Tuesday, 29 November 2016

What does the "capital" mean in "capitalism"?

Just thinking out loud, at its core, doesn't "capital" really mean "man-made labour saving devices which are of overall benefit to humanity"?

That enables more people to produce more stuff and thus enjoy their lives more to the overall benefit of everybody.

The notion that capitalism means that each individual must build up "capital" and whoever ends up with the most is the winner is nonsense; capitalism would benefit everybody and should not necessarily lead to inequality - apart from the fact that people have different talents and some are luckier than others.

The concepts of saving up during the good times and drawing on the savings in the bad times pre-dates capitalism and is always a good idea on an individual level. As a society, there is no point trying to build up capital faster than new labour saving devices can be developed.

And similarly, anything that is not actually a man-made labour saving device owned by the person who made it, or paid fair value for it, is not capital. Land, patents, monopolies etc are not capital. They are either natural resources or government made; and if the landowner or monopoly holder does not pay the government fair value for the land or the monopoly, that makes them even less like capital as they are of overall detriment to society.
As an illustration:

Consider a farming community who dig the earth with sticks. That's an agrarian society, but they will still save up grain after the harvest, store it and eke it out over the rest of the year.

Some enterprising people work out how to make iron digging implements. So now a couple of people in the village are blacksmiths and the rest are still farmers, but more productive farmers. Each farmer has his own spades and hoes (capital) and the blacksmith has a kiln and tools (capital) for making the spades and hoes.

So the blacksmith has more 'capital' but unless he keeps his technology secret or has his trade protected by guilds and government certification (rent seeking/monopoly behaviour), any excess income he makes would be competed away when his apprentices leave and set up their own business, so everybody in the village ends up with a similar but larger income than before.

If technology does not move on, there is no point everybody trying to build up capital. Why should the farmers buy more spades than they need or the blacksmith produce them? Pointless. There is only a point in building up more capital when somebody invents hose pipes or horse drawn ploughs or something.

If there is a self-appointed landowner who sees that output has increased and his villeins now are making a surplus, he can help himself to that surplus in higher rents. That's where it starts to go wrong, especially if you fall for the lie that land is capital (man made improvements to land, like walls, drainage, good composting etc clearly are "capital" for these purposes, that's quite distinct to what nature made).

In extremis, landowners drive people off the land and they have no choice but to work in factories. The factory as such is a vital part of capitalism, and with equal bargaining power, workers would get a decent wage and the factory owner would get a decent return on his capital. Hooray, everybody wins. But Victorian factory owners could pay ridiculously low wages and live in opulence because the landless peasants, faced with a choice of starving in the countryside or working for a pittance in the towns preferred to take the pittance.

And so on and so forth.


Dinero said...

My answer. In this context, the capital in capitalism is money, including borrowed, and the "ism" in capitalism , is where a part of the countries economy can be controlled by the holders of it.

mombers said...

'If land is expensive, labour is cheap'
Anyone who harps on about the 'free market' being able to sort out housing ignores a crucial fact about the housing market - you cannot opt out of it like you can just about any other one. If you don't want to eat bread, drive a car you can completely withdraw and eat something else or walk/cycle/get the bus/etc. There is no substitute for land and no way to live without it.

Lola said...

Yes. And you can only form 'capital' when you have strong property rights. Property in the broadest sense. And strong property rights are de facto protected by the 'state' by providing for defence against external threats and a system of justice for internal threats. So the primary beneficiaries of the state are landowners with everyone else creating the wealth (i.e. profits) that always ends up as higher rents. The question simply is what is the best way to finance these two primary responsibilities? I'll give you one guess.

Bayard said...

"What does the "capital" mean in "capitalism"?"

Well, AFAICS, from a knowledge of history, is that "capitalism" isn't really an "ism" at all, not in the way that socialism or communism are isms, i.e. it is not an external code of economic behaviour that a society consciously follows. Capitalism is what you get when you don't apply any other "ism", i.e. it is the economic rest state of human society.

Also, AFAICS, the "capital" in "capitalism" is wealth or property (in the non-land sense of the word) and a lot of that wealth takes the form of money, i.e. unredeemed credit, as well as the "useful stuff" that Mark outlines above.

