expenditure。ToA，thedifferenceisnotmaterial，sincehis
incomeissecuredtohim，andwhilethesecurityisgood，andthe
marketrateofinterestthesame，hecanalwayssellthemortgage
atitsoriginalvalue。ToA，therefore，thelienoftenthousand
poundsonC’sestate，isvirtuallyacapitalofthatamount;but
isitsoinreferencetothecommunity？Itisnot。Ahada
capitaloftenthousandpounds，butthishasbeenextinguished——
dissipatedanddestroyedbyC’sprodigality。Anowreceiveshis
income，notfromtheproduceofhiscapital，butfromsomeother
sourceofincomebelongingtoC，probablyfromtherentofhis
land，thatis，frompaymentsmadetohimbyfarmersoutofthe
produceoftheircapital。Thenationalcapitalisdiminishedby
tenthousandpounds，andthenationalincomebyallwhichthose
tenthousandpounds，employedascapital，wouldhaveproduced。
Thelossdoesnotfallontheownerofthedestroyedcapital，
sincethedestroyerhasagreedtoindemnifyhimforit。Buthis
lossisonlyasmallportionofthatsustainedbythecommunity，
sincewhatwasdevotedtotheuseandconsumptionofthe
proprietorwasonlytheinterest;thecapitalitselfwas，or
wouldhavebeen，employedintheperpetualmaintenanceofan
equivalentnumberoflabourers，regularlyreproducingwhatthey
consumed:andofthismaintenancetheyaredeprivedwithout
compensation。
Letusnowvarythehypothesisstillfurther，andsuppose
thatthemoneyisborrowed，notbyalandlord，butbytheState。
AlendshiscapitaltoGovernmenttocarryonawar:hebuysfrom
theStatewhatarecalledgovernmentsecurities;thatis，
obligationsonthegovernmenttopayacertainannualincome。If
thegovernmentemployedthemoneyinmakingarailroad，this
mightbeaproductiveemployment，andA’spropertywouldstillbe
usedascapital;butsinceitisemployedinwar，thatis，inthe
payofofficersandsoldierswhoproducenothing，andin
destroyingaquantityofgunpowderandbulletswithoutreturn，
thegovernmentisinthesituationofC，thespendthrift
landlord，andA’stenthousandpoundsaresomuchnational
capitalwhichonceexisted，butexistsnolonger:virtually
thrownintothesea，asfaraswealthorproductionisconcerned;
thoughforotherreasonstheemploymentofitmayhavebeen
justifiable。A’ssubsequentincomeisderived，notfromthe
produceofhisowncapital，butfromtaxesdrawnfromtheproduce
oftheremainingcapitalofthecommunity;towhomhiscapitalis
notyieldinganyreturn，toindemnitythemforthepayment;itis
lostandgone，andwhathenowpossessesisaclaimonthe
returnstootherpeople’scapitalandindustry。Thisclaimhecan
sell，andgetbacktheequivalentofhiscapital，whichhemay
afterwardsemployproductively。True;buthedoesnotgetback
hisowncapital，oranythingwhichithasproduced;that，andall
itspossiblereturns，areextinguished:whathegetsisthe
capitalofsomeotherperson，whichthatpersoniswillingto
exchangeforhislienonthetaxes。Anothercapitalist
substituteshimselfforAasamortgageeofthepublic，andA
substituteshimselffortheothercapitalistasthepossessorof
afundemployedinproduction，oravailableforit。Bythis
exchangetheproductivepowersofthecommunityareneither
increasednordiminished。Thebreachinthecapitalofthe
countrywasmadewhenthegovernmentspentA’smoney:wherebya
valueoftenthousandpoundswaswithdrawnorwithheldfrom
productiveemployment，placedinthefundforunproductive
consumption，anddestroyedwithoutequivalent。
ThePrinciplesofPoliticalEconomybyJohnStuartMillBook1，Chapter5
FundamentalPropositionsRespectingCapital1。Iftheprecedingexplanationshaveansweredtheirpurpose，theyhavegivennotonlyasufficientlycompletepossessionoftheideaofCapitalaccordingtoitsdefinition，butasufficientfamiliaritywithitintheconcrete，andamidsttheobscuritywithwhichthecomplicationofindividualcircumstancessurroundsit，tohavepreparedeventheunpractisedreaderforcertainelementarypropositionsortheoremsrespectingcapital，thefullcomprehensionofwhichisalreadyaconsiderablestepoutofdarknessintolight。
Thefirstofthesepropositionsis，Thatindustryislimitedbycapital。Thisissoobviousastobetakenforgrantedinmanycommonformsofspeech;buttoseeatruthoccasionallyisonething，torecogniseithabitually，andadmitnopropositionsinconsistentwithit，isanother。Theaxiomwasuntillatelyalmostuniversallydisregardedbylegislatorsandpoliticalwriters;anddoctrinesirreconcileablewithitarestillverycommonlyprofessedandinculcated。
Thefollowingarecommonexpressions，implyingitstruth。Theactofdirectingindustrytoaparticularemploymentisdescribedbythephrase\"applyingcapital\"totheemployment。Toemployindustryonthelandistoapplycapitaltotheland。Toemploylabourinamanufactureistoinvestcapitalinthemanufacture。
