The word "capitalism" is, of course, derived from "capital." The assumption is that this particular kind of economy depends upon the drive of key economic players to accumulate capital.

In economics and sociology texts "capital" is usually defined as the resources required to produce a commodity or generate more capital. Sometimes a variation of the definition is offered: "capital" constitutes the resources used to make a profit. In general conversation the word "capital" is sometimes used to refer to anything that is used to produce something else. Occasionally, homeowners refer to their houses as capital. Similarly, many people think of their bank accounts or even the cash in their pockets as capital.

When a word is used in so many ways it ceases to tell us much. To be a useful concept, "capital" cannot be all of these things. To a degree, popular meanings of the word "capital" represent the extent to which the vocabulary of business has insinuated itself into the vernacular, in the process making it seem that all human activity is the same as or akin to business activity. Making a good impression, for example, is frequently referred to as "selling oneself." Sometimes personal attributes are referred to as "assets." And then there is the statement, "I'll 'buy' that argument," or its opposite, "I'm not 'sold' on that idea." Such statements are idioms borrowed from the language of business. Unfortunately, we sometimes forget that they are merely metaphors and not literal statements, that is, that we are not perpetually engaged in economic activity.

What is striking about the above conceptions of capital is that none refers to its social significance. That is, the definitions refer strictly to presumed characteristics of things, i.e., as "resources" for generating commodities, additional capital, or profit. In order to understand that aspect of capital, we need to define the term more narrowly, to distinguish it from non-economic activities, and also to grasp the meanings of other concepts that are used in connection with it.

Let me illustrate what I mean by presenting five hypothetical cases, which, according to some of the definitions, might involve capital. All five cases involve a woman who is quite skilled in designing and sewing clothes. She makes a dress using her own sewing machine, needles, threads, and (except in Case 3) textiles she has purchased in a sewing shop.

Case 1:  She wears the dress to a dinner, where she receives many compliments on its
             attractiveness.

Case 2:  The woman gives the dress to a friend for her friend's birthday.

Case 3: A friend has bought the material and asked the woman to make her a dress.

Case 4: A friend pays the woman to make her a dress.

Case 5: The woman takes the dress to a department store, where she bargains with the
             manager to have the store carry a line of dresses bearing her registered trademark.
             When the manager agrees to do so, she hires several people to help her make more
             dresses.

In which case(s) are her sewing machine, material, thimbles, threads, etc., capital? Is her skill capital? Is the money she used to buy the sewing machine, tools and materials capital?

From the point of view of political economy, only in Case 5 is it appropriate to say that the woman possesses any capital of her own. In all of the cases, capital was involved in making the sewing machine, threads, needles, thimbles and textiles, but they were capital to the dressmaker only in the fifth case. In the first four cases capital was involved only for the companies that made the material, needles, threads, sewing machine, etc. Only in Case 5 was the money the woman used to purchase tools and materials capital.

Why is a sewing machine sometimes capital and sometimes not, even when it is used to make the same product? Why is money sometimes capital and sometimes not, even when it is used to purchase the same kinds of things?

The answer lies in the social context in which the tools and materials are used, not in the tools and materials themselves. It is the relations among human beings that give the artifacts of any culture their meaning. Hence, those meanings should be contained in the concepts that we use to describe and explain their human significance. The relations among people in the first four cases are of an entirely different sort than the relations involved in Case 5. The woman is an entrepreneur in that case, and the salient relations she has with others makes them into workers and buyers rather than friends and companions. The entrepreneur's tools and money become capital in that case. They are not capital in the other cases. If we used the same concept to refer to tools and money in all of the cases, we would be inclined to overlook the different social—that is to say, human—significance they have in these situations. Capital is not merely materials, money, resources and tools, but a particular organization of these things and people toward particular ends. The purposes—i.e., motives—for which things are used define, to an overwhelming degree, the social significance of those things. Hence, a useful concept of capital must include the human purposes to which it is put and the social relations involved in its use.

