chapter  57
5 Pages

THE PROCESS OF CAPITAL-FORMATION IN THE MONEY-ECONOMY

The process of the formation of capital in the monetary economy is essentially the same as in the simple economy, but only very rarely does it follow a course so conspicuously transparent and self-contained. Thus, for example, a large land-owner may discover that conditions on

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his lands favor the establishment of a factory, through which he could turn to account his agricultural products, without incurring further expenditures in the way of purchasing materials or supplies beyond the unavoidable ones required in paying the wages of the laborers employed in erecting his buildings. Then, if he compensates his laborers largely in natural wages, he would require but little cash or moneycapital for the payment of the wages also. In every other respect, he would control the natural conditions for the formation of the productive capital as completely as he would have to in a simple economy. Only rarely, however, is there such an opportune coincidence of conditions; the formation of capital in the money economy would be an exceedingly slow process and would be confined within narrow boundaries, if a conjunction of circumstances so rare and well adapted had to be relied on. In most cases, the requirements for this formation are distributed over a large number of individuals; at least two, and sometimes three groups of persons are usually needed, each group containing a large number of interested individual economies. The manufacturer of machinery usually does not himself make use of the machines which he constructs, as he is forming natural capital. He sells them to other entrepreneurs who use them in their operations. A spinner who is getting ready for his industry will not only purchase the spinning-machine of the manufacturer of such machines, but he will also buy of capital-producing entrepreneurs all the other constituents of the natural capital which he needs for equipment and manufacture. Under the division of labor of the exchange-economy the process of the formation of natural capital is completed only by the joint work of the capital-producing and capital-employing entrepreneur. The machine is not a capital good merely by the fact that it has been built by the former; for, if no one should appear who could make use of it, although technically unobjectionable in its construction, it would not be a part of the national capital; it might not even be a good. It would have to be regarded as an economic blunder of the capital-producing entrepreneur, when he sacrificed money-outlay in its construction. We must add here that even in case an entrepreneur should be found who might wish to use the machine, it would not, for this reason alone, be certified as a part of the natural capital. In order that this can take place, the second entrepreneur must realize an economic gain with the machine. Only when he reaches the stage where he succeeds in realizing the usual net-earnings from his enterprise, has the process of the formation of natural capital been finally terminated.