Thisimpliesthatindustrycannotbeemployedtoanygreaterextentthanthereiscapitaltoinvest。Theproposition，indeed，mustbeassentedtoassoonasitisdistinctlyapprehended。Theexpression\"applyingcapital\"isofcoursemetaphorical:whatisreallyappliedislabour;capitalbeinganindispensablecondition。Again，weoftenspeakofthe\"productivepowersofcapital。\"Thisexpressionisnotliterallycorrect。Theonlyproductivepowersarethoseoflabourandnaturalagents;orifanyportionofcapitalcanbyastretchoflanguagebesaidtohaveaproductivepowerofitsown，itisonlytoolsandmachinery，which，likewindorwater，maybesaidtoco—operatewithlabour。Thefoodoflabourersandthematerialsofproductionhavenoproductivepower;butlabourcannotexertitsproductivepowerunlessprovidedwiththem。Therecanbenomoreindustrythanissuppliedwithmaterialstoworkupandfoodtoeat。Self—evidentasthethingis，itisoftenforgottenthatthepeopleofacountryaremaintainedandhavetheirwantssupplied，notbytheproduceofpresentlabour，butofpast。Theyconsumewhathasbeenproduced，notwhatisabouttobeproduced。Now，ofwhathasbeenproduced，apartonlyisallottedtothesupportofproductivelabour;andtherewillnotandcannotbemoreofthatlabourthantheportionsoallotted（whichisthecapitalofthecountry）canfeed，andprovidewiththematerialsandinstrumentsofproduction。
Yet，indisregardofafactsoevident，itlongcontinuedtobebelievedthatlawsandgovernments，withoutcreatingcapital，couldcreateindustry。Notbymakingthepeoplemorelaborious，orincreasingtheefficiencyoftheirlabour;theseareobjectstowhichthegovernmentcan，insomedegree，indirectlycontribute。Butwithoutanyincreaseintheskillorenergyofthelabourers。andwithoutcausinganypersonstolabourwhohadpreviouslybeenmaintainedinidleness，itwasstillthoughtthatthegovernment，withoutprovidingadditionalfunds，couldcreateadditionalemployment。Agovernmentwould，byprohibitorylaws，putastoptotheimportationofsomecommodity;andwhenbythisithadcausedthecommoditytobeproducedathome，itwouldplumeitselfuponhavingenrichedthecountrywithanewbranchofindustry，wouldparadeinstatisticaltablestheamountofproduceyieldedandlabouremployedintheproduction，andtakecreditforthewholeofthisasagaintothecountry，obtainedthroughtheprohibitorylaw。althoughthissortofpoliticalarithmetichasfallenalittleintodiscreditinEngland，itstillflourishesinthenationsofContinentalEurope。Hadlegislatorsbeenawarethatindustryislimitedbycapital，theywouldhaveseenthat，theaggregatecapitalofthecountrynothavingbeenincreased，anyportionofitwhichtheybytheirlawshadcausedtobeembarkedinthenewly—acquiredbranchofindustrymusthavebeenwithdrawnorwithheldfromsomeother;inwhichitgave，orwouldhavegiven，employmenttoprobablyaboutthesamequantityoflabourwhichitemploysinitsnewoccupation。（1）*
2。Becauseindustryislimitedbycapital，wearenothowevertoinferthatitalwaysreachesthatlimit。Capitalmaybetemporarilyunemployed，asinthecaseofunsoldgoods，orfundsthathavenotyetfoundaninvestment:duringthisintervalitdoesnotsetinmotionanyindustry。Ortheremaynotbeasmanylabourersobtainable，asthecapitalwouldmaintainandemploy。
Thishasbeenknowntooccurinnewcolonies，wherecapitalhassometimesperisheduselesslyforwantoflabour:theSwanRiversettlement（nowcalledWesternAustralia），inthefirstyearsafteritsfoundation，wasaninstance。Therearemanypersonsmaintainedfromexistingcapital，whoproducenothing，orwhomightproducemuchmorethantheydo。Ifthelabourerswerereducedtolowerwages，orinducedtoworkmorehoursforthesamewages，oriftheirfamilies，whoarealreadymaintainedfromcapital，wereemployedtoagreaterextentthantheynowareinaddingtotheproduce，agivencapitalwouldaffordemploymenttomoreindustry。Theunproductiveconsumptionofproductivelabourers，thewholeofwhichisnowsuppliedbycapital，mightcease，orbepostponeduntiltheproducecamein;andadditionalproductivelabourersmightbemaintainedwiththeamount。Bysuchmeanssocietymightobtainfromitsexistingresourcesagreaterquantityofproduce:andtosuchmeansithasbeendriven，whenthesuddendestructionofsomelargeportionofitscapitalrenderedtheemploymentofthereminderwiththegreatestpossibleeffect，amatterofparamountconsiderationforthetime。
Whenindustryhasnotcomeuptothelimitimposedbycapital，governmentsmay，invariousways，forexamplebyimportingadditionallabourers，bringitnearertothatlimit:asbytheimportationofCooliesandfreeNegroesintotheWestIndies。Thereisanotherwayinwhichgovernmentscancreateadditionalindustry。Theycancreatecapital。Theymaylayontaxes，andemploytheamountproductively。Theymaydowhatisnearlyequivalent;theymaylaytaxesonincomeorexpenditure，andapplytheproceedstowardspayingoffthepublicdebts。Thefundholder，whenpaidoff，wouldstilldesiretodrawanincomefromhisproperty，mostofwhichthereforewouldfinditswayintoproductiveemployment，whileagreatpartofitwouldhavebeendrawnfromthefundforunproductiveexpenditure，sincepeopledonotwhollypaytheirtaxesfromwhattheywouldhavesaved，butpartly，ifnotchiefly，fromwhattheywouldhavespent。Itmaybeadded，thatanyincreaseintheproductivepowerofcapital（or，moreproperlyspeaking，oflabour）byimprovementintheartsoflife，orotherwise，tendstoincreasetheemploymentforlabour。since，whenthereisagreaterproducealtogether，itisalwaysprobablethatsomeportionoftheincreasewillbesavedandconvertedintocapital;especiallywhentheincreasedreturnstoproductiveindustryholdoutanadditionaltemptationtotheconversionoffundsfromanunproductivedestinationtoaproductive。
