Tuesday, March 17, 2015

What on Earth is Capital? (ii)

A previous post commented on the habit -- frequent among mainstream economists -- of focusing on the numerical/quantitative aspect of capital, to the exclusion of its qualitative aspects.

That’s why a fairly rich definition of capital, which I repeat here for emphasis:
"Capital. 1 Assets which are capable of generating income and which have themselves been produced. Capital is one of the four FACTORS OF PRODUCTION, and consists of the machines, plant and buildings that make production possible, but excludes raw materials, LAND and LABOUR. (…)
"2. In more general usage, any asset or stock of assets - financial or physical - capable of generating income." (Bannock, et al, 1992)
Shrinks to a list of easily quantifiable items:
“A firm uses a technology or production process to transform inputs or factors of production into outputs. Firms use many types of inputs. Most of these inputs can be grouped into three broad categories:
Capital (K): Long-lived inputs such as land, buildings (factories, stores), and equipment (machines, trucks).”
(…) (Perloff, 2004)
Note the loss of information: the first sentence in meaning #1 in the dictionary entry disappears; there’s no reference to production; you don't see the words “financial” or “physical”; land no longer is a separate “factor of production”.


One finds an understandable, but ultimately unfortunate, reaction to that in explanations like this, popular among some Marxists:
“Capital is not a thing; it is a social relationship. (…) Marx understood everything as a relationship/process, that is why he did not simply talk about labour as such, but rather the labour process/relation. Capital was not a thing for Marx, but rather a relationship.” (…) 
Just like Perloff's “capital items list”, the Marxist commentator focuses single-mindedly in one aspect of capital: Perloff has things easily quantifiable in mind (which we’ve seen is an error); perhaps to compensate for that error, the author of the Marxist explanation is fixated on unquantifiable things (for instance, social relationships/processes).

In other words, the popularised Marxist explanation seems to mean not so much “capital is not a thing; it is a social relationship” as “capital is not a thing; it is only a social relationship”: a mirror image of the mainstream partial view of capital.

But that cannot be what Marx thought.

Unlike many mainstream economists, Marx understood that there are subtleties in the definition of capital. To the ethical, legal and political dimensions (mentioned in the previous post) Marx added at least sociological and historical considerations: unlike capitalists, workers work in exchange for wages only since capitalist relations of production became widespread; they do so as a way to making a living; their views, behaviours, interests are conditioned by that fact and in this they differ from capitalists and other supposedly transient classes (like the lumpenproletariat).

Unlike the Marxist commentator, however, Marx did not deny capital had a quantifiable dimension. I will not advance any quote as evidence, but instead will offer a challenge: insert a “social relationship” in the denominator of Marx’s rate of profit. Until you can explain constant and variable capitals as anything other than quantitative measures, I’ll stick to my guns.


Bannock, G., R.E., B. and Evan, D. (1992). Capital. In: The Penguin Dictionary of Economics, 5th ed. London: Penguin Books Ltd., p.56.

Perloff, J. (2004). Microeconomics. 3rd ed. Boston: Pearson Addison Wesley, pp.150-151.

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