VII. Capital and the "Subsistence Fund"

CHAPTER VII CAPITAL AND THE "SUBSISTENCE FUND" WE must return now to the considerations from which we started in Chapter V. The significance of the various forms of the productivity of investment which we dis cussed in the last chapter is, as we have The relallon between seen that the existence of a stock of re-the stock of capital , and current Investsources of limited durability enables us to ment keep income permanently above the level that could be secured by the direct use of current pure input. It does so by providing income during the time that we have to wait for the return of the input that is being currently invested. But it is important, even at this early stage of the exposition, that we should not unduly simplify the relationship. between the stock of nonpermanent resources and the possible range of investment periods. The very expressive term" subsistence fund" which has been used to describe this function of the stock of nonpermanent resources is apt to be misleading in a number of ways. It is of course not a stock of actual means of subsistence, but only a stock of resources which can be turned into means of subsistence, i.e. into consumers' goods. l The 1 N. W. Senior was again the first person until comparatively recent times who saw this connection at all clearly. "Nor is it absolutely necessary", he writes (Political Ecorwmy, 1836, pp. 78-79), "though if Adam Smith's words were taken literally, such a necessity might be inferred, that, before a man dedicates himself to a peculiar brand of production, a stock of goods should be stored up to supply him with Ais subsistence and materials and tools, till his own product has been completed and Bold. That he must be kept supplied with these articles is true; but they need not have been stored up before he first sets to work, they may have been produced while his work is in progress. . . .