3。While，ontheonehand，industryislimitedbycapital，soontheother，everyincreaseofcapitalgives，oriscapableofgiving，additionalemploymenttoindustry。，andthiswithoutassignablelimit。Idonotmeantodenythatthecapital，orpartofit，maybesoemployedasnottosupportlabourers，beingfixedinmachinery，buildings，improvementofland，andthelike。
Inanylargeincreaseofcapitalaconsiderableportionwillgenerallybethusemployed，andwillonlyco—operatewithlabourers，notmaintainthem。WhatIdointendtoassertis，thattheportionwhichisdestinedtotheirmaintenance，may（supposingnoalterationinanythingelse）beindefinitelyincreased，withoutcreatinganimpossibilityoffindingthememployment:inotherwords，thatiftherearehumanbeingscapableofwork，andfoodtofeedthem，theymayalwaysbeemployedinproducingsomething。Thispropositionrequirestobesomewhatdweltupon，beingoneofthosewhichitisexceedinglyeasytoassenttowhenpresentedingeneralterms，butsomewhatdifficulttokeepfastholdof，inthecrowdandconfusionoftheactualfactsofsociety。Itisalsoverymuchopposedtocommondoctrines。Thereisnotanopinionmoregeneralamongmankindthanthis，thattheunproductiveexpenditureoftherichisnecessarytotheemploymentofthepoor。BeforeAdamSmith，thedoctrinehadhardlybeenquestioned;andevensincehistime，authorsofthehighestnameandofgreatmerit*havecontended，thatifconsumersweretosaveandconvertintocapitalmorethanalimitedportionoftheirincome，andwerenottodevotetounproductiveconsumptionanamountofmeansbearingacertainratiotothecapitalofthecountry，theextraaccumulationwouldbemerelysomuchwaste，sincetherewouldbenomarketforthecommoditieswhichthecapitalsocreatedwouldproduce。I
conceivethistobeoneofthemanyerrorsarisinginpoliticaleconomy，fromthepracticeofnotbeginningwiththeexaminationofsimplecases，butrushingatonceintothecomplexityofconcretephenomena。
Everyonecanseethatifabenevolentgovernmentpossessedallthefood，andalltheimplementsandmaterials，ofthecommunity，itcouldexactproductivelabourfromallcapableofit，towhomitallowedashareinthefood，andcouldbeinnodangerofwantingafieldfortheemploymentofthisproductivelabour，sinceaslongastherewasasinglewantunsaturated（whichmaterialobjectscouldsupply），ofanyoneindividual，thelabourofthecommunitycouldbeturnedtotheproductionofsomethingcapableofsatisfyingthatwant。Now，theindividualpossessorsofcapital，whentheyaddtoitbyfreshaccumulations，aredoingpreciselythesamethingwhichwesupposetobedonebyabenevolentgovernment。Asitisallowabletoputanycasebywayofhypothesis，letusimaginethemostextremecaseconceivable。Supposethateverycapitalistcametobeofopinionthatnotbeingmoremeritoriousthanawell—conductedlabourer，heoughtnottofarebetter;andaccordinglylaidby，fromconscientiousmotives，thesurplusofhisprofits;orsupposethisabstinencenotspontaneous，butimposedbylaworopinionuponallcapitalists，anduponlandownerslikewise。Unproductiveexpenditureisnowreducedtoitslowestlimit:anditisasked，howistheincreasedcapitaltofindemployment？Whoistobuythegoodswhichitwillproduce？Therearenolongercustomersevenforthosewhichwereproducedbefore。Thegoods，therefore，（itissaid）willremainunsold;theywillperishinthewarehouses;untilcapitalisbroughtdowntowhatitwasoriginally，orrathertoasmuchless，asthedemandoftheconsumershaslessened。Butthisisseeingonlyone—halfofthematter。Inthecasesupposed，therewouldnolongerbeanydemandforluxuries，onthepartofcapitalistsandlandowners。Butwhentheseclassesturntheirincomeintocapital，theydonottherebyannihilatetheirpowerofconsumption;theydobuttransferitfromthemselvestothelabourerstowhomtheygiveemployment。Now，therearetwopossiblesuppositionsinregardtothelabourers;eitherthereis，orthereisnot，anincreaseoftheirnumbers，proportionaltotheincreaseofcapital。Ifthereis，thecaseoffersnodifficulty。Theproductionofnecessariesforthenewpopulation，takestheplaceoftheproductionofluxuriesforaportionoftheold，andsuppliesexactlytheamountofemploymentwhichhasbeenlost。Butsupposethatthereisnoincreaseofpopulation。
Thewholeofwhatwaspreviouslyexpendedinluxuries，bycapitalistsandlandlords，isdistributedamongtheexistinglabourers，intheformofadditionalwages。Wewillassumethemtobealreadysufficientlysuppliedwithnecessaries。Whatfollows？Thatthelabourersbecomeconsumersofluxuries;andthecapitalpreviouslyemployedintheproductionofluxuries，isstillabletoemployitselfinthesamemanner:thedifferencebeing，thattheluxuriesaresharedamongthecommunitygenerally，insteadofbeingconfinedtoafew。Theincreasedaccumulationandincreasedproduction，might，rigorouslyspeaking，continue，untileverylabourerhadeveryindulgenceofwealth，consistentwithcontinuingtowork;supposingthatthepoweroftheirlabourwerephysicallysufficienttoproduceallthisamountofindulgencesfortheirwholenumber。Thusthelimitofwealthisneverdeficiencyofconsumers，butofproducersandproductivepower。Everyadditiontocapitalgivestolaboureitheradditionalemployment，oradditionalremuneration;
enricheseitherthecountry，orthelabouringclass。Ifitfindsadditionalhandstosettowork，itincreasestheaggregateproduce:ifonlythesamehands，itgivesthemalargershareofit;andperhapseveninthiscase，bystimulatingthemtogreaterexertion，augmentstheproduceitself。
