Fritz Machlup, Strategic Factors in Balance of Payments Adjustment: Comment, The Review of Economics and Statistics, Vol. 40, No. 1, Part 2. Problems in International Economics (Feb., 1958), pp. 137-140

C ONCEPTS and terms, in every-day use as 'A well as in scientific use, have often peculiar histories. A concept is usually an adaptation of an old one which suggests itself to observers of a phenomenon as they attempt its interpretation. If the new concept is still unnamed, they name it after some other idea that appears to them as an appropriate simile or metaphor. The chosen name, however, may suggest to others some slightly different associations and, therefore, altered concepts. Moreover, changes of the frame of reference, or of the angle from which the phenomenon is looked upon, may require remodeling of a concept. But the remodeled concept may still pass under the old name. Other observers come along, dislike the name, and suggest different ones. Synonyms develop. Most or all of the terms which are then used for the growing family of concepts have had previous uses, and many of the terms are again put to new uses. Homonyms and equivocations grow in number. Makers of dictionaries must list more and more meanings under each name and must give more and more synonyms for each meaning. To complain about the continuous change of concepts and terms, about the conversion of ideas and names, is to misunderstand the nature of growth of a body of knowledge at least in the social sciences. Attempts to halt the development (for example, through the establishment of committees on nomenclature and terminology) are in vain and often deplorable. To be sure, wilful innovators sometimes suggest change merely for the sake of change. If concepts and terms shift like women's fashions, the change may confuse discussion and become a nuisance.' But otherwise. we must accept it as a fact that new problems and new treatments of old problems may require changes in concepts and in terms. When the family of related concepts related by meaning or by name or both is large, an occasional examination of the family record and a probing of the relationships is helpful. Old confusions may be clarified, and new confusions avoided, through such an examination. And better understanding of the concepts usually results in better understanding of the phenomena whose explanation they are to serve. This article will survey and briefly analyze the various concepts connoted by the term forced saving, and the various terms assigned to its basic idea.

THE Austrian theory of economics has often been reproached with over-abstractness and remoteness from real life. The Austrian theory of consumption of capital is, unfortunately, more than an unreal construction based upon unreal assumptions, more than a plaything for the mental gymnastics of scholars; it is an attempt to explain very real facts. The discussion of capital consumption and economic decline was provoked by the course of events observed in Austria during the war, during the post-war inflation, and during the years of social reform.2 Physical destruction and value destruction of capital. What is the connection between physical destruction and value destruction of capital? The two things do not always run parallel. When capital equipment is physically destroyed say by war, by fire, by wear and tear its value is gone simultaneously. But the, loss in value might occur before the capital goods are physically impaired. Equipment might be rendered valueless by certain economic changes. It is then, so to speak, designated for progressive dilapidation; it does not pay to maintain equipment of no value; hence the physical destruction will follow the value destruction after a considerable lag. There is a case in which the capital values in terms of money decrease without any physical capital destruction following: that of the fall in costs of reproduction. For some purposes the statistician who records values of capital will find it adequate to correct the figures for changes in costs of reproduction. Sources of information about changes in capital stock. In a growing economy, factual information about capital formation is obtained in three ways: (i) by figures concerning new physical equipment, especially activity in the construction industries, (2) by figures concerning the supply of money capital from the various sources, and (3) by figures concerning the valuation of the existing capital of corporations. For a declining economy only the third way seems practicable. The difference between the valuation of capital at different points of time is the measure for the decline. The reasons for such a decline are to be sought either in physical destruction of capital, or in depreciation by changes in the horizontal economic structure such as changes in demand, or in the consumption of capital. The Austrian Institut fur Konjunkturforschung (Institute for Business Cycle Research) undertook such a comparison of the valuation of stocks over a period of i8 years. A report was published by Dr. Oskar Morgenstern in the Zeitschrift fi4r National5konomie. Some of the results are shown on Table I (page I5). The valuation arrived at for corporation capital in Austria in I9I3 is compared in the table with the valuation in I930. Both sums were obtained by combining the capital values of all Austrian corporations the shares of which were listed on the Viennese stock exchange. The value of capital of each corporation was calculated by multiplying the number of shares issued by the average price during the whole year. Corporations which existed in I9I3 but had disappeared in I930 were not included in either sum. Only the surviving firms or merged firms were taken into account. This procedure concealed the loss of capital of corporations which disappeared completely, but it was imposed by the fact that some corporations had moved, following the dismemberment of the Austrian monarchy, from Vienna into the capitals of the new nations. The investigation was therefore confined to all Austrian corporations which existed in io9o. Those which had been founded later 1 This article is based upon an address delivered at a meeting of the Boston Chapter of the American Statistical Association on December 3, I934. 2 Literature: Professor Ludwig v. Mises was the first, so far as I know, to point to the phenomenon of the consumption of capital. As a member of a committee appointed by the Austrian Government (including two other committeemen, Dr. Dollfuss and Dr. Palla) he also emphasized comprehensive factual information. See Bericht uiber die Ursachen der wirtschaftliclsen Schiwierigheiten in Oesterreich (Vienna, I93I). An important investigation of the capital of Austrian corporations was made by the Institut fur Konjunkturforschung. See Oskar Morgenstern, Kapitalund Kurswertanderungen der an der Wiener B6rse notierten 6sterreichischen Aktiengesellschaften I9I3 bis I930, Zeitschrift far Nationalikonomie, iII (I932). For theoretical expositions see F. A. v. Hayek, Kapitalaufzehrung, Weltwirtschaftliches Archiv, xxxvi (I932), and Erich Schiff, Kapitalbildung und Kapitalaufzelrung im Konjunkturverlauf (Vienna, I933). For a short survey on the Austrian experience see Nicholas Kaldor, The Economic Situation of Austria, Harvard Business Review, xi (I932).