Friday, March 22, 2013

Capital and Capital

Two Distinct Concepts under One Word

Thinking about the Civil War, I was working a concept over in my head. I believe that, though there is some question as to whether or not Slavery was the principle issue motivating those fighting the Civil War, it is most certainly the reason the South lost. The reason for this, is "Slavery ties up capital in the purchasing of labor, which would be available with or without the institution of slavery." Then I reformulated it, "Capital was tied up in the purchasing of things which are not Capital." I suddenly realized, that there are two concepts in play here, which are related, but not the same, yet they are both referred to by the same word: "Capital."

In one usage, Capital refers to wealth (the outcome of a previous productive cycle) which, rather than being consumed, becomes an input into the next productive cycle, whether as seed, inventory, tools and machinery, extra consumer goods (which free up labor to produce more capital), or even simply insurance against unexpected costs or losses. In this sense, Capital is simply one of the three classical Factors of Production, alongside Labor and Land.

However, in another usage, Capital refers simply to accumulated funds. This concept is related to the previous usage, because before someone can purchase additional capital goods in a money based market economy, the funds necessary to purchase them must first be accumulated. One who decides to save money rather than living check-to-check thus gains additional influence over the production structure, as the entrepreneur who most successfully anticipates his needs is the entrepreneur that is rewarded. Thus, people tend to refer to accumulated funds as "Capital", as well.

Thus, Capital and Capital are not the same thing. One use represents an accumulated claim on anything that may be bought or sold. The other represents an earlier phase's output that becomes a later phase's input. They are similar, but not the same. This accounts for the rather large gulf with regard to the accepted meaning of the word "Capitalism."

Simply put, when a person buys something, it's because he wants control over it. Whether it be a capital good, a consumer good, a slave, or a plot of land, what the buyer buys is the right of exclusive control over the object. It just happens to be a happy accident that, in purchasing a consumer good, he provides employment to his fellow man, and in purchasing a capital good, he both provides employment and creates opportunities for others. This is the nature of Adam Smith's “invisible hand”, that in pursuing his own interests, a man quite unintentionally benefits society.

However, it is not the same thing, for accumulated funds may be used to purchase anything society allows to be bought and sold. It can be used to purchase capital goods, but it can also be used to purchase other things. It can be used to purchase more expensive consumer goods (a big house, a nice car, a boat, etc.), thus turning the productive structure toward the production of these sorts of things. It can be used to purchase political influence, through the support of political campaigns or perhaps direct bribes. If the society permits Slavery, it can be used to purchase a slave, which because this can enhance the purchaser's revenue stream as surely as a wise investment in capital goods, can be miscategorized as a kind of "capital investment". He could also purchase land—physical space, that is.

These accumulated funds are a sort of potential power, a kind of authority. If it is invested in the right capital goods, society benefits from access to desired consumer goods (or more and better capital goods) at lower prices than would otherwise exist. If it is spent on durable consumer goods, society does not benefit... but if the buyer earned this money honestly, in service to the consumer, society benefited earlier, and this is the producer's proper reward. Even the employment of publicists and advertisers in service to a political cause creates something where it did not previously exist... though the benefit is questionable. But then there is another kind of purchase, the spending of these accumulated funds on things which are neither capital nor consumer goods.

For some, it refers simply to a complex of law and custom that respects property rights, allows free trade, and encourages the accumulation of wealth for the purpose of creating more wealth. This is as opposed to a system under which others have claims on the individual's wealth, such as the State, the Poor, the Family, the Sick, the robber down the road, or whoever. Any accumulation of wealth is nothing more than an attractant to these others who come to claim "their rightful share" (a bit like how lost relatives are suddenly found when someone wins the lottery), thus people decline to accumulate wealth, thus capital does not develop, thus society remains in constant poverty.