4。AsecondfundamentaltheoremrespectingCapital，relatestothesourcefromwhichitisderived。Itistheresultofsaving。Theevidenceofthisliesabundantlyinwhathasbeenalreadysaidonthesubject。Butthepropositionneedssomefurtherillustration。
Ifallpersonsweretoexpendinpersonalindulgencesallthattheyproduce，andalltheincometheyreceivefromwhatisproducedbyothers，capitalcouldnotincrease。Allcapital，withatriflingexception，wasoriginallytheresultofsaving。Isay，withatriflingexception;becauseapersonwholaboursonhisownaccount，mayspendonhisownaccountallheproduces，withoutbecomingdestitute;andtheprovisionofnecessariesonwhichhesubsistsuntilhehasreapedhisharvest，orsoldhiscommodity，thougharealcapital，cannotbesaidtohavebeensaved，sinceitisallusedforthesupplyofhisownwants，andperhapsasspeedilyasifithadbeenconsumedinidleness。Wemayimagineanumberofindividualsorfamiliessettledonasmanyseparatepiecesofland，eachlivingonwhattheirownlabourproduces，andconsumingthewholeproduce。Buteventhesemustsave（thatis，sparefromtheirpersonalconsumption）asmuchasisnecessaryforseed。Somesaving，therefore，theremusthavebeen，eveninthissimplestofallstatesofeconomicalrelations;peoplemusthaveproducedmorethantheyused，orusedlessthantheyproduced。Stillmoremusttheydosobeforetheycanemployotherlabourers，orincreasetheirproductionbeyondwhatcanbeaccomplishedbytheworkoftheirownhands。Allthatanyoneemploysinsupportingandcarryingonanyotherlabourthanhisown，musthavebeenoriginallybroughttogetherbysaving;somebodymusthaveproduceditandforbornetoconsumeit。Wemaysay，therefore，withoutmaterialinaccuracy，thatallcapital，andespeciallyalladditiontocapital，aretheresultofsaving。
Inarudeandviolentstateofsociety，itcontinuallyhappensthatthepersonwhohascapitalisnottheverypersonwhohassavedit，butsomeonewho，beingstronger，orbelongingtoamorepowerfulcommunity，haspossessedhimselfofitbyplunder。Andeveninastateofthingsinwhichpropertywasprotected，theincreaseofcapitalhasusuallybeen，foralongtime，mainlyderivedfromprivationswhich，thoughessentiallythesamewithsaving，arenotgenerallycalledbythatname，becausenotvoluntary。Theactualproducershavebeenslaves，compelledtoproduceasmuchasforcecouldextortfromthem，andtoconsumeaslittleastheself—interestortheusuallyveryslenderhumanityoftheirtaskmasterswouldpermit。Thiskindofcompulsorysaving，however，wouldnothavecausedanyincreaseofcapital，unlessapartoftheamounthadbeensavedoveragain，voluntarily，bythemaster。Ifallthathemadehisslavesproduceandforbeartoconsume，hadbeenconsumedbyhimonpersonalindulgences，hewouldnothaveincreasedhiscapital，norbeenenabledtomaintainanincreasingnumberofslaves。Tomaintainanyslavesatall，impliedaprevioussaving;astock，atleastoffood，providedinadvance。Thissavingmaynot，however，havebeenmadebyanyself—imposedprivationofthemaster;butmoreprobablybythatoftheslavesthemselveswhilefree;therapineorwar，whichdeprivedthemoftheirpersonalliberty，havingtransferredalsotheiraccumulationstotheconqueror。
Thereareothercasesinwhichthetermsaving，withtheassociationsusuallybelongingtoit，doesnotexactlyfittheoperationbywhichcapitalisincreased。Ifitweresaid，forinstance，thattheonlywaytoacceleratetheincreaseofcapitalisbyincreaseofsaving，theideawouldprobablybesuggestedofgreaterabstinence，andincreasedprivation。Butitisobviousthatwhateverincreasestheproductivepoweroflabour，createsanadditionalfundtomakesavingsfrom，andenablescapitaltobeenlargednotonlywithoutadditionalprivation，butconcurrentlywithanincreaseofpersonalconsumption。
Nevertheless，thereishereanincreaseofsaving，inthescientificsense。Thoughthereismoreconsumed，thereisalsomorespared。Thereisagreaterexcessofproductionoverconsumption。Itisconsistentwithcorrectnesstocallthisagreatersaving。Thoughthetermisnotunobjectionable，thereisnootherwhichisnotliabletoasgreatobjections。Toconsumelessthanisproduced，issaving;andthatistheprocessbywhichcapitalisincreased;notnecessarilybyconsumingless，absolutely。Wemustnotallowourselvestobesomuchtheslavesofwords，astobeunabletousethewordsavinginthissense，withoutbeingindangerofforgettingthattoincreasecapitalthereisanotherwaybesidesconsumingless，namely，toproducemore。
5。AthirdfundamentaltheoremrespectingCapital，closelyconnectedwiththeonelastdiscussed，is，thatalthoughsaved，andtheresultofsaving，itisneverthelessconsumed。Thewordsavingdoesnotimplythatwhatissavedisnotconsumed，norevennecessarilythatitsconsumptionisdeferred;butonlythat，ifconsumedimmediately，itisnotconsumedbythepersonwhosavesit。Ifmerelylaidbyforfutureuse，itissaidtobehoarded;andwhilehoarded，isnotconsumedatall。Butifemployedascapital，itisallconsumed;thoughnotbythecapitalist。Partisexchangedfortoolsormachinery，whicharewornoutbyuse;partforseedormaterials，whicharedestroyedassuchbybeingsownorwroughtup，anddestroyedaltogetherbytheconsumptionoftheultimateproduct。Theremainderispaidinwagestoproductivelabourers，whoconsumeitfortheirdailywants;oriftheyintheirturnsaveanypart，thisalsoisnot，generallyspeaking，hoarded，but（throughsavingsbanks，benefitclubs，orsomeotherchannel）re—employedascapital，andconsumed。
