The length of time and the number of operations that any piece of capital good lasts are of prime importance relative to its replacement fund, which is the capital that must be accumulated to provide for wear and tear. Let us suppose that a factory equipped with ten machines consumes five tons of coal daily. At the close of the day the five tons of coal, having been consumed, will need to be entirely replaced. The machines, on the other hand, possessing a relatively high degree of fixity, are ready for the next day's work. Thus, day after day the coal supply is replenished, while the machines with only minor repairs may last for years. Each day the enterpriser finds it necessary to set aside a replacement fund large enough to buy five tons of coal, while the replacement fund necessary to cover the wear and tear of each machine may be but a few cents. If we should view the whole factory, we would find that every piece of equipment and bit of raw material consumed in making finished products are more or less fixed in their nature and more or less circulating, some being consumed with a single operation, some lasting for years, but all provided for in the replacement fund.

It is well to remember in this connection that it is the replacement fund which permits the shifting of capital from one group of industries to another. We have already noticed that the American industrial revolution was characterized by a change from commerce to manufactures. Obviously, the owners of ships could not utilize such forms of capital goods as hulks, sails, masts, and anchors in the making of cloth. They did, however, have available replacement funds which they had accumulated in the form of money to replace the vessels as they became unseaworthy. Thus, the owner of an old ship that was almost worn out had a relatively large replacement fund, while at the other extreme was the owner whose vessel had not even yet made its maiden voyage. The enterpriser, therefore, has, or ought to have, a replacement fund at all times, its relative size depending, among other things, on the condition of his equipment - that is, as business men say, on the state of repairs.