Who Put the "Capital" in "Capital-ist"?
H. William Batt, Ph.D.
GroundSwell, January-February 2010]
When you ask most capitalists what a capitalist system is, they will
usually say a system of free markets and private property. I confess
to being perplexed by this. I'm certainly no expert on the formation
of language but it seems a very strange choice of root word for such a
definition. It is important, I think, to remind ourselves of the real
economic meaning of capital.
Capital is a factor of production.
This commonly understood sense separates capital from land and labor,
the other factors of production. It also separates it from similar
things used for gratification. The common meaning of capital is,
simply put, wealth devoted to producing more wealth. Adam Smith
correctly expresses this common idea when he says: "That part of
a man's stock which he expects to afford him revenue is called his
capital." The capital of a community is therefore the sum of such
individual stocks. Said another way, it is the part of the aggregate
stock that is expected to procure more wealth. Wealth, then, may be
defined as natural products that have been secured, moved, combined,
separated, or in other ways modified by human exertion to fit them for
the gratification of human desires.
But though all capital is wealth, all wealth is not capital. Capital
is only a particular part of wealth -- that part devoted to aid
production. We must draw a line between wealth that is capital and
wealth that is not capital. If we keep this in mind, we can eliminate
misconceptions that have led even gifted thinkers into a maze of
The key, it seems to me, is whether or not the item is in the
possession of the consumer. Wealth yet to be exchanged is capital.
Wealth in the hands of the consumer is not. (Henry George, Progress
and Poverty, Abridged and Edited by Bob Drake.)
So it seems clear if you accept this that capital is not synonymous
with private property. You can have production without private
property. You simply lack an owner of the capital, not the capital
itself. Also, in a private property system, all capital is property
but not all property is capital.
Might it then be the defining aspect of markets? I think the answer
is clearly no. Markets do not require the generation of wealth from
capital. They simply require exchange of goods, services or
Furthermore, as Henry George reminds us, "capital is not
required to pay wages or support labor during production" despite
it being very useful to increase "the power of labor to produce
So capitalism seems a poor choice of descriptor for a free-market,
private property system. So the question that arises is why, of the
three factors of production, does capital get the spotlight? Why not "laborism"
or "landism"? Or better yet, why not "marketism"
Kevin Carson wonders the same thing:
In neoliberal orthodoxy, supposedly, labor and capital, are just
coequal "factors of production." So why name an economic
system after one of the factors of production, in particular? What
we're seeing is that, beneath the ideological veneer of "free
contract" and all the rest of it, some "factors of
production" are more equal than others. That's why, when Costco
pays its workers above-average wages for the retail industry, business
analysts squirm with the same undisguised moral disapproval that some
people reserve for diamond-studded dog collars. But when a Bob
Nardelli or Carly Fiorina gets a retirement package worth tens or
hundreds of millions, after gutting their companies to massage the
quarterly numbers and game then- own bonuses and stock options, that's
just the way "our free enterprise system" rewards them for "the
value they created."
What the politicians and journalists are for, behind all the "pro-market"
rhetoric, isn't the market at all. It's the interests of capital.
I think an underlying reason might lie in the myth shared by many a
capitalist and socialist alike: that the ownership rights of capital
include the right to be the residual claimant. This myth is clearly
seen for what it is when you consider any arrangement where capital is
Contrary to the fundamental myth, "capitalism" is not based
on any special "divine rights of capital." The point of
capitalism is not that capital has more rights than people but that
people have no more rights than capital. Bom capital and people are
All input services, the actions of persons like the services of
things, are legally transferable. Capital can hire labor or labor can
hire capital. It is the question of who hires what or whom, namely the
direction of the hiring contract, that determines who is the firm
(residual claimant). Thus, the ill-named "capitalist" system
has a certain universality based on the free marketability of all
input services. Thus, anyone, by becoming the hiring party, the nexus
of the hiring contracts, can become the firm. That nexus could itself
be an artificial legal person, the conventional corporation, which
also has the universality of being property freely marketable to any
and all buyers or even gifted to any and all beneficiaries regardless
of any functional role they may or may not play.
Labor management, laborism, workplace democracy, or economic
democracy is thus not symmetrical to capitalism. The "capitalist"
system was misnamed by the author of Kapital, and the
misconception has persisted ever since. (David Ellerman, "On the
Role of Capital in 'Capitalist' and in Labor-Managed Firms")
A system that works so hard to make the factors of production equal
is "double-dipping" when it goes one step further to
demonstrate "undisguised moral disapproval" toward labor.
Cries of "socialist" and "Marxoid" abound. But the
next time someone calls you "Marxoid" for being a "Laborist",
remind them who put the "capital" in "capital-ist".*
* Technically, Marx and Engels refer to the "capitalist form of
production" ("kapitalistische Produktionsform") and in
Das Kapital to "Kapitalist", "capitalist" (meaning
a private owner of capital). The first use of the word "capitalism"
is by novelist Thackeray in 1854, by which he meant ownership of a
large amount of capital, not a system of production. However, the
first person to use the word "capitalism" as it is commonly
used today was Wemer Sombart in his Modem Capitalism in 1902.