re-appears from their consumption. Hence the decision whether a thing shall be capital or not rests with its owner; and till he makes up his mind, its character remains entirely open.

We can now perceive that there are two kinds of consumption, which are called productive and unproductive. This is a distinction of immense significance for the welfare and progress of every society; their results are as wide asunder as the poles. The consumption of capital has one object and one only,—the production of fresh wealth in the place of that now gone. It seeks to create wealth, an instrument to satisfy a want or an enjoyment, but it does not aim at directly bestowing the satisfaction. Unproductive consumption is final,—it gratifies and looks for nothing beyond. Productive consumption enriches, it leaves a better thing behind it. Unproductive consumption impoverishes, it uses up the wealth, and there is nothing to fill its place. The two consumptions express radically different things, different processes, different aims and results. Productive labour, on the contrary, always intends a gratification; unproductive labour is scarcely conceivable. But though the one consumption enriches, and the other impoverishes, it would be a profound mistake to condemn the unproductive, and to try to make it disappear. Man labours mainly for the very sake of consuming unproductively. He toils for something better than what will just keep him alive in full strength, that is, for something more than what he must consume productively as capital, in order to sustain his existence. Take away from him such enjoyments as are not distinctly necessary,

and which perish in the using, and he would labour little. Wealth would have no interest for him, and life be hardly worth the living. The one reason for building up capital at so much trouble, beyond what is necessary for bare subsistence, is to multiply those enjoyments which are consumed for the sake of the pleasure they give and for nothing else. An industrious and capital-amassing people work hard and make great sacrifices of time and leisure in order to better themselves, to acquire riches; and riches is only another word for unproductive consumption.

3. How is capital obtained? By saving. But what is saving? To consume less than is produced; to reserve a portion, away from enjoyment, in order to have increased means for making still more than what was produced previously. Suppose that there is a balance of wealth over, on taking stock, after every purpose of life has been realised. There are goods and substances remaining for appropriation; this surplus becomes, for the most part, capital. It is devoted to the manufacture of increased wealth. The country is the richer for it afterwards. If, for instance, it is applied to engaging labourers to drain fields, there are heavier crops for ever afterwards. The essential quality of savings is that they are applied, as capital, to increased production. Savings, hoarded in the form of coin, are not true savings, they are suspensions of wealth, as if stored in a lumber room. To erect a stately mansion, to lay out ornamental gardens, to build magnificent yachts, is not saving. Merely storing up is not saving`; the things saved must be actually applied to enlarge industry and augment its products if they are to be capital.

But a nation may become poorer as well as richer. If it loses merely what it would have consumed in enjoyment, but, if at the same time, its capital, all its machinery, men and things, for producing, are untouched, it has lived harder for the time, but is not really poorer. What is called a commercial depression is something different from this; it is the result of a country having lost a portion of its means of making wealth. This loss has been brought about by a process which is the very opposite of saving; it has consumed more than it has produced, the balance is on the wrong side, it has less capital, and consequently can make less.

This is a matter of such supreme importance to the welfare of mankind, it so deeply concerns the happiness of nations and of individuals at all times, their trade and their prosperity, that it will be profitable to dwell a little longer on the mechanism of production.

Production, we have seen, is effected by the employment of capital, and its essential characteristic is to replace with new wealth what has been destroyed in making. If then, nations are not to grow poorer, they must keep up their ability to produce, they must maintain the amount of their capital, for capital is their working power. A diminished amount of capital if rendered more efficient, as by the substitution of improved machinery, would, of course, be equivalent to the larger stock previously employed. If, at the year's end, an account of stock is taken, supposing the nation not to have gone back, it will be found that every one has been maintained in the mode of life he adopted, and,which is the essential point-that capital, its materials,

tools, and support for labourers, is fully as capable of making as before. But capital may have done more. It may have sustained every income, and yielded every wage and profit, and in addition have an increased quantity of wealth to exhibit. Besides keeping up the stock of things at the former level, it may have a number of newly drained fields, coal mines just opened, railways constructed and about to set to work, fresh factories built, a larger stock of food for the coming year in addition. All this machinery for becoming richer and better off will have been provided out of the surplus gained during the year by consuming less than was made. There will be the means of maintaining more people, or of procuring more enjoyments for a stationary population.

If the opposite state of wealth arises, whether from the action of the season or of war, or interruption of industry, or excess of railway making, or, which is the great point to notice because it is within man's own control, by indulging in enjoyments beyond income, the nation-to use a common phrase-will have eaten into its capital, impoverishment will have been incurred at the cost of capital. A part of the things destined to keep up the national production will have been destroyed unproductively, and not replaced. There will be fewer things made, because the means for making will have been smaller; the nation will be poorer. If a people were to set to work to eat and consume everything that is in the country, it might enjoy unparalleled abundance for one or two years, and then it would starve.

It were

This analysis furnishes much instruction. well if public journals, men of business, the Stock Ex

change, and even economists, would be at the pains to gather it.

I. We learn, in the first place, what income is. It is most important to understand this clearly. Income is generally supposed to consist of money. It is always expressed in money. Profits, wages, salaries of all kinds are reckoned in money. All purchases are supposed to be made with money. Every one lays down that he has so much money to spend. Thus money hides the real facts which occur. Now income is not money. It is a pure delusion to suppose that income is money. Even where income is received in money, or wages, the true income is what the wages buy in the shops; the real wages, in contradistinction to what economists call nominal wages, that is, money. A labourer gets much or little exactly in proportion to what he can procure with his wages in the shops. In the same way, the great landowner's income is not money, for he may very probably not receive a pound of it in cash, but his share of the cattle, corn, and hay grown on his farms. The tenants sell these things for him, and pay their rents with cheques. He reaches what his income brings him when he completes the exchange by purchasing with these cheques what he desires.

It is the same with profits. A merchant makes a profit of £1000 on a cargo of cotton. He lives upon these pounds. Is not the money specifically his income? No, for very probably he has never touched a shilling from these pounds in money. He received them in cheques or bills, and cheques and bills are not money, but only promises to pay money. These promises, written on paper, perform for him exactly