Bhm-Bawerk's Definition of Capital and the Source of Wages

Thorstein Veblen

uarterl! "ournal of #conomics$ %olume &$ '()*+ ,n his e-position of the term .capital. /rofessor Bhm-Bawerk briefl! touches on the wages-fund doctrine$ so far as to re0ect summaril! the proposition that the means of subsistence of producti%e laborers is drawn from the capital of the communit!$ although$ from the point of %iew of the emplo!er$ these .real wages. are to be regarded as drawn from his pri%ate capital+ With the distinction which the discussion establishes between social capital and pri%ate capital$ this position is$ of course$ in itself perfectl! consistent+ The position is$ indeed$ contained in the definition of capital pre%iousl! arri%ed at 1pp+ 2*$ 23$ and *'4+ The ground of the position taken is the un5uestioned or$ at all e%ents$ un5uestionable truth that the laborer is a member of societ!$ and his consumption of products is$ in a broad %iew$ a fact of the same kind$ and of like theoretical significance with consumption on the part of an! other member of societ!+ The satisfaction of wants$ whether it be the wants of the laborer or of an! other$ is the end$ not the means$ of producti%e acti%it!+ While the e-position at this point undeniabl! sheds a strong light on the 5uestion$ it can hardl! be said to ha%e finall! disposed of all ground for difference of opinion$ still less to ha%e e-plained awa! the wages-fund contro%ers!$ or that point of the contro%ers! which concerns the 5uestion of the source of wages+ 6nd that contro%ers! has been of such e-tent and earnestness as to raise the presumption that something is to be said for both sides of the dispute$ and to lea%e little hope of its being finall! put at rest b! an! other method than that of e-plaining awa! the ground of difference+ 7or reaching this end$ , belie%e /rofessor Bhm-Bawerk's e-position of capital has gi%en us the means+ ,t is to be remarked$ b! the wa!$ howe%er$ that there is a lacuna in the e-position at this point which seems$ at least$ not of first-rate theoretical conse5uence$ and is$ perhaps$ the result of o%ersight of a not %er! important point$ but which might afford a foothold for carping criticism+ ,t will be best to speak of it at the outset$ and put it out of the wa! before going on+ This difficult! arises from the inclusion$ as a subhead under Social Capital of .stocks of goods for consumption which are still in the hands of producers or dealers. 1p+ 894: that is to sa!$ goods which ha%e not !et passed that final stage of preparation for consumption which consists in their transfer$ through the mechanism of e-change$ into the ownership of the ultimate consumer+ ;ow$ this classification ma! afford ground for persons undul! gi%en to nice distinctions to take e-ception to /rofessor Bhm-Bawerk's position on the 5uestion of the source of wages that$ 1'4 inasmuch as the pa!ment of wages$ actuall! for the most part$ and in theor! normall!$ is a transfer to the laborer not of the particular goods he wants$ but of an item of %alue b! means of which he ma! obtain the particular goods through this final producti%e step of e-change$ therefore the pa!ment of wages simpl! gi%es the recipient a claim on goods which ha%e not !et passed the final stage of production$ and so are as !et a part of the general capital b! the terms of the definition$ and which will pass that stage onl! in conse5uence of this claim: 1*4 that$ without regard to the mechanism b! which the transaction is carried out$ the claim on goods$ which accrues to the laborer in the pa!ment of wages$ constitutes a drain on the stocks in the hands of producers or merchants$ and tends to diminish such stocks$ and this without regard to the point in time of the pa!ment$ relati%e to the production of the goods$ which ultimatel! go to satisf! the laborer's wants+ The pa!ment of the wages$ as a matter to be considered in a theor! of the methods of production$ precedes the consumption$ or the ownership on the part of the recipient$ of the goods which the claim so transferred to him ultimatel! puts into his hands for consumption$ and so is a claim that can be satisfied onl! b! drawing on a class of goods included under the head of social capital+ This criticism$ it will be seen$ touches a point of classification$ and ma! perhaps be a%oided without deranging the main structure of the theor!+ ;ow$ as to the theor! of the source of wages$ in the light of /rofessor Bhm-Bawerk's definition of capital+ ,t is not too much to sa! that the contro%ers! has owed much of its bitterness and sterilit! to