Mark Wadsworth said...

Din, that's what they pretend. But you could wipe out all money and all debts at the stroke of a pen, if you let people keep land tax free and let monopolists keep their monopoly privileges tax free, within a few years, the old inequality would be reinstated.

M, agreed.

L, I'll give you one answer.

B, no of course it isn't an -ism, it is human nature. But man-made laws can distort the expected overall beneficial outcome.

As a belief system, there is this weird worship of money as if it were wealth in itself. It is not, it is a measurement of indebtedness and does not represent net wealth at all.

There's nothing wrong with that as long as some people are saving and other people are investing or smoothing consumption, but that is a natural tendency and pre-dates capitalism, that's just human nature. Money is just a way of measuring it.

Ben Jamin' said...

Capitalism = resources distributed by free markets.

But markets can only exist within the correct framework of property rights else it become unfair and inefficient.

Thus we have three different sets of property rights we can match Capitalism with in order to produce optimal resource allocation.

1. Feudalism
2. Socialism
3. Geoism

We've tried and are currently testing combinations of mainly 1&2. Whereas for markets to be fair and efficient we really only want 3.

Lola said...

BJ. I would agree in principle. I think of the current status quo as 'neo-feudalism' through debt slavery as opposed to actual slavery. The debt is incurred by the populace to pay rents to the latest in a long line of extractive 'elites'. These succession of extractive elites is like the hydra or a virus that mutates and learns. The current crop have tried the 'client state' approach. That is the classic thing of concentrating benefits and distributing costs whilst taking a nice slice off the top.

I am a bit niggled by this.

Ben Jamin' said...

Lola. I agree and you're right to be niggled.

Socialists are tilting at windmills. What they think of, and are told is Capitalism, is as you say, an evolved and democratized Feudalism.

Socialists could easily realise their ideal of greater equality and reductions in poverty by taking up the mantle of "True Capitalists" by matching it with Geoism. Turning the tables on the Faux-Libs and leaving them exposed as the Fascists they are.

But they haven't the brains or inclination (except the LLC perhaps). As I've said before, I strongly suspect Socialism attracts more control freaks than those interested in economic justice.

In that sense they are every bit as bad as the Faux-Libs.

Bog knows what its going to take for people to even consider looking at option 3. 200 years of epic fail so far.

Dinero said...
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Dinero said...
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Dinero said...

- The Blacksmith

in the specific case of where excess income is competed away by competition, what establishes the price the blacksmith charges his customers.

Bayard said...

"As I've said before, I strongly suspect Socialism attracts more control freaks than those interested in economic justice."

That's an interesting point. Has there ever been a society that embraced Socialism without the control freakery?

Lola said...

B@20:49. By definition Socialism IS control freakery.

Lola said...

B - more evidence:

The Fed keeps a hawk’s eye on wages, especially in the lower 80% of the workers. Its goal is to provide cheap labor to corporate America. And when wage inflation ticks up, the Fed can get quite radical about rate increases.

But because cheap labor makes for bad consumers, the Fed is trying to make cheap debt available to them, turning them into debt slaves, problem solved, for the moment.

From here: http://wolfstreet.com/2015/12/27/i-was-asked-whatever-happened-to-inflation-after-all-this-money-printing/

DBC Reed said...

I have just been reading a biography of Margaret Bondfield first female minister in UK: she left school at 14 in the 1880's and became a union organiser when she went to work in live-in shops of the era when they had, thanks to laissez faire and electric lighting extended their opening hours late into the evening. She worked eighty hours a week, lived in unheated rooms with TB sufferer amid what she called "unnatural vice".She had to run across town at end of day to get a public bath: 15 minutes to get undressed, washed and out again. Despite the fact that they were unwashed and underpaid, the other women were loth to join a union, considering themselves a cut above it.
I would describe her circumstances as complete control freakery . Very soon her male workmates were dragooned into the forces to get their balls blown off to defend this "way of life".
With prodigious effort compiling surveys and organising when she a became a very young full-time, ill paid union official she helped ameliorate shop-workers' conditions to the point that the live-in system went into retreat.
No doubt you feel that this girl was a control freak who prevented people enjoying the ample opportunities to work 12hrs a day without sitting down (chairs behind counters were her idea)and lived out an evil-smelling fantasy that they were living a glamorous life.
From the football scandal it is clear that even in a fairly laid back
leisure industry there is still a need for what you call control freakery.