Theprinciplenowstatedisastrongexampleofthenecessityofattentiontothemostelementarytruthsofoursubject:foritisoneofthemostelementaryofthemall，andyetnoonewhohasnotbestowedsomethoughtonthematterishabituallyawareofit，andmostarenotevenwillingtoadmititwhenfirststated。
Tothevulgar，itisnotatallapparentthatwhatissavedisconsumed。Tothem，everyonewhosaves，appearsinthelightofapersonwhohoards:theymaythinksuchconductpermissible，orevenlaudable，whenitistoprovideforafamily，andthelike;
buttheyhavenoconceptionofitasdoinggoodtootherpeople:
savingistothemanotherwordforkeepingathingtooneself;
whilespendingappearstothemtobedistributingitamongothers。Thepersonwhoexpendshisfortuneinunproductiveconsumption，islookeduponasdiffusingbenefitsallaround;andisanobjectofsomuchfavour，thatsomeportionofthesamepopularityattacheseventohimwhospendswhatdoesnotbelongtohim;whonotonlydestroyshisowncapital，ifheeverhadany，butunderpretenceofborrowing，andonpromiseofrepayment，possesseshimselfofcapitalbelongingtoothers，anddestroysthatlikewise。
Thispopularerrorcomesfromattendingtoasmallportiononlyoftheconsequencesthatflowfromthesavingorthespending;alltheeffectsofeitherwhichareoutofsight，beingoutofmind。Theeyefollowswhatissaved，intoanimaginarystrong—box，andtherelosessightofit;whatisspent，itfollowsintothehandsoftradespeopleanddependents;butwithoutreachingtheultimatedestinationineithercase。Saving（forproductiveinvestment），andspending，coincideverycloselyinthefirststageoftheiroperations。Theeffectsofbothbeginwithconsumption;withthedestructionofacertainportionofwealth;onlythethingsconsumed，andthepersonsconsuming，aredifferent。Thereis，intheonecase，awearingoutoftools，adestructionofmaterial，andaquantityoffoodandclothingsuppliedtolabourers，whichtheydestroybyuse:intheothercase，thereisaconsumption，thatistosay，adestruction，ofwines，equipages，andfurniture。Thusfar，theconsequencetothenationalwealthhasbeenmuchthesame;anequivalentquantityofithasbeendestroyedinbothcases。Butinthespending，thisfirststageisalsothefinalstage;thatparticularamountoftheproduceoflabourhasdisappeared，andthereisnothingleft;
while，onthecontrary，thesavingperson，duringthewholetimethatthedestructionwasgoingon，hashadlabourersatworkrepairingit;whoareultimatelyfoundtohavereplaced，withanincrease，theequivalentofwhathasbeenconsumed。Andasthisoperationadmitsofbeingrepeatedindefinitelywithoutanyfreshactofsaving，asavingoncemadebecomesafundtomaintainacorrespondingnumberoflabourersinperpetuity，reproducingannuallytheirownmaintenancewithaprofit。
Itistheinterventionofmoneywhichobscures，toanunpractisedapprehension，thetruecharacterofthesephenomena。
AlmostallexpenditurebeingcaRedonbymeansofmoney，themoneycomestobelookeduponasthemainfeatureinthetransaction;andsincethatdoesnotperish，butonlychangeshands，peopleoverlookthedestructionwhichtakesplaceinthecaseofunproductiveexpenditure。Themoneybeingmerelytransferred，theythinkthewealthalsohasonlybeenhandedoverfromthespendthrifttootherpeople。Butthisissimplyconfoundingmoneywithwealth。Thewealthwhichhasbeendestroyedwasnotthemoney，butthewines，equipages，andfurniturewhichthemoneypurchased;andthesehavingbeendestroyedwithoutreturn，societycollectivelyispoorerbytheamount。Itmaybesaid，perhaps，thatwines，equipages，andfurniture，arenotsubsistence，tools，andmaterials，andcouldnotinanycasehavebeenappliedtothesupportoflabour;thattheyareadaptedfornootherthanunproductiveconsumption，andthatthedetrimenttothewealthofthecommunitywaswhentheywereproduced，notwhentheywereconsumed。Iamwillingtoallowthis，asfarasisnecessaryfortheargument，andtheremarkwouldbeverypertinentiftheseexpensiveluxuriesweredrawnfromanexistingstock，nevertobereplenished。Butsince，onthecontrary，theycontinuetobeproducedaslongasthereareconsumersforthem，andareproducedinincreasedquantitytomeetanincreaseddemand;thechoicemadebyaconsumertoexpendfivethousandayearinluxuries，keepsacorrespondingnumberoflabourersemployedfromyeartoyearinproducingthingswhichcanbeofnousetoproduction;theirservicesbeinglostsofarasregardstheincreaseofthenationalwealth，andthetools，materials，andfoodwhichtheyannuallyconsumebeingsomuchsubtractedfromthegeneralstockofthecommunityapplicabletoproductivepurposes。Inproportionasanyclassisimprovidentorluxurious，theindustryofthecountrytakesthedirectionofproducingluxuriesfortheiruse;whilenotonlytheemploymentforproductivelabourersisdiminished，butthesubsistenceandinstrumentswhicharethemeansofsuchemploymentdoactuallyexistinsmallerquantity。
Saving，inshort，enriches，andspendingimpoverishes，thecommunityalongwiththeindividual;whichisbutsayinginotherwords，thatsocietyatlargeisricherbywhatitexpendsinmaintainingandaidingproductivelabour，butpoorerbywhatitconsumesinitsenjoyments。（2*）
