In order to understand this, we must turn our attention again to capital, as something distinct and detached from the human efforts that have produced it; and we shall find that the conception of it which dominated the thought of Marx, and that which dominates the thought of the orthodox school of economists, either excludes altogether, or fails to reveal the nature of, that particular force and function of it which, in the modern world, are fundamental.

Capital is divided traditionally into two kinds, technically called “fixed” and “circulating.”  By fixed capital, which is what Marx had mainly in view, is meant machinery, and the works and structures connected with it; and it is called “fixed” on account of its comparative permanence.  By circulating capital is meant, as Adam Smith puts it, any stock of those consumable commodities which, produced by the aid of machinery, the merchant or the store-keeper buys in order to sell them at a profit; and it is called “circulating” because the commodities which are sold to-day are replaced by new ones of an equivalent kind to-morrow.

Now, as to fixed capital, or the endlessly elaborated machinery of the modern world, we have seen already that this is, in its distinctive features, not, as Marx declared it to be, a crystallisation of labour, but a crystallisation of the ability by which labour has been directed; but this revised explanation tells us nothing of the means by which the direction is accomplished.  Still less is any light thrown on the question by the nature of circulating capital, as Adam Smith understands it.

The kind of capital which alone concerns us here is a kind which resembles circulating capital in respect of its material form, and is often indeed in this respect identical with it; but it differs from circulating capital in respect of the use made of it.  Such capital we may call wage-capital.  Wage-capital, although in practice it disguises itself under the form of money, is essentially a stock of goods which are the daily necessaries of life, but which, instead of being sold to the public, like the goods of the store-keeper, at a profit, are distributed by their possessor among a special group of labourers on conditions.  The first of these is naturally that the labourers do work of some sort.  The second condition, and the one that concerns us here, is that, besides doing work of some sort, each labourer shall do the work which the distributer of the goods prescribes to him.

Here we have before us the means by which, in the modern world, the ability of the few directs the labour of the many; and, in proportion to the quality and intensity of the directive powers that are exercised, adds to the value of the results which this labour would have produced otherwise.  Thus in wage-capital we have the capital of the modern world in what dynamically is its primary and parent form—­a kind of capital which improved machinery is always tending to augment, but of whose use the machinery itself, its renewal, and its continued improvement, are the consequences.