Lola said...


1. You know full well that I do not support conscription.
2. I repeat, by definition socialism IS control freakery. That is it denies property rights and works by coercion.
3. All power to Ms Bondfield elbow in arguing for improved working conditions. It is a mistake to confuse that with 'socialism'.
4. You also know that I object to all 'special privileges' whether they be for bankers, landowners or unions.
5. The football scandal like the BBC scandal or that NHS hospital that killed thousands purely illustrates the collapse in personal responsibility. IMHO probably as a result of socialism, or at least welfarism leading to 'oh. it's someone else's problem'. 'The government will sort it out'. Yeah. Riiiight.

DBC Reed said...

As a matter of fact I am in favour of fully private sector warfare or mercenary armies: there is always the possibility of bribing the other side to join you or stop fighting . Clive (presumably that's a surname) won a stunning victory at Plassey simply by using the East India Company's money to get part of the enemy army to sit it out.
The mercenary system also makes clear who is a civilian.
The problem with the big citizen army is bribing enough support.The French Revolutionary armies seem to have invented the concept and enlisted support by distributing land taken from aristocrat shitheads.
Perhaps the answer is to distribute a gigantic (National) Citizens (Dividend) Income and enlist support for that.
3 Margaret Bondfield made it absolutely clear that improved working conditions could only come with a total change to society: she envisaged in about 1900 a norm of both men and women both working and looking after the domestic arrangements jointly .At the time the "shallow snobbery", as she called it of shop-girls who wouldn't join the union was based on the assumption that they would get married and "whisked away from all this".
2. This is so abstract as to amount to mere "reification". To deal with cases on the ground: Margaret Bondfield was for a time the wildly popular Northampton MP (She was fixed by the Zinoviev telegram along with other lefties).Northampton was leftwards inclined until recently when Conservative prats got in nationally and locally.The local Conservative wankers have now got themselves on the hook for a massive bribe scandal by which they gave businessmen £10 million to carry out improvements to the football ground which was built on the old council tip from new by the Socialists . This £10 million is untraceable: the local MP has gone to ground and is not talking to his fellow shysters in the Conservative Party.It is a fact,from knowing some of the old Labourites, that none of this would have happened with a Socialist "Control freak" council .
I am always astonished in talking to laissez fairites that they have had no experience of business dishonesty. My father,bless his soul, was ruined by industrial-scale sharp practice which saw our family lose many hundreds of thousands of pounds despite the efforts of the Fraud Squad!

Lola said...

@DBCR. And others have endured similar 'sharp practice' ruination at the hand of the 'state'....

Lola said...

DBCR. The Ghurkhas for example?

DBC Reed said...

@L I have given examples of private citizens and their representatives being swindled by businessmen: it is up to you to give examples of business people (not "classes" of people) being deliberately swindled by public servants.

Lola said...

DBCR - Oooo I can do better than that. How about all those people killed by the NHS? (PS. The NHS nearly, very nearly killed me). :-)

Lola said...

@DBCR Or. Government is mostly a de facto 'swindle'.

Look, you may not agree with this but we are far closer in outlook that you think.

We neither of us like coercion.
We don't like conscription. But are happy with mercenaries.
We neither of trust 'business', but both us do 'trust' business. I bet you 'trust' your butcher?
I think that there is a public good component to health and education. It's if you believe that just that I think like MW that is best funded by vouchers. And let schools get on with it. And as I understand you were a teacher you must be ready to educate children. So why isn't the other fellow?
And so on.

Trouble is, and I repeat - 'socialism IS coercion. It's in its manifesto. And it by definition denies property rights and therefore denies liberty.
And whilst I am a not socialist I am also a not Tory.
As are you.