In other words, a hammer, a house, a plow, a computer, or any other useful thing becomes capital only under certain social circumstances. If one makes a bookcase, using one's own tools, in order to use the bookcase to shelve one's own books, none of the tools, wood, nails, etc., are capital. If the same person makes the bookcase in order to sell it, the tools and materials are capital even if the bookcase remains forever unsold. Similarly, if someone has a house built in order to live in it, the house is not capital even though it may eventually be sold. But if someone has a house built in order to rent it to others, it is capital even if no one ever rents it.

The culture created by capitalism does, however, encourage the blurring of distinctions involved in human relations. Capitalism encourages us to think of ourselves as capital, as "human resources," as things intended to accomplish purposes other than living. Capitalist culture transforms human emotions, relationships and thoughts—friendships, love, ideas—into mere economic phenomena, making it appear that there are ulterior motives of "conquest," "exchange," or "domination" behind every action or feeling. For example, a person who dresses particularly nicely for an occasion, or someone who is generous to a friend, is considered to be "expending personal capital" for the purpose of gaining some advantage. Since some people do act out of such a motive, there is a certain plausibility for such an interpretation. But most people do not, most of the time, have such a motivation for their behavior. To use a basically economic term to describe general behavior and feelings reduces the range of human experience and activity much too severely.

On the other hand, a person's talents are sometimes incorporated into the concept of "capital." I will show below that human talent and activity can be capital, but not to the person who has the talent or engages in the activity. Only under specific conditions can talent or any other human attribute become capital, and it always involves serving someone else's economic interests.

Another way to look at the distinctions involved is to consider the social arrangements, or institutions, that are involved in the interaction. In short, capital exists only in the context of commodities and markets, concepts to which I now turn.

Typically "commodity" is defined as "something produced for purposes of sale or exchange." Such a definition, simple as it seems, actually contains some rather complicated meanings when the concept takes its place in a social context. Not least of all, the definition implies the existence of markets.

Why are commodities produced? How are they typically produced? Simply put, commodities are produced in order for some people to accumulate capital. Why some people want to accumulate capital is a more complicated issue that requires historical and empirical analysis to address fully. For purposes of this more theoretical analysis of concepts, suffice it to say that in the context of capitalism there are cultural and institutional imperatives that drive the accumulation of capital. In other words, the social structure and culture of capitalism create circumstances in which some people will try to accumulate capital.

Commodities are typically produced by bringing together labor and capital to make them. In Case 5 above, the dressmaker hires a group of people to make dresses so that she can take the dresses to the department store where they will be sold. She provides the materials and designs. She may also provide the sewing machines, thimbles, needles, scissors and other tools required to make the dresses to her specifications. She probably divides the work among the workers according to their skill or simply for purposes of efficiency, so that some workers cut while others stitch, and so forth.

The people who sew the dresses do not receive an equal share of the income received from the sale of the dresses. Indeed, they will be paid on a basis completely different from the "value" of the dresses they have made. They will be paid according to the value of the "commodity" they bring to the shop where the dresses are made, that is, according to the value of their labor. It is in this sense that skill or talent can be capital. Skill increases the value of a worker's labor. Only when that skill is put to use by someone seeking to accumulate capital does the skill become capital. Only when skill becomes a factor in the sale of labor, when human beings are organized in order to produce commodities, can skill be either a commodity or capital. Otherwise it is simply an admirable attribute of a person.

The dressmaker also does not receive a full share of the value of the dresses made by her organization of capital and labor. First of all, she must pay for the capital she "invests" in the process, which may include rent on the space where the workers do the work in addition to the materials and tools. Furthermore, the store where the dresses are sold will require a portion of the price. Nevertheless, if she is "successful," she will receive an amount of money greater than the costs of her capital, the store's commission, and the wages paid to the workers. In short, she will have made a profit.