6。Toreturntoourfundamentaltheorem。Everythingwhichisproducedisconsumedbothwhatissavedandwhatissaidtobespent;andtheformerquiteasrapidlyasthelatter。Alltheordinaryformsoflanguagetendtodisguisethis。Whenpeopletalkoftheancientwealthofacount，ofrichesinheritedfromancestors，andsimilarexpressions，theideasuggestedis，thattherichessotransmittedwereproducedlongago，atthetimewhentheyaresaidtohavebeenfirstacquired，andthatnoportionofthecapitalofthecountrywasproducedthisyear，exceptasmuchasmayhavebeenthisyearaddedtothetotalamount。Thefactisfarotherwise。Thegreaterpart，invalue，ofthewealthnowexistinginEnglandhasbeenproducedbyhumanhandswithinthelasttwelvemonths。Averysmallproportionindeedofthatlargeaggregatewasinexistencetenyearsago;——
ofthepresentproductivecapitalofthecountryscarcelyanypart，exceptfarm—housesandmanufactories，andafewshipsandmachines;andeventhesewouldnotinmostcaseshavesurvivedsolong，iffreshlabourhadnotbeenemployedwithinthatperiodinputtingthemintorepair。Thelandsubsists，andthelandisalmosttheonlythingthatsubsists。Everythingwhichisproducedperishes，andmostthingsveryquickly。Mostkindsofcapitalarenotfittedbytheirnaturetobelongpreserved。Thereareafew，andbutafewproductions，capableofaveryprolongedexistence。
WestminsterAbbeyhaslastedmanycenturies，withoccasionalrepairs;someGreciansculptureshaveexistedabovetwothousandyears;thePyramidsperhapsdoubleortreblethattime。Butthesewereobjectsdevotedtounproductiveuse。Ifweexceptbridgesandaqueducts（towhichmayinsomecountriesbeaddedtanksandembankments），therearefewinstancesofanyedificeappliedtoindustrialpurposeswhichhasbeenofgreatduration;suchbuildingsdonotholdoutagainstwearandtear，norisitgoodeconomytoconstructthemofthesoliditynecessaryforpermanency。Capitaliskeptinexistencefromagetoagenotbypreservation，butbyperpetualreproduction:everypartofitisusedanddestroyed，generallyverysoonafteritisproduced，butthosewhoconsumeitareemployedmeanwhileinproducingmore。
Thegrowthofcapitalissimilartothegrowthofpopulation。
Everyindividualwhoisborn，dies，butineachyearthenumberbornexceedsthenumberwhodie:thepopulation，therefore，alwaysincreases，thoughnotonepersonofthosecomposingitwasaliveuntilaveryrecentdate。
7。Thisperpetualconsumptionandreproductionofcapitalaffordstheexplanationofwhathassooftenexcitedwonder，thegreatrapiditywithwhichcountriesrecoverfromastateofdevastation;thedisappearance，inashorttime，ofalltracesofthemischiefsdonebyearthquakes，floods，hurricanes，andtheravagesofwar。Anenemylayswasteacountrybyfireandsword，anddestroysorcarriesawaynearlyallthemoveablewealthexistinginit:alltheinhabitantsareruined，andyetinafewyearsafter，everythingismuchasitwasbefore。Thisvismedicatrixnaturaehasbeenasubjectofsterileastonishment，orhasbeencitedtoexemplifythewonderfulstrengthoftheprincipleofsaving，whichcanrepairsuchenormouslossesinsobriefaninterval。Thereisnothingatallwonderfulinthematter。Whattheenemyhavedestroyed，wouldhavebeendestroyedinalittletimebytheinhabitantsthemselves:thewealthwhichtheysorapidlyreproduce，wouldhaveneededtobereproducedandwouldhavebeenreproducedinanycase，andprobablyinasshortatime。Nothingischanged，exceptthatduringthereproductiontheyhavenotnowtheadvantageofconsumingwhathadbeenproducedpreviously。Thepossibilityofarapidrepairoftheirdisasters，mainlydependsonwhetherthecountryhasbeendepopulated。Ifitseffectivepopulationhavenotbeenextirpatedatthetime，andarenotstarvedafterwards;then，withthesameskillandknowledgewhichtheyhadbefore，withtheirlandanditspermanentimprovementsundestroyed，andthemoredurablebuildingsprobablyunimpaired，oronlypartiallyinjured，theyhavenearlyalltherequisitesfortheirformeramountofproduction。Ifthereisasmuchoffoodlefttothem，orofvaluablestobuyfood，asenablesthembyanyamountofprivationtoremainaliveandinworkingcondition，theywillinashorttimehaveraisedasgreataproduce，andacquiredcollectivelyasgreatwealthandasgreatacapital，asbefore;bythemerecontinuanceofthatordinaryamountofexertionwhichtheyareaccustomedtoemployintheiroccupations。Nordoesthisevinceanystrengthintheprincipleofsaving，inthepopularsenseoftheterm，sincewhattakesplaceisnotintentionalabstinence，butinvoluntaryprivation。
Yetsofatalisthehabitofthinkingthoughthemediumofonlyonesetoftechnicalphrases，andsolittlereasonhavestudiousmentovaluethemselvesonbeingexemptfromtheverysamementalinfirmitieswhichbesetthevulgar，thatthissimpleexplanationwasnevergiven（sofarasIamaware）byanypoliticaleconomistbeforeDr。Chalmers;awritermanyofwhoseopinionsIthinkerroneous，butwhohasalwaysthemeritofstudyingphenomenaatfirsthand，andexpressingtheminalanguageofhisown，whichoftenuncoversaspectsofthetruththatthereceivedphraseologiesonlytendtohide。
8。Thesameauthorcarriesoutthistrainofthoughttosomeimportantconclusionsonanothercloselyconnectedsubject，thatofgovernmentloansforwarpurposesorotherunproductiveexpenditure。Theseloans，beingdrawnfromcapital（inlieuoftaxes，whichwouldgenerallyhavebeenpaidfromincome，andmadeupinpartoraltogetherbyincreasedeconomy）must，accordingtotheprincipleswehavelaiddown，tendtoimpoverishthecountry:
