Nate Edenhofer
Department of Politics, University of California, Santa Cruz

What is ‘capital’? In all accounts capital seems related to the means of production. Yet there is a crucial distinction between neo-classical economics and Marxian political economy in how they use the term. This distinction rests on whether capital is attributed as purely the means of production (the neo-classical view), or as a social relation (the Marxian view).

Orthodox economics sees capital as simply the means of production. In any introductory, mainstream micro- or macro-economics course, capital is likely to be introduced as one of the four factors of production: land, labor, capital, and entrepreneurship. One economics text book defines it as “…the stock of equipment and structures used to produce goods and services” (Wessels 2006, 100). Capital in this definition remains a neutral entity, purely material or economic.

This is largely the understanding of Adam Smith. For Smith, individuals have their ‘stock,’ their property, and if they have enough saved, they may convert some of it into revenue: “His whole stock, therefore, is distinguished into two parts. That part which, he expects, is to afford him this revenue, is called his capital. The other is that which supplies his immediate consumption” (1776, 363). Seeking revenue from their capital portion of stock, someone may either invest it in fixed capital (improving land, buying equipment, etc.) or in circulatory capital (buying and selling for a profit). Yet how this is returned as revenue appears as natural, and without need for explaining, besides that fixed capital must eventually engage with circulatory capital for exchange if they ever hope to make any revenue.

Yet for Marx, capital retains a distinction beyond simply being the means of production, and instead is defined as a social relation. Like Smith, Marx understands that capital requires circulation to operate. Capital requires markets, where the value of commodities are realized in the process of exchange. Marx recognizes that commodities have both a use-value (their utility), and their value (the socially necessary labor required to create them), and this value is realized in exchange (their exchange value) (Marx 1867, chap. 1). That is, human labor creates commodities (C), whose values are exchanged into money (M) (as Marx says there is a ‘metamorphosis’), which turn back to commodities again as people secure what they need to survive in a society with a division of labor. This is represented as C-M-C, where through exchange the value of a producer moves from commodity and back to commoddity, or C-C. Yet Marx also notes that because money and commodities both are expressions of value, it is possible for money through exchange to buy commodities, resell, and to return back to money M-C-M, a process which only makes sense for the initial holder of money to put into exchange if they expect to receive more money. This is represented by M-C-M’, M’ equalling surplus value. This M-C-M’ is the “general formula for capital, in the form in which it appears directly in the sphere of circulation” (Marx 1867, 257). M-C-M’ is the formula for capital: money purchasing commodities to return with more money, in other words, value increasing its own value—M-M’. But to move past Smith and neo-classical economics, it is necessary to explain why this is a social relation.

First, the valorization of capital cannot occur only in exchange. Buying low and selling high will be balanced out into equilibrium eventually (Marx 1867, chap. 4). Instead, to get more value from capital can only occur through labor power, a commodity which produces more value than it takes to create. In other words, humans are capable of working longer than needed to produce enough to live. Because workers with their own means of production and reproduction might as well work as little as possible, this labor power is only available to capital as a commodity when workers do not control the means of production. This means that they must be forced to sell their labor. The worker must be doubly “free,” free to sell their labor power and free from means of production. (Marx 1867, 272–73). So capital represents and requires—definitionally for Marx—the exploitation of the laborer as the source of surplus value by the owner of the means of production. This is the capitalist, who is “capital personified…” whose aim is “the unceasing movement profitmaking” (Marx 1867, 254).

We can describe the development of capital as a social relation in the following steps:

• C-C⇒Exchange based in value. 
• C-M M-C⇒ Through money, the temporal and spatial aspects of exchange are set loose, allowing circulation.
• C-M-C ⇒ Use value oriented. Money as means of payment/exchange. Ends in consumption.  
• M-C-M ⇒ Exchange value oriented. Money as capital. Never ends. 
• M-C-M’ ⇒ M’=Surplus Value=Labor power commodity

What this means is that capital can take the material appearance of the means of production, but it is the social context that makes it capital. “A cotton-spinning jenny is a machine for spinning cotton . It becomes capital only in certain relations. Torn from these relationships it is no more capital than gold in itself is money or sugar the price of sugar” (Marx 1849, 207). The fact that capital appears in the form of commodities further shows the social relations, because for Marx commodities in exchange are a fetishized form of human labor being exchanged, because the value of all commodities are based in labor (Marx 1867, chap. 1). The labor in the commodities of the means of production continues to confront the labor commodity in the production process “It is only the domination of accumulated, past, materialised labour over direct, living labour that turns accumulated labour into capital” (Marx 1849, 207).

