ALLAMA IQBAL’S CONCEPT OF CAPITALAS A FACTOR OF PRODUCTION
Translated from Urdu “ILM-UL-IQTISAD”
By: Abbas Ali
During the initial stages of human civilization, capital was nonexistent. There were only two resources to produce wealth: labor and land. However, in the current system of civilization, capital is as important as other natural resources like labor and land to produce wealth. Therefore, the production of wealth is impossible until some portion of the current consumption is saved to be used for further production. Hence, in the current system of civilization, the capital of a country is that part of its wealth that is kept for the further production of wealth. The part of the wealth of a country that is utilized for the purposes of luxuries or to produce luxuries is prima facie profit for the capitalist, but its resultant effect is not favorable for the national wealth. Therefore, in accordance with the principles of economics, we cannot say that part of the national wealth has been utilized as capital. On the contrary, it can be termed non-profitable. It is subject to the condition that it is undoubtedly believed and known that the commodities that are produced or bought with the help of wealth are really counted among luxuries. In short, capital is the result of saving and points to the inexpensiveness and economical behavior of the capitalist.
Some authors opine that the climate of a country, to the extent it helps in the further production of wealth, is also part of the capital of that country. However, because wealth is a commodity carrying a definite value during exchange, useful natural resources of a country, e.g., its climate or geographical location, etc., cannot be considered included in the capital of that country, although they are helpful in the production of wealth. The reality of capital can be explained with the help of the following example:
Suppose a human tribe settles on the bank of a sea and sustains itself on its fish intake. During the period when the production of fish is abundant, they live happily; however, when the situation is reversed, they face starvation. Now, assume that among them, an individual stores some portion of fish for a comparatively richer life. Although it is a store of wealth, only its use will determine whether it is capital or not. If it is used unprofitably, then it would not be consumed as capital. However, if it is used for further production only, then it would be termed “capital. Supposing during the days of draught this man sets out towards the forest along with his stock and, with leisure at his disposal, manufactures a boat with the help of which he gets access to the far-off parts of the ocean where, as compared to the shore, he can find more fish. In this case, the boat will be termed “capital and the man “capitalist.
Now three ways are open for this man:
First: he himself would use his boat, and with the income from fishing, he could buy the labor of other human beings against a specific wage. In this way, he can live comfortably.
Second: he will rent out his boat to some other person and relax at his home.
Third: or he will rent out his boat to some other person and become busy manufacturing more boats.
Supposing the boat maker opts for the third option, he gets to know that there are a lot of customers for his skill. As he manufactures more boats, he will gain more expertise in the trade, and with the passage of time, he will be able to employ other human beings on a contract basis. Because of the huge number of customers, he will not be able to manufacture that many boats alone. Now, observing his growth, others will get inspired to manufacture boats, and there will be a sort of business rivalry among the boat makers, and the rate of profit will decrease. Ultimately, the situation will reach the point where there will be no more demand for boats. Due to this reason and taking into consideration the decrease in profits, the capitalist will leave boat making and start investing their capital in construction or will supply other necessities to the tribe. In this manner, as the needs of the tribe keep on increasing, or, in other words, as the mentioned tribe advances in culture and civilization, its capital will keep on changing its appearance.
In the above-mentioned example, initially capital appeared in the form of treasure because it was necessary for the boat maker during his boat-making days to arrange for his livelihood. Afterwards, capital changed its appearance in the form of boat-making tools and ultimately transformed into those intermediate goods needed for the manufacturing of boats. In short, we can say that the capital of a nation is that part of the wealth of that nation that is used to produce new shapes of wealth and which can be divided with the help of the following method:
- That capital is used for the livelihood of the capitalist during the period of further production.
- Tools such as gears, nails, etc. for different trades
- Intermediate goods, wherein all the shapes of capital are included, other than economic goods and tools.
In its former shape, it is known as a “circular capital because it transforms from one shape to another. For example, the wages of the laborers change into food, which further transforms into the strength of their bodies. The capital in the later two shapes is known as the fixed capital, because that capital is permanent and takes an unchangeable shape, with the help of which further wealth is produced gradually. Although, in the ordinary stages of culture and civilization, capital is used in these shapes, in the civilized countries of present times, besides material goods, trustworthiness and discrete rights, for example, the right to litigation, etc., are also used as capital. In the present time, thousands of businesspeople buy goods for business based on their personal trustworthiness and earn profit upon the sale of those goods. According to this hypothesis, a major part of present-day business is related to the sale and purchase of litigation rights and other rights like copyright, etc.
There are several countries endowed with other types of manufacturing and handicrafts by nature. But their business cannot flourish due to scarcity or the absence of capital. Our Hindustan is facing the same problem. Most of our business is in the hands of western businesspeople, who earn huge profits by investing their capital in the different branches of Hindustani business. However, it should not mislead us to understand that the investment by foreign businesspeople in our country is detrimental to us. Undoubtedly, if we had our own capital, the profit accrued from it, which in the present situation goes into the hands of foreign business people, would have remained in our country. But it is obvious that with the help of the capital of these western businesspeople, the resources to produce indigo, grain, sugar, coffee, and gold have immensely developed as compared to the past. In other words, with their activities and courage, they have opened the doors of our hidden treasures, opening new roads for our future business, subject to the condition that we have the requisite capital. It is obvious from this statement how important capital is for the development of resources for production, handicrafts, and the establishment of different branches of business. Therefore, we should inquire about the causes with the help of which it increases.
- It has already been stated that capital is the result of saving and implies the austerity of the capitalist. Therefore, education and other situations that are helpful in making the people of a country austere are the first causes of an increase in capital. The propensity to save depends on the protection of people’s rights and fluctuations in the rate of interest. However, for the nations that consider interest against religion, this cause cannot affect them.
- An increase in the quantity of wealth produced also increases the quantity of capital. If forty thousand mounds of grain are produced in a certain country and out of them ten thousand mounds are added as capital, obviously, in the case of the production of sixty thousand mounds of grain, a larger quantity can be added as capital.
- Business and exchange also increase the quantity of capital because, in both cases, the quantity of production of wealth increases, which eventually increases the quantity of capital.