If this is not a lark for her, but something she intends to do continuously for an extended period of her life, she will take some of the profit and "re-invest" it in more materials, more wages, perhaps in more or better sewing machines and a larger or more efficient working area. In other words, she will turn some of the profit into capital. In order to stay in business, she must continue to accumulate capital. The "profit motive," therefore, does not stem from the psychological make-up or moral character of the individual. Rather, it is an incentive engendered by the organization of production in capitalist society.

She could, of course, take her profits, buy a big house and take a Caribbean cruise. In that case, her profits cease to be capital. It is also likely that she will lose the house to foreclosure because she no longer has the means to pay the mortgage, unless, of course, she sells her labor in order to perpetuate her income.

She could also take the profits from the sale of the dresses and buy a house which, in a few years, she sells at a higher price. The house, bought with that intention, is simply a different form of capital. The dressmaker is a dressmaker no longer. Now she becomes a real estate investor. If she is to be "successful" in real estate, she must continue to re-invest a portion of the profits from each sale of lots, houses or other buildings in other forms of real estate. To be even moderately successful, she must hire buyers, salespersons, secretaries, accountants, landscapers, builders and others to "improve" the value of the real estate and facilitate the buying and selling of land and buildings.

As this extended example shows, much is implied in the simple definition of a commodity. A commodity is not merely a thing produced in order to be sold or exchanged. Indeed, it is not a "thing" at all. A commodity is a value placed on human labor so that people who do not perform the labor can make profits and thereby accumulate capital. What is involved in the very nature of commodities is the exploitation of some people's labor for the economic benefit of other people. The existence of commodities implies that some people can make a profit by paying employees less than the value of the goods the employees produce.

In love and friendship it may be the thought that counts, but in economics the thought does not count. One may think of a great product, but until it is produced in sufficient quantity to make a profit it is just a dream, economically without value. The thought must be "realized." In order to make the product economically real in capitalist terms, people must be put to work to produce it, and the resulting product of their work must be successfully traded for profit.

But let us consider a slightly different example. Suppose the dressmaker in Case 5 decided not to hire workers but to do all of the work herself. She would still be producing commodities but there would be no exploitation of labor. This would seem to contradict the notion that commodities represent exploited labor.

It is certainly true that a few commodities can be produced without exploiting labor. Small farming operations, featuring the labor of the landowner (and sometimes members of the immediate or extended family), could fall into this category, for example. Nevertheless, in the larger scheme of things, an economy based on commodity production, which is also necessarily an economy predicated on capital accumulation, must evolve into a system in which some people exploit the labor of others, even if nearly everyone is an entrepreneur in the early stages. There are essentially two reasons for this.

First, such a system is competitive in the sense that sellers compete for shares of buyers' money. In competition there are winners and losers. In economic competition, the winners gain strength simply by winning. The losers go to work for the winners, or they go without work. (There are a few other options, but most are illegal.) In either case, they are eliminated from the competition for additional capital.

Second, as the competition continues and unfolds, each entrepreneur in most product lines will be required to expand production, eventually beyond one person's capacity to be sufficiently productive. "Helping hands" will have to be brought into the process. If these helping hands are paid an equal share of the value of the product, little or no capital will be accumulated. Their labor must be exploited in order to accumulate capital, which is the only reason to engage in commodity production in the first place. It may also be necessary to bring in additional capital, supplied by "investors" who provide capital for a share of the profits. The investors must be paid according to the share of the capital they provide, not as equal human beings, and not as equals of the workers.

The topic of "markets" has already been introduced. It is impossible to talk about capital and commodities without mentioning markets. But what do we mean by "the market"?

Economists define "the market" in broad terms as "the locus of exchange (Polanyi 1957)." "Locus of exchange" does not mean "market place" in the sense that an actual site is involved. Rather, it refers to the rules, customs, and other social processes by which trade is undertaken. It is understood, of course, that there are different kinds of markets for different things and that not all markets have the same rules of trade. Nevertheless, we use the term "market" to refer generally to the social mechanisms that govern trade.

