Introduction
I begin with an examination of âcapitalâ since understanding the concept of âcapitalâ is necessary in order to understand the meaning of âcapitalistâ and âcapitalism,â and thus to understand why both capitalists and capitalism are extinct.
âCapitalâ is the root and the source of both the terms and the meanings of âcapitalistâ and âcapitalism.â âCapitalâ is a concept, or notion (Chiapello, 2007). âCapitalâ is also âa unique web of social and legal relationshipsâ (Ćœmolek, 2013). It is thus important to understand âcapitalâ and the relation of âcapitalâ to âcapitalistâ and âcapitalism.â1 While it may appear obvious, it is not as obvious as it may appear because âcapitalâ has multiple meanings.
Levy (2014) cites Justice Edwardsâ opinion in United Steel Workers of America v. United States Steel Corporation: âwith a different definition of profit,â the âoutcome of an accounting analysis could be made to be nonprofitabilityâ (p. 175).2 The same reasoning applies to capital. With a definition of capital other than the resource of production created by humans to be used in production, a different outcome would result. For example, referring to slaves as a âtype of capitalâ is a prime example of a different definition of capital resulting in a different definition of capitalism. But if you transform labor (slaves) into a form of capital, then you can just as easily transform capital (slaves) back into labor. You can also just as easily define capital (machines) as a form of labor.3
In 1906, Fisher wrote âCapital has been so variously defined, that it may be doubtful whether it have any generally received meaning. In consequence, almost every year there appears some new attempt to settle the disputed conception, but, unfortunately, no authoritative result has as yet followed these attempts.â Von Mises (2009) adds, âThe views of scholars on the definition of capital are more divergent than their views on any other point in economics.â Ćœmolek (2013) comments that âcapitalâ is a term that is used âfast and loose.â
Milios (2018) states that the word âcapitalâ appeared during the reign of Emperor Leo III in the late eighth century and in Muslim writings in the early ninth century. SĂ©e (1928), on the other hand, indicates that âuse of the word capital originated fairly late and the word was first employed to designate a sum designed to be invested to bring in an interestâ (p. 2, emphasis in original). However, a sum designed to be invested to earn interest has no relationship to means of production or the production of commodities. A sum invested to earn interest is fictitious capital as explained below. Regardless, the meaning of âcapitalâ has been contorted by confusing either the value of capital with capital itself thereby erroneously equating the value of capital as the means of production with capital itself, or by confusing capital as a means of production with both financial and fictitious capital.
In this chapter, I briefly review various definitions and concepts of âcapital,â meaning the different ways in which the term âcapitalâ is used, misused, confused, and abused. It is perhaps strange to think of a word being misused or abused, but that is exactly what frequently occurs in economics, sociology, history, legal, and accounting research. Researchers in accounting, sociology, history, and economics, including Nobel Prize winners in economics, talk past each other, frequently using the term âcapitalâ carelessly to mean one thing, when they actually mean something else, and Marx is no exception. This in turn leads to confusion in what is meant not only by âcapital,â but consequently by âcapitalistâ and âcapitalism.â
In this chapter, indeed in the entire book, unless otherwise stated âcapitalâ without a preceding adjective or following noun refers to capital as the resource of production, i.e., productive capital or industrial capital (e.g., tools, machines, equipment, computer programs), which, along with land and labor, is one of the three scarce resources of production.
I first present an overview of the concept of capital as characterized by Karl Marx, Max Weber, and Irving Fisher. While it must be noted that there are many others who set forth concepts of capital, Marx, Weber, and Fisher are among the three most important.
Next, I discuss various types and definitions of capital as found in the literature including financial capital, productive capital, mercantile capital, and commercial capital. Third, I review the relationship between capital and labor, and fourth, the relationship between capital, accounting, and profit. Fifth, I summarize the relationship between capital and the capital account.
CapitalâConcepts
I begin with a discussion of the concept of capital in order to establish a basic understanding of the relationship of capital to other resources of production, to capitalists, and to capitalism.
Capital is a universal concept present in all societies where there is trade (Ćœmolek, 2013). However, trade is not required in order for capital to exist. While capital existed for thousands of years, the concept of capital did not. The concept of capital only became possible with the invention of double-entry bookkeeping and the capital account.
While SĂ©e (1928) indicates that capital was first used to designate âa sum designed to be invested to bring in an interestâ (p. 2). Yet, a sum designed to be invested to bring in an interest has no actual relationship to capitalism. Marx, in fact, referred to a sum designed to be invested to bring in an interest as âfictitious capital.â
Without question, capital is a resource of production, along with land and labor. Each resource of production is governed by the laws applicable to that resource according to particular legal regimes. Labor, regardless of how classified, is governed by labor laws, although different laws apply to different types of labor. Similarly, different laws apply to different types of capital and different laws apply to different types of land. Labor laws do not apply to capital or land, just as laws of capital and land do not apply to labor. The laws that apply to land, labor, and capital are beyond the scope of this book except some laws that apply to capital are discussed in later chapters.
There are those who insert other types of resources into resources of production, in particular entrepreneurship (or managerial skills), and even money. But entrepreneurship (or managerial skills) is human and therefore labor, regardless of whether they coordinate production, supervise other labor, engage in actual production, or any other activity concerning production. Nor does it matter whether there are divisions of labor within labor (e.g., Durkheim, 1997), or whether labor is free and paid or forced and not paid (slaves).
To see that labor is an all-inclusive, singular concept encompassing human effort in the production of commodities, one need only consider the production function Q = f(L, K) where Q is the Quantity of output, and inputs are the quantities (costs) of L (labor) and the quantities (costs) of K (capital).4 Money is not a resource of production. The production function shows, usually graphically, how one resource of production, K, can be substituted for another resource of production, L (or vice versa), holding land constant. Production functions do not incorporate quantities (costs) of entrepreneurship (or managerial skills), nor the cost of money (interest).
Granted there are both theoretical and empirical proble...