Capital, in the ordinary sense, is the means with which business is carried on, and may consist either of money or of property convertible into money. In the more accurate language of political economy, capital is wealth appropriated to reproductive employment. It is wealth used for producing more wealth. That which distinguishes capital from other forms of wealth is the purpose to which it is applied. A painting, so long as it adorns the room of a private gentleman, cannot be regarded as capital; in the hands of a dealer, who sells it in order to make a profit, it becomes a form of capital. Capital is one of the three requisites of production, the other two being land and labour. Capital is usually divided into two classes—circulating capital, which consists of the wages paid to the workmen, and of the raw material used up in the processes of industry, &c.; and fixed capital, consisting of buildings, machines, tools, railways, telegraphs, canals, shipping, &c. Circulating capital is being continually used up, and disappears in the using, while fixed capital may last for a long time, and may be used over and over again. Railway lines, canals, and docks, may last for generations, and with the necessary repairs, renewals, and improvements, continue as effective as ever. It should be remembered, however, that such distinctions are only generally valid, and that a very definite line between fixed and circulating capital cannot be drawn. Thus with regard to railways, while the stations and permanent way are undoubtedly fixed capital, we may justly hesitate as to the engines and wagons, which only last a few years.
With reference to fixed capital, it should also in general be said that its permanence is only one of degree. Machinery, tools, and shipping, have only a limited duration, as they either become worn out, or, as more frequently happens, are superseded by more effective appliances. Docks, canals, bridges, and great works for the reclaiming of agricultural land, are more adapted for permanence. But though considerable, they are only a limited part of the capital of a country. The vast proportion of capital needs from time to time to be replaced.
Capital is the result of the industry of past generations used to promote and facilitate the industry of the present and future. In every form of capital we can trace the labour, ingenuity, and foresight of the men who have lived before us. The history of capital is a process of development, of invention, adaptation, and accumulation, which is observable in different degrees at different epochs of the world, but during the last hundred and fifty years has been vastly more active than at any former period. It is usual to say that capital is the result of saving or abstinence, but such a formula gives a very misleading conception of the motives which have led to the growth of capital. The growth of capital is a mixed process, the real motives of which can be truly and adequately understood only by a study of the historical facts. No doubt there has been abstinence, but there have been many other moral qualities displayed in the process. For the development of capital it is of course necessary that production should exceed consumption, leaving a sufficient margin for future increase. In the modern development of capital the energy and inventiveness with which natural resources have been utilised for the production of wealth have been unexampled, resulting in the formation of new forms of capital, and in a gigantic accumulation of it absolutely unparalleled. The productive power of capital is indeed practically unlimited. This enormous development of capital has offered new problems to the economist, or at least presented the old questions in a new light.
The history of capital is a process of evolution which can be rightly understood only in its connection with the general history of society. It must specially be studied in connection with the other requisites of production, land and labour.