The dominant market system in the capitalist economy is one in which the distribution of goods and services is governed by the interplay of supply, demand and price; the key to its operation, however, is that prices are set in the process. It is possible only where money is a significant medium of exchange; otherwise there could be nothing as abstract as "price." Walter C. Neale makes it clear that the kind of market that typifies the capitalist economy (which he and others call a "price-making market") has existed to any great extent for only a little more than two hundred years. Other kinds of markets dominate economic activity in many parts of the world, and even where the price-making market is the dominant form of market other kinds of markets play an important role in human interaction, including economic activity (Neale 1957).

Capitalist markets require commodities. It is assumed that economic activity will be based upon the production of goods and services for sale and that the distribution of these commodities will be arranged according to the purchasing power of buyers. It is further assumed that the rules that govern exchange are "natural" in the sense that they are generated by the characteristics of supply, demand and price themselves rather than by laws proclaimed by kings or enacted by legislatures. Producers supply what they can, buyers demand what they truly want, and a price is set accordingly. In this sense, the market is "free": it is unrestricted by any human agency. Indeed, the economic activities of human beings are controlled by the market rather than the other way around. One of the most obvious implications of these assumptions is rarely expressed: that wherever there is a free market, human beings are not free, or at least not as free as they would otherwise be, since they have given up human volition and allow themselves to be manipulated by reified "market forces." That is, people extend to the market powers of decision-making that only human beings can possibly have. They make themselves the tools of the market and its presumed "natural" laws, which are, in fact, created not by natural or supernatural forces but by human beings.

Obviously, as I have pointed out with respect to private property, such a social arrangement cannot exist for long. It would eventually reduce human existence to antagonisms that could not be resolved and which would be expressed in a perpetual war of all against all. Furthermore, in the historical development of capitalism, no government has been willing to tolerate the excesses of exploitation and threat to its own legitimacy that arise in the actual attempts to practice unrestricted, "free" markets. Some "commodities" (e.g., sex in various aspects, some mind-altering drugs) have been regarded as too immoral to be traded. In addition, the social costs of the production of some kinds of commodities have been too great, as has become especially clear in this era of environmental consciousness. And many governments have long realized that the consumption of some kinds of commodities threatens to tear the society apart and make it ungovernable—e.g., the consumption of weaponry, although that awareness has been slow to establish itself in the United States.

As a consequence, governments, churches, and other institutions have intervened in the market at the level of supply and/or demand, and occasionally governments have regulated prices directly.

But the major interventions in the price-making market have arisen as a consequence of demands and activities of those who have benefited most from the market itself, that is, of the most successful capitalists. Even successful competitors want the competition to end when they are ahead. But in capitalism, the competition never stops, so successful competitors seek to solidify their advantage. Cartels, monopolies, price-fixing, and the production of shoddy goods have generated demands for the regulation of production and the restriction of market prices, not as much from consumers as from capitalist competitors. Government spending is, in almost every case, requested by capitalists in order to establish markets where none would exist, or to "control market forces" by redistributing income to various portions of the population. (Some government spending is required to meliorate the potentially disastrous consequences of commodity production, but by far the largest portion is intended to "fix" an "unbalanced" market.) And then there is the single most serious distortion of the free market: advertising.

Advertising is a distortion of the market because it is intended to create demand where none exists and to change the nature of demand where it already exists. The early theorists of capitalism believed that demand was "natural," that is, that people had an irrepressible and unlimited longing to improve their material conditions. These "natural" desires would fuel the economy forever. There was an assumption that if people were not crazy or manipulated by unscrupulous vendors they would act in their own "enlightened" self-interest. The market would be "self-regulating" because people would pay a great deal only for things they wanted badly, and they would be able to discern—or quickly learn to discern—quality. Producers of shoddy or worthless goods would quickly be forced out of the market. In any case, equilibrium would be "naturally" established between supply, demand and price.