Understanding capital as a social relation is especially important when we consider the similarities between Marx, and Smith, and even Hayek (1945) on the division of labor and what Marx calls the social metabolism of society (Marx 1867, 198–99). All of these thinkers show that the division of labor has created a highly complex set of economic relations that create interdependencies throughout society. Yet the neoclassical economists only understand this process of exchanging commodities and deriving revenue from capital as the best way to run the economy. Here is Smith:

To maintain and augment the stock which may be reserved for immediate consumption is the sole end and purpose both of the fixed and circulating capitals. It is this stock which feeds, clothes, and lodges the people. Their riches or poverty depends upon the abundant or sparing supplies which those two capitals can afford to the stock reserved for immediate consumption (Smith 1776, 370).

So for Smith, capital exists simply as a factor of the necessary production in society. Marx takes a much more critical stance. First he notes that “[t]he simple circulation of commodities—selling in order to buy—is a means to a final goal which lies outside circulation, namely the appropriation of use-values, the satisfaction of needs” (253). This is Smith’s stance more or less, but then Marx continues: “As against this, the circulation of money as capital is an end in itself, for the valorization of value takes place only within this constantly renewed movement. The movement of capital is therefore limitless” (Marx 1867, 253). As this valorization requires labor acting upon natures use values as the source of new use values in commodities, it is clear that what capital drives towards is not the wealth of society, but the endless accumulation of capital, and thus endless exploitation of labor. Almost strangely, capital exists to expand itself it is an autonomous entity. ““For the movement in the course of which it adds surplus-value is its own movement, its valorization is therefore self-valorization’ [Selbstverwertung ]. By virtue of being value, it has acquired the occult ability to add value to itself. It brings forth living offspring, or at least lays golden eggs.” (Marx 1867, 255)

The social relation of capital is also complicated further when Harvey describes capital in Marx as value in motion, through production and valorization, purchase and realization, and the reintroduction of value back into production (Harvey 2018). Furthermore, capital and value appear in various forms (for example fixed capital like a factory or railway). This means for Harvey that capital must be viewed simultaneously as a thing and a process, and the contradiction between value fixed in capital and the need for value in motion is central (Harvey 2014, 70–78).

These distinctions between capital as wealth or the means of production and as a social relation matter for contemporary politics. A debate between Tomas Pikeyty and Frederic Lordon shows this. Lordon launched one of few critiques from the left of Pikkety’s Capital in the 21st Century (Lordon 2015). The critique centers around the problem of, first and foremost, what capital is. Lordon criticizes Piketty’s conception of capital as wealth, the general holdings of the wealthy and counters that capital is a social relation. It is not only property, but is “lucrative property,” and following Marx the only way to make property into self-valorizing capital requires the addition of labor, and thus the social relations of employment. Thus, while Piketty notes the returns on capital outpace growth, he does not explain why, the most important question. This differentiation between capital as the wealth of the wealthy versus capital as a social relations of domination affects political strategy.  Lordon critiques Piketty’s proposed solution of a global wealth tax to undermine inequality because taxation treats the symptoms, not the causes of problems of capitalism. Instead the focus should be on employment relations wages labor that form the relational model of capital (Lordon 2015; See also a television version of this debate Ce Soir (ou jamais!) 2015).

(See Accumulation, Class, Money)

Bibliography

Ce Soir (ou jamais!). “Frederic Lordon + Thomas Piketty: ‘Does Capitalism Deserve a Good Lesson?’ (English Subtitles).” Vimeo, 2015. https://vimeo.com/312817077.

Hayek, F. A. “The Use of Knowledge in Society.” The American Economic Review 35, no. 4 (1945): 519–30.

Harvey, David. Seventeen Contradictions and the End of Capitalism. Oxford University Press, 2014.

Lordon, Frédéric. “Why Piketty Isn’t Marx.” Le Monde Diplomatique, May 1, 2015. https://mondediplo.com/2015/05/12Piketty.

Marx, Karl. “Wage Labour and Capital.” In The Marx-Engels Reader, edited by Robert C. Tucker, 203–17. WW Norton, 1849.

———. Capital, Volume One. In The Marx-Engels Reader, 294–438, 1867.

Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations. Edited by Edwin Cannan. UK ed. edition. Chicago: University of Chicago Press, 1776.

Wessels, Walter J. Economics. 4th ed. Simon and Schuster, 2006.