But the other definition of the word "Capitalism" refers to a society in which lawful authority to dominate other men by violence and threats of violence is up for sale. The Ruling Class is determined not by military prowess, nor by dynastic inheritance, nor by religiously derived authority, nor by any other principle. The Ruling Class is composed of those who are able to, first, accumulate capital, and second, leverage that capital into political influence, among other things. Whatever form of power is up for lawful sale opens the door for the first kind of Capitalism to become this kind of Capitalism.

Land and Labor

For example, it could be used to purchase a slave. The purchase of a slave does not reward the bringing into existence of wealth that would not otherwise exist. People will reproduce, whether or not they are locked in a shed for “breeding” purposes, and so long as work is necessary to eat, they will work. Slaves need not be purchased to bring labor into existence. Even in the early days of the Virginia colony, when planters continually complained about a shortage of labor, it wasn't actually labor that was short, but rather laborers who, in a place where land was cheap and plentiful, were willing to work at the planters' preferred rates, when self-employment remained a better option. Thus, a pool of unwilling laborers was bought.

Similarly, with a land purchase, nothing is brought into existence by the seller. Outside the realm of ancient holy texts, there is no “producer” of physical space. With both slaves and land, accumulated funds, “Capital” as people call it, is wasted on something that would be there whether or not someone was around to buy it. The land's existence predates Man's. In both cases, “Capital” is wasted. So why do people spend money on these things?

However, that does not mean that our institutions of property should not be periodically reexamined, for there are things a man can buy that offer no benefit to society, outside efficient allocation of these resources, which can be achieved without permitting these things to be capitalized on an open market. Labor is one of those things. When a man buys a slave, he rewards only violence—the enslavement of other men—and is not creating labor, but only increasing his own power at the expense of others. Today, we do not allow labor to be capitalized; rather, all labor is rented from its proper, inalienable owner: the laborer itself. This allows efficient allocation on the market without dispossessing men of their birthright: liberty.

Likewise, with land, the buyer does not reward any kind of producer, but rather yet more violence—that of the conqueror. I do not believe there has ever been a spot on this earth that was homesteaded into our property system; rather, all land was made property through the violent removal of other men from that land. Efficient allocation of land does not require that the land be capitalized any more than the efficient allocation of labor does. Rather, we need simply to identify a proper, inalienable owner for the land, as well, and allow it to be rented, rather than sold outright, just as we do with labor.

In the absence of such a being, if we believe in the democratic ideal that all men are created equal and endowed by their creator with certain inalienable rights, particularly Life, then the proper nature of a land regime naturally follows. If we all have an equal right to live, that means we all have an equal right to exist. To exist, we must have physical space in which to exist. No man can have a greater right to the land than any other. While it is convenient to allow people who are better able to make use of the land greater control over the land, it does not necessarily follow that some should be a landholding over-class (however fluid)  while others can be legally deported from reality itself (or at least from solid ground) should the landowners decide they are not wanted. Thus, an equal right to Life implies an equal right to the Land.

Interestingly enough, the former, in the only religiously based land code with which I am familiar, is remarkably similar to the latter. (“You shall not sell the land forever, for you are but wanderers and sojourners  The Land belongs to God.”). In that system, the land was divided evenly among tribes, clans, and families. People could sell their land to others (allowing for efficient market allocation of land), but only temporarily. Every fifty years, land ownership was reset to their ancestral titles, and even before those fifty years were up, the original, inalienable owner had the right to reclaim his land in exchange for the prorated value of the remaining years of ownership.

Clearly, such a system is not workable in the present-day United States. We have no ancestral titles to restore. This does not, however, mean that the basic principle of a basic human right of equal access to the land should be abandoned in favor of a capitalist allocation of land, which I see as being morally equivalent to capitalist allocation of labor (Slavery). To implement an equal right to land is to implement a “social safety net” of sorts, rooted in nature, lacking the moral hazard intrinsic to the means tested programs currently used to alleviate poverty.

EDIT: Years later, this entry is an absolute mess. Did I mess up in my editing, or did something somehow happen to the files?