Obviously, those assumptions were mostly misguided. Not only has it become necessary to regulate production but to proliferate government-sponsored consumer protection agencies. Most of all, producers have found that it is necessary to generate demand by advertising since demand is not "natural" or "enlightened" or, for that matter, unlimited. One part of the "natural" equation of supply, demand and price—demand—simply did not exist in the manner and degree assumed by capitalist theorists. It had to be artificially created. Hence, advertising. [Note: For a brief history of the rise of the advertising industry, see Stuart Ewen, Captains of Consciousness (1976).]

The socially beneficent aspects claimed for the price-making market by early capitalist theorists—efficiency in production, improvement in the quality of life through better products, rational distribution of goods and services—have largely been eliminated, if they ever existed, in the age of advertising. The idea that the market would serve humanity was based upon the notion of a natural, rational, enlightened self-interest, a notion that turned out to be fictitious. Even if enlightened self-interest were real in some sense, it could not survive the manipulation of advertising. The price-making market of capitalism is not what its earliest (or even some recent) proponents thought it would be.

The major point to be made about all markets, and the capitalist market in particular, is that it is a social construction, not a "natural" phenomenon. The "laws" that govern trade and thereby define the market are not imbedded in the cosmos nor are they the logical or natural representations of human nature. The "shopkeeper" who provided the basis for so much of Adam Smith's reflections on the workings of capitalism (in The Wealth of Nations, his famous defense of the "new" economic institutions arising when the book was first published in 1776) was not a prototype for all of humanity but a historically generated and socially located human being. People do not "naturally" or "necessarily" think and behave as Smith believed his "shopkeeper" did. People think and behave according to historically developed institutional and cultural directives. That is the major error in capitalist conceptions of the market: that it is somehow "pre-social," or, in other words, outside of history.

The modern-day capitalist market is, like all markets, such a socio-historical construct. It is no more (or less) natural than any other kind of market. But to grasp its meaning in our lives we must begin with the understanding that it is a social phenomenon, and as such that it is largely arbitrary and certainly changeable.

From the point of view of most people in capitalist society, especially the poor, the price-making market is a mechanism by which people are subjugated to forces over which they are expected to exercise little or no control. In fact, there is but one resource at their disposal: money. The capitalist market is a social arrangement that establishes the equality of each unit of money (one dollar, one vote) rather than the equality of persons. In other words, it establishes relations between persons on the basis of how much money they have. It assumes that each "dollar" is of equal value, and that people are valuable according to how many dollars they control (Lappé 1989).

In short, the market is another system of power. Those who have money have power. It is presumed that the "laws" of the market equally affect everyone, whether they have ten dollars or ten million. As long as those who have only ten dollars believe this to be true—and most of them do—they will be relatively powerless.

I have tried to show that capital is meaningless aside from a particular form of market, one that is presumed to set prices for commodities. I would like to pursue, briefly, one other implication of such a market.

Since the price-making market is assumed to regulate not only itself but all economic activity, it must convert quite ordinary things into commodities. Markets drive the capitalist economy. There is no reason to produce anything except for the market; market forces, which are assumed to transcend human relations, control all economic players. In order to make this assumption about the capitalist market plausible, it is necessary to believe that almost everything is a commodity, including human activity and the earth itself.

Karl Polanyi, a European economist who fled Nazi persecution in the 1930s, understood this aspect of the capitalist market better than most. Beginning with the traditional definition of commodities (that they are products and services intended for trade in markets), he realized that several prominent "commodities" were not commodities at all. Rather, they were "fictitious commodities," things traded in markets as though they had been produced for that purpose even though they had not been. The major fictitious commodities are land, labor and money.

[Note: This description of "fictitious commodities" is based on Polanyi's analysis in The Great Transformation (1944).  A brief synopsis of that analysis appears in "Our Obsolete Market Mentality" (Polanyi 1947).]

