What is Capital?

bull_dozerThe term capital is used in different ways in different contexts. In investment, it is how much wealth a person has. In business, it is the sum of your assets, or assets minus liabilities. In some economic contexts, it is any durable good that is used to produce other goods. In certain economic contexts, capital consists of anything that enhances your ability to perform economically useful work. So, anything that makes you productive would be considered capital. Some people prefer other definitions that exclude things like land and labor.

The common theme is that capital is something that people can use to do what they want to do. So in a general sense, capital is anything that has value. Another way to think about it is that capital is anything that makes us more free. It could be money, a bicycle, or a private police department. As long as someone finds something useful, for whatever purpose, it is capital.

Value is subjective, so what is not capital at one moment might suddenly become capital the next. For example, a farmer might have always hated the black, sticky liquid that would seep out of the ground around his farm. That is, until he found out it was oil. Similarly, something that is capital, even for a long time, might suddenly become completely useless trash. For example, if you realize the “medicine” you have been taking is really just snake oil.

Some have said that land is not capital because it is “not produced”, but that ignores all of the reclaimed land around the world. Similarly for labor, what if you like living in a place where people work and are productive? Then the very act of labor becomes something valuable to you in and of itself.

Is there anything that has value that is not capital? If you can think of just one thing it will invalidate this whole blog post, so please let us know!

What does capitalism have to do with capital? Some people might think that capitalism is obsessed with capital or capital production, but it actually does not have anything to do with capital at all, at least not directly. Capitalism merely defines who owns capital using the non-aggression principle and private property. In this way, it sets some ground rules for how capital is divided up among people, but it does not tell people how much capital to produce, or even what kind of capital to produce. Capitalism is really just looking at libertarianism from an economic perspective.

 

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