inade5uate definition of the terms emplo!ed$ especiall! to a lack of accurac! in the concept of capital+ The /ositi%e Theorie des <apitales has gi%en to the concept of capital$ and of its relation to other elements of economic theor!$ a conciseness and ade5uac! of which earlier speculators were sorel! in need+ ,f the distinction which this discussion formulates between social and pri%ate capital had been apprehended earlier$ with the same full and clear consciousness$ the means would ha%e been at hand b! which the wages-fund contro%ers! might ha%e been put to rest+ But the completed definition of capital does not of itself dispose of the 5uestion+ 6 further anal!sis in the same direction is necessar!+ ,t seems to me that economic theor! is at this point in the presence of a distinction necessar! to be made between .the laborer's share of consumable goods.$ or .earnings.$ on the one hand$ and .wages.$ on the other$ analogous to the distinction taken b! Wagner -- and perfected b! /rofessor Bhm-Bawerk -- between capital as a .purel! economic categor!. and capital .in a 0uridico-historical sense+. Wages$ in this stricter definition$ and pri%ate capital both are facts of usage$ while the laborer's income$ or earnings$ and social capital both are facts intrinsic and fundamental to an! theor! of industrial societ!+ Wages is a fact incident to the relation of emplo!er and emplo!ed+ ,t is$ in the sense fi-ed b! collo5uial use$ an economic categor! whose scope is entirel! within the theor! of production as carried on b! the method based on that relation: and the term is not used in precisel! the same sense when the discussion shifts to the standpoint of production simpl! as such$ still less when the point of %iew is that of distribution or consumption+ ,t is b! an unconscious e5ui%ocation$ in shifting the point of %iew$ that wages is identified with earnings and spoken of as an element in the theor! of distribution or consumption+ The laborer$ from the point of %iew of consumption of products$ is no longer .laborer.= he is a member of societ! simpl!$ and his share of the product of industr! is the share of an indi%idual member of societ!+ 6s consumer$ he is not .laborer.$ and his share of consumable goods is not .wages.$ in the strict technical sense of the term+ Wages ma! coincide in range of comprehension with the labor's share of the product -- with earnings -- and ma! likewise coincide with the aggregate of his consumption: but wages is a categor! ha%ing a different significance for economic theor! from that of earnings or of goods consumed+ The item of %alue$ which from the point of %iew of production as carried on b! the method of pri%ate capital as wages is$ from the point of %iew of the laborer$ as being producti%el! emplo!ed in his own interest$ earnings+ 7rom the point of %iew of consumption of goods produced$ neither of these terms can be emplo!ed with entirel! the same meaning as the! ha%e in the use 0ust specified+ ,f this distinction be allowed as theoreticall! legitimate$ it appears that /rofessor Bhm-Bawerk's discussion does not upset the wages-fund doctrine in an! of its essential te-ts+ The one proposition$ that the sustenance of men while producti%el! emplo!ed is drawn from the product of past industr!$ is of course not impugned: the other$ that wages are paid out of capital$ is conceded in conceding that it will hold true when capital is understood to mean pri%ate capital: for it is onl! then that the term .wages.$ in the strict technical sense$ can properl! be emplo!ed+ 6t the same time this discrimination of terms lea%es the position of the opponents of the wages-fund doctrine$ as to this particular point$ perfectl! tenable: for whene%er 'wages. is used in the sense of .earnings.$ as$ , belie%e$ is in%ariabl! the case in the usage of these writers$ the! are undoubtedl! drawn from the product of industr!$ inasmuch as earnings are the product$ to the laborer$ of his labor+ 6ll this ma! seem to be a web of e-cessi%el! fine-spun technicalities$ but in apolog! it is to be said that it is also directed e-clusi%el! to a point of pure theor!+ 6nd the whole contro%ers! about the source of wages has also been in the region of pure theor!$ ha%ing ne%er directl! in%ol%ed 5uestions of ph!sical fact or of e-pedienc!+