W.E.A.

Hawera Star, Volume XLVIII, 18 June 1924, Page 10

W.E.A.

LECTURE OX ‘ 1 CAPITAL. ’ ’ “Capital: Its Supply apd Organisation,” was the subject dealt with by the tutor, Mr W. A. Sheat, 8.A., LL.B., at the weekly meeting of the Hawera W. E. A. class last week. Tlie term “capital” was. used by economists, said the lecturer, to describe that portion of the wealth of a community which was used to produce 111 ore wealth in the future as distinct from the portion of the community’s wealth that was intended for the satisfaction of present needs or, more briefly, for consumption. Much of the discussion that centred round the term in popular controversy was due to a confusion between capital in the individual sense and capital in the social sense, and also to a confusion, in many cases deliberate, between the two terms “ capital” and * 1 capitalism. ” With regard to the first source of confusion to the individual anything was generally regarded as “capital” which yielded him an income, but to the community only the actual forms of wealth that contributed to future production was capital. Capital was the produced instruments of production. The distinction between “capital” and “capitalism” was also one that must be carefully made. “Capitalism” was a system of economic organisation, the main feutiue of which was the private ownership of “capital.” “Capital” had been a factor in production before the era of modern capitalism, and it was difficult to. imagine production being carried on without capital. Production was spread over time in any society advanced beyond the most primitive savagery. One liad only to attempt in the case of any simple article of general use to trace the history of its production, and it would be found impossible to trace all the productive operations that had contributed either directly or indirectly to the finished commodity. In modern times the most significant aspect of this element of time in production was found in the increasing use of machinery and .plant of all sorts. One simple fact illustrated how marked the tendency towards the greater use of plant hail been in the period since the industrial revolution began. The world’s annual production of iron had multiplied tenfold in the last half-century, and sixtyfold in the last century. Iron was used almost exclusively as an instrument of produetion, and not as an. article for consumption. It was the foundation of the material apparatus of civilisation. It meant tools, plant and machinery. The enormous quantities of it that had been turned out in modern times signified aii enormous increase in the production of elaborate and expensive instruments of wealth production. In. order that fliere should be capital there must have beeii at some previous period a surplus over what was required for the satisfaction of present needs. In the earliest stages of the formation of capital that fact showed itself directly in the shape of spare time. The first rude implements must, have been fashioned during hours which did not need to be given to the satisfaction of imperative wants. The choice even under the simplest conditions was between the present and the future—between idleness or amusement foil the moment and provision, for future needs. Capital was spoken of as “made” or “created,” and also as being “saved” or “accumulated.” Both expressions were accurate. The actual instruments of production were made by one set of persons, who were not consciously providing for the future, while the setting aside of the surplus was done by another set of people, the savers. The mechanism of investment was necessary to bring together these two sets of people so that capital would become available for productive use. A chain of middlemen commonly connected the individual who saved with the individual who used capital to set industrial activity on foot in some- direction. Bankers were the typical intermediaries in this connection, their essential function being to direct the surplus stream of money income into one direction or another, or to put into the control of one or other group of employers the means of setting industrial activity on foot. During the last half-century there had been an immense increase in the amount of savings and investment by persons.Avho themselves were neither desirous nor competent to direet actively the. operations of production, so that the power of the financial middleman over industry as a whole had greatly increased. Not only the creation of capital involved a sacrifice of present power of consumption to the needs of future production. Its maintenance did also. A constant exercise of the saving habit was therefore necessary if a community Avas not to “live on its capital,” which it could really only do by a failure to maintain the existing equipment of industry. Saving did not, in every case, however, lead to investment. The savings might be. hoarded, though this was becoming more rare. But saving followed by investment did not necessarily lead to tlm creation of capital. All that the individual investor was concerned with in general was the safety of his principal ami some return on it in the way of interest. A spendthrift then who could give security obtained a loan as freely as the business man who proposed to put up a factory. Such a loan had nothing to do with the creation of capital since it merely transferred the power of present consumption and did not further future production. Such borrowing was fortunately rare in developed countries, though another class of borrowing that also did not lead to the creation of capital was becoming an item of great economic significance, namely, Government borrowing for war purposes. The lecturer also dealt fully with the question of the capitalisation of industry and the inflation of capital, quoting figures to show liow some leading industries were suffering from “over-capitalisutiou.” The dead-wc-ight of inflated capital had dragged some industries steadily downwards by its action and reaction at every, stage from the production of the raw material to the finished products, and was one of the main elements of instability in the present • economic situation.