ABSTRACT
The Nature of Capital and Income is of that class of books that have kept the gild of theoretical economists content to do nothing toward “the increase and diffusion of knowledge” during the past quarter of a century.1 Of this class Mr. Fisher’s work is of the best – thoughtful, painstaking, sagacious, exhaustive, lucid, and tenaciously logical. What it lacks is the breath of life; and this lack it shares with the many theoretical productions of the Austrian diversion as well as of the economists of more strictly classical antecedents. Not that Mr. Fisher’s work falls short of the mark set by those many able men who have preceded him in this field. No reader of Mr. Fisher can justly feel disappointed in his performance of the difficult task which he sets himself. The work performs what it promises and does it in compliance with all the rules of the craft. But it does not set out substantially to extend the theory or to contribute to the sum of knowledge, either by bringing hitherto refractory phenomena into the organized structure of the science, or by affording farther or more comprehensive insight into the already familiar processes of modern economic life. Consistently with its aim, it is a work of taxonomy, of definition and classification; and it is carried through wholly within the limits imposed by this its taxonomic aim. There are many shrewd observations on the phenomena of current business, and much evidence of an extensive and
intimate acquaintance with such facts of modern culture as are still awaiting scientific treatment at the hands of the economists (e.g., in chapters v and vi, “Capital Accounts” and “Capital Summation,” as also in chapters viii, ix, xiii, xiv, “Income Accounts,” “Income Summation,” “Value of Capital,” “Earnings and Income,” “The Risk Element”). But the facts of observation so drawn into the discussion are chiefly drawn in to illustrate or fortify an argument, somewhat polemical, not as material calling for theoretical explanation. As affects the development of the theory, these observations and this information run along on the side and are not allowed to disturb the argument in its secure march toward its taxonomic goal. There is no intention here to decry taxonomy, of course. Definition and
classification are as much needed in economics as they are in [113] those other sciences which have already left the exclusively taxonomic standpoint behind. The point of criticism, on this head, is that this class of economic theory differs from the modern sciences in being substantially nothing but definition and classification. Taxonomy for taxonomy’s sake, definition and classification for the sake of definition and classification, meets no need of modern science. Work of this class has no value and no claims to consideration except so far as it is of use to the science in its endeavor to know and explain the processes of life. This test of usefulness applies even more broadly in economics and similar sciences of human conduct than in the natural sciences, commonly so-called. It is on this head, as regards the serviceability of his taxonomic results, that Mr. Fisher’s work falls short. A modern science has to do with the facts as they come to hand, not with putative phenomena warily led out from a primordial metaphysical postulate, such as the “hedonic principle.” To meet the needs of science, therefore, such modern concepts as “capital” and “income” must be defined by observation rather than by ratiocination. Observation will not yield such a hard-and-fast definition of the term as is sought by Mr. Fisher and his co-disputants, a definition which shall mark off a pecuniary concept by physical distinctions, which shall be good for all times and places and all economic situations, ancient and modern, whether there is investment of capital or not. “Capital” is a concept much employed by modern men of affairs. If it were
not for the use of the concept in economic affairs – its growing use for a century past – the science would not be concerned about the meaning of the term today. It is this use of the concept in the conduct of affairs that obtrudes it upon the attention of economists; and it is, primarily at least, for a better knowledge of these pecuniary affairs, in which the concept of capital plays so large a part, that a better knowledge of the concept itself is sought. As it plays its part in these affairs of business, the concept of capital is, substantially, a habit of thought of the men engaged in business, more or less closely defined in practice by the consensus of usage in the business community. A serviceable definition of it therefore, for the use of modern science, can be got only by observation of the current habits of thought of business men. This painfully longwinded declaration of what must appear to be a patent truism so soon as it is put in words may seem a gratuitous insistence on a stale
commonplace. But it is an even more painfully tedious fact that the current polemics about “the capital concept” goes on year after year without recognition of this patent truism. [114] What may help to cover, rather than to excuse, the failure of many econo-
mists to resort to observation for a knowledge of what the term “capital” means is the fact, adverted to by the way in various writers, that business usage of the term is not uniform and stable; it does not remain the same from generation to generation; and it cannot, at least as regards present usage, be identified and defined by physical marks. The specific marks of the concept – the characteristics of the category – in the common usage are not physical marks, and the categories with which it is, in usage, related and contrasted are not categories that admit of definition in material terms; because it is, in usage, a pecuniary concept and stands in pecuniary relations and contrasts with other categories. It is a pecuniary term, primarily a term of investment, and as such, as a habit of thought of the men who have to do with pecuniary affairs, it necessarily changes in response to the changes going forward in the pecuniary situation and in the methods of conducting pecuniary affairs. “Capital,” is the usage of current business, undoubtedly has not precisely the same meaning as it had in the corresponding usage of half a century ago; and it is safe to say that it will not retain its present meaning, unimpaired and unimproved, in the usage of ten years hence; nor does it cover just the same details in one connection as in another. Yet business men know what the term means to them. With all its shifting ambiguities, they know it securely enough for their use. The concept has sufficient stability and precision to serve their needs; and, if the economist is to deal with the phenomena of modern life in which this concept serves a use of first-rate importance, he must take the term and the concept as he finds them. It is idle fatigue to endeavor to normalize them into a formula which may suit his prepossessions but which is not true to life. The mountain will not come to Mahomet.