yettheyearsinwhichexpenditureofthissorthasbeenonthegreatestscale，haveoftenbeenyearsofgreatapparentprosperity……thewealthandresourcesofthecountry，insteadofdiminishing，havegiveneverysignofrapidincreaseduringtheprocess，andofgreatlyexpandeddimensionsafteritsclose。ThiswasconfessedlythecasewithGreatBritainduringthelastlongContinentalwar;anditwouldtakesomespacetoenumeratealltheunfoundedtheoriesinpoliticaleconomy，towhichthatfactgaverise，andtowhichitsecuredtemporarycredence;almostalltendingtoexaltunproductiveexpenditure，attheexpenseofproductive。Withoutenteringintoallthecauseswhichoperated，andwhichcommonlydooperate，topreventtheseextraordinarydraftsontheproductiveresourcesofacountryfrombeingsomuchfeltasitmightseemreasonabletoexpect，wewillsupposethemostunfavourablecasepossible:thatthewholeamountborrowedanddestroyedbythegovernment，wasabstractedbythelenderfromaproductiveemploymentinwhichithadactuallybeeninvested。Thecapital，therefore，ofthecountry，isthisyeardiminishedbysomuch。Butunlesstheamountabstractedissomethingenormous，thereisnoreasoninthenatureofthecasewhynextyearthenationalcapitalshouldnotbeasgreatasever。Theloancannothavebeentakenfromthatportionofthecapitalofthecountrywhichconsistsoftools，machinery，andbuildings。Itmusthavebeenwhollydrawnfromtheportionemployedinpayinglabourers:andthelabourerswillsufferaccordingly。Butifnoneofthemarestared;iftheirwagescanbearsuchanamountofreduction，orifcharityinterposesbetweenthemandabsolutedestitution，thereisnoreasonthattheirlabourshouldproducelessinthenextyearthanintheyearbefore。Iftheyproduceasmuchasusual，havingbeenpaidlessbysomanymillionssterling，thesemillionsaregainedbytheiremployers。Thebreachmadeinthecapitalofthecountryisthusinstantlyrepaired，butrepairedbytheprivationsandoftentherealmiseryofthelabouringclass。Hereisamplereasonwhysuchperiods，eveninthemostunfavourablecircumstances，mayeasilybetimesofgreatgaintothosewhoseprosperityusuallypasses，intheestimationofsociety，fornationalprosperity。（3*）
ThisleadstothevexedquestiontowhichDr。Chalmershasveryparticularlyadverted;whetherthefundsrequiredbyagovernmentforextraordinaryunproductiveexpenditure，arebestraisedbyloans，theinterestonlybeingprovidedbytaxes，Orwhethertaxesshouldbeatoncelaidontothewholeamount;
whichiscalledinthefinancialvocabulary，raisingthewholeofthesupplieswithintheyear。Dr。Chalmersisstronglyforthelattermethod。Hesays，thecommonnotionisthatincallingforthewholeamountinoneyear，yourequirewhatiseitherimpossible，orveryinconvenient;thatthepeoplecannot，withoutgreathardship，paythewholeatonceoutoftheiryearlyincome;
andthatitismuchbettertorequireofthemasmallpaymenteveryyearintheshapeofinterest，thansogreatasacrificeonceforall。Towhichhisansweris，thatthesacrificeismadeequallyineithercase。Whateverisspent，cannotbutbedrawnfromyearlyincome。Thewholeandeverypartofthewealthproducedinthecountry，forms，orhelpstoform，theyearlyincomeofsomebody。Theprivationwhichitissupposedmustresultfromtakingtheamountintheshapeoftaxesisnotavoidedbytakingitinaloan。Thesufferingisnotaverted，butonlythrownuponthelabouringclasses，theleastable，andwholeastought，tobearit:whilealltheinconveniences，physical，moral，andpolitical，producedbymaintainingtaxesfortheperpetualpaymentoftheinterest，areincurredinpureloss。
Whenevercapitaliswithdrawnfromproduction，orfromthefunddestinedforproduction，tobelenttotheState，andexpendedunproductively，thatwholesumiswithheldfromthelabouringclasses:theloan，therefore，isintruthpaidoffthesameyear;
thewholeofthesacrificenecessaryforpayingitoffisactuallymade:onlyitispaidtothewrongpersons，andthereforedoesnotextinguishtheclaim;andpaidbytheveryworstoftaxes，ataxexclusivelyonthelabouringclass。Andafterhaving，inthismostpainfulandunjustway，gonethroughthewholeeffortnecessaryforextinguishingthedebt，thecountryremainschargedwithit，andwiththepaymentofitsinterestinperpetuity。
Theseviewsappeartomestrictlyjust，insofarasthevalueabsorbedinloanswouldotherwisehavebeenemployedinproductiveindustrywithinthecountry。Thepracticalstateofthecase，however，seldomexactlycorrespondswiththissupposition。Theloansofthelesswealthycountriesaremadechieflywithforeigncapital，whichwouldnot，perhaps，havebeenbroughtintobeinvestedonanylesssecuritythanthatofthegovernment:whilethoseofrichandprosperouscountriesaregenerallymade，notwithfundswithdrawnfromproductiveemployment，butwiththenewaccumulationsconstantlymakingfromincome，andoftenwithapartofthemwhich，ifnotsotaken，wouldhavemigratedtocolonies，orsoughtotherinvestmentsabroad。Inthesecases（whichwillbemoreparticularlyexaminedhereafter*），thesumwantedmaybeobtainedbyloanwithoutdetrimenttothelabourers，orderangementofthenationalindustry，andevenperhapswithadvantagetoboth，incomparisonwithraisingtheamountbytaxation，sincetaxes，especiallywhenheavy，arealmostalwayspartlypaidattheexpenseofwhatwouldotherwisehavebeensavedandaddedtocapital。Besides，inacountrywhichmakessogreatyearlyadditionstoitswealththatapartcanbetakenandexpendedunproductivelywithoutdiminishingcapital，orevenpreventingaconsiderableincrease，itisevidentthatevenifthewholeofwhatissotakenwouldhavebecomecapital，andobtainedemploymentinthecountry，theeffectonthelabouringclassesisfarlessprejudicial，andthecaseagainsttheloansystemmuchlessstrong，thaninthecasefirstsupposed。Thisbriefanticipationofadiscussionwhichwillfinditsproperplaceelsewhere，appearednecessarytopreventfalseinferencesfromthepremisespreviouslylaiddown。
