Wednesday, 19 September 2012

What is Capital?

Since the onset of the Industrial Revolution, industry has been governed by the profit motive, that is, by production for the sake of profit. Throughout the twentieth century the most profitable form of production has been the manufacture of armaments for export. There has been a constant development of weapons, fighter aircraft, rockets and other delivery systems, as salesmen equip both sides in an actual or potential conflict. Good wages and salaries are paid to the workers who design, make, market and use weapons. All this is registered as positive economic growth by the tenured orthodox economist.

In 1917, during the First World War about a century ago, A.R. Orage, Guild Socialist editor of The New Age, wrote his An Alphabet of Economics. He sought to clarify how capitalism works through the wages system. This is what he had to say about “capital”.

capital.—If Land can be said to be the elemental tool by the proper use of which Man can produce articles of utility (for his own consumption or for exchange or as means to further production), Capital may be said to consist of man-made tools or, as we should prefer to say, of implements. A plough is an implement of production, while the land through which it is driven is an instrument of production. A plough thus belongs to the class of Capital tools, while the land is an elemental tool. A fishing-boat, again, is a man-made implement for the production of fish from the sea. It is therefore a Capital tool, while the sea itself is an elemental tool. But these simple man-made tools are only elementary forms of Capital. Man is the tool-making as well as the tool-using creature. He has made many elaborate tools for the production of wealth. Not only a plough is a tool, but the road that leads to the field in which it is used, the granary in which the corn is stored, the factory in which the plough is made, and, finally, the whole created system by means of which the plough is brought to the field and the corn to the factory, are tools. The sum total of man-made devices for pro­ducing wealth from the elemental tools—the sum total, let us say, of secondary tools, if we call Land the primary tool—constitutes the first form of Capital or what is usually called Fixed Capital. Even this, however, does not exhaust the forms of Capital. For Capital consists not only of tools visible and tangible; but, since it is man-made, it may equally well consist of whatever man can count upon as certain to become visible. Thus a plough is a tool visible and tangible, but it is obviously of no use unless it is believed that men can and will use it and that access to the land can be found for it. But for this belief or Credit the plough would be useless. Capital thus consists not only of the actual tools, but of the Credit men can establish for themselves that the tools will be usable and will be used. Most capitalists deal mainly in this credit rather than in the actual tools concerning which the credit exists. This form of Capital is an I.O.U., backed by all the existing tools and endorsed by the tool-users. It is their credited promise to produce what they undertake to produce: and it may be strictly defined as the latent usability of the existing implements of production, given the will of the labourers to use them. (A.R. Orage, An Alphabet of Economics, 1917, p7-9.)

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