Land (the earth) is not a commodity. Many economists and even more politicians talk about the earth as if God had made it in order to serve the needs of capitalism. But whatever the divine plan or the devastating consequences of viewing land as a commodity, if the capitalist market is to work, the earth must ultimately be treated as just another commodity. It must have a value, and its "value" must be set according to market rules.

Similarly, labor is not a commodity. Labor is nothing other than human activity, albeit activity channeled into economic production. But human beings are not "produced" in order that their activity shall be sold. Human activity is human life, not a commodity. But human beings, like the earth, must have a value, economically speaking, and therefore human activity must be regulated by the market in order for the price-making market to function. Hence, the "labor market," the locus of exchange in human lives, through which the value of human lives is established.

Money, likewise, is not produced in order to be traded. It is, indeed, the measure of trade, the yardstick of price. It is the medium of exchange, not the object of exchange. Nevertheless, since it plays such an important role in capitalist economic activity, it too must be regulated by the market. Furthermore, the symbolic value of money—as freedom—makes its market price artificially high. Lastly, because money equals freedom in a "free" market system, it means that freedom has become a commodity, available through purchase only, unobtainable by human striving.

The concept of "fictitious commodities" illuminates some basic aspects of the meaning of both "commodity" and "market." It underscores the social nature of both. To me, this way of conceptualizing land, labor and money drives home the fundamental dehumanization involved in capitalist economic institutions. Human life, for example, is reduced to nothing more than a commodity, its value set according to market forces.

From the point of view of anyone who suffers (as almost all of us do) from the workings of the capitalist market, the market is a system of power (for the few who have some control over it) and oppression (for those who can only respond to the market or are defined by it). It is of crucial importance always to bear in mind that the market is not natural, not universal, and not eternal, and, therefore, that it is changeable. Indeed, there is nothing in the world that requires the existence of a market in any particular form.

It would be possible—and useful—to explicate other economic terms in current and widespread use. For example, what are the social implications of profit? Beyond what we have already examined, what is the human meaning of labor in a capitalist context? What is the social meaning of "corporation"? What, in human terms, are "natural resources"? We could also do a much more extensive examination of money, since it is so pivotal to every aspect of the capitalist economy.

The main point of these exercises is that social analysis that begins with understandings of social phenomena as variables severed from humanity is very bad social science indeed. Put in a more positive manner, social analysis that really intends to understand the human condition begins with concepts that firmly grasp the social relations implied in social phenomena. Money, capital, wealth, commodities, markets, profits, investments, and all other economic concepts are first and foremost human relationships. They are not primarily "things" or processes distinct from the human beings who participate in them, "own" them, or are otherwise affected by them. Money, for example, simply does not exist—it has no properties at all—apart from the social relations of the members of societies in which money is used.

If you believe, as I do, that the purpose of understanding human life is to decrease suffering of all kinds and to improve the prospects for future generations, it is necessary to engage in social analysis that is truly human-centered. It is counterproductive to use concepts that are divorced from humanity, which pretend that human beings are secondary to abstractions. That is what proponents of the "free market" and "free trade" do.

It is also necessary to understand how reified concepts can imprison human beings in thought cages that place limitations on perceived possibilities. If you believe that "market forces" really determine economic conditions, you are much less likely to undertake steps to humanize the economy, that is, to establish democratic control over "market forces."

References

Ewen, S. 1976. Captains of Consciousness. New York: McGraw-Hill.

Lappé, F.M. 1989. Rediscovering America's Values. New York: Ballantine Books.

Neale, W.C. 1957.  "The Market in Theory and History." In K. Polanyi, C.M. Arensberg and H.W. Pearson, Trade and Market in the Early Empires. New York: The Free Press.

Polanyi, K. 1944. The Great Transformation. Boston: Beacon Press.

_____. 1947. "Our Obsolete Market Mentality." Commentary, Vol.3, No. 2, February.

_____. 1957. "The Economy As Instituted Process." In K. Polanyi et al., op. cit.