9。WenowpasstoafourthfundamentaltheoremrespectingCapital，whichis，perhaps，ofteneroverlookedormisconceivedthanevenanyoftheforegoing。Whatsupportsandemploysproductivelabour，isthecapitalexpendedinsettingittowork，andnotthedemandofpurchasersfortheproduceofthelabourwhencompleted。Demandforcommoditiesisnotdemandforlabour。
Thedemandforcommoditiesdeterminesinwhatparticularbranchofproductionthelabourandcapitalshallbeemployed;itdeterminesthedirectionofthelabour;butnotthemoreorlessofthelabouritself，orofthemaintenanceorpaymentofthelabour。Thesedependontheamountofthecapital，orotherfundsdirectlydevotedtothesustenanceandremunerationoflabour。
Suppose，forinstance，thatthereisademandforvelvet;afundreadytobelaidoutinbuyingvelvet，butnocapitaltoestablishthemanufacture。Itisofnoconsequencehowgreatthedemandmaybe;unlesscapitalisattractedintotheoccupation，therewillbenovelvetmade，andconsequentlynonebought;
unless，indeed，thedesireoftheintendingpurchaserforitissostrong，thatheemployspartofthepricehewouldhavepaidforit，inmakingadvancestowork—people，thattheymayemploythemselvesinmakingvelvet;thatis，unlessheconvertspartofhisincomeintocapital，andinveststhatcapitalinthemanufacture。Letusnowreversethehypothesis，andsupposethatthereisplentyofcapitalreadyformakingvelvet，butnodemand。Velvetwillnotbemade;butthereisnoparticularpreferenceonthepartofcapitalformakingvelvet。
Manufacturersandtheirlabourersdonotproduceforthepleasureoftheircustomers，butforthesupplyoftheirownwants，andhavingstillthecapitalandthelabourwhicharetheessentialsofproduction，theycaneitherproducesomethingelsewhichisindemand，oriftherebenootherdemand，theythemselveshaveone，andcanproducethethingswhichtheywantfortheirownconsumption。Sothattheemploymentaffordedtolabourdoesnotdependonthepurchasers，butonthecapital。Iam，ofcourse，nottakingintoconsiderationtheeffectsofasuddenchange。Ifthedemandceasesunexpectedly，afterthecommoditytosupplyitisalreadyproduced，thisintroducesadifferentelementintothequestion:thecapitalhasactuallybeenconsumedinproducingsomethingwhichnobodywantsoruses，andithasthereforeperished，andtheemploymentwhichitgavetolabourisatanend，notbecausethereisnolongerademand，butbecausethereisnolongeracapital。Thiscasethereforedoesnottesttheprinciple。Thepropertestis，tosupposethatthechangeisgradualandforeseen，andisattendedwithnowasteofcapital，themanufacturebeingdiscontinuedbymerelynotreplacingthemachineryasitwearsout，andnotreinvestingthemoneyasitcomesinfromthesaleoftheproduce。Thecapitalisthusreadyforanewemployment，inwhichitwillmaintainasmuchlabourasbefore。Themanufacturerandhiswork—peoplelosethebenefitoftheskillandknowledgewhichtheyhadacquiredintheparticularbusiness，andwhichcanonlybepartiallyofusetotheminanyother;andthatistheamountoflosstothecommunitybythechange。Butthelabourerscanstillwork，andthecapitalwhichpreviouslyemployedthemwill，eitherinthesamehands，orbybeinglenttoothers，employeitherthoselabourersoranequivalentnumberinsomeotheroccupation。
Thistheorem，thattopurchaseproduceisnottoemployslabour;thatthedemandforlabourisconstitutedbythewageswhichprecedetheproduction，andnotbythedemandwhichmayexistforthecommoditiesresultingfromtheproduction;isapropositionwhichgreatlyneedsalltheillustrationitcanreceive。Itis，tocommonapprehension，aparadox;andevenamongpoliticaleconomistsofreputation，Icanhardlypointtoany，exceptMr。RicardoandM。Say，whohavekeptitconstantlyandsteadilyinview。Almostallothersoccasionallyexpressthemselvesasifapersonwhobuyscommodities，theproduceoflabour，wasanemployeroflabour，andcreatedademandforitasreally，andinthesamesense，asifheboughtthelabouritselfdirectly，bythepaymentofwages。Itisnowonderthatpoliticaleconomyadvancesslowly，whensuchaquestionasthisstillremainsopenatitsverythreshold。Iapprehend，thatifbydemandforlabourbemeantthedemandbywhichwagesareraised，orthenumberoflabourersinemploymentincreased，demandforcommoditiesdoesnotconstitutedemandforlabour。Iconceivethatapersonwhobuyscommoditiesandconsumesthemhimself，doesnogoodtothelabouringclasses;andthatitisonlybywhatheabstainsfromconsuming，andexpendsindirectpaymentstolabourersinexchangeforlabour，thathebenefitsthelabouringclasses，oraddsanythingtotheamountoftheiremployment。