Friday, November 19, 2010

What is Capital?

This post is a reply to a tweet.

Before engaging in high level debates, it is useful to think about the terms used in the debate.

For example, we often use the term "capital." But what exactly does one mean by "capital"?

Wikipedia we find the term capital referring to different things. In classical economics it referred to a real physical thing ... a factor of production.

In Marxian economics capital refers to an abstract entity called "money."

It is possible to create or destroy money without actually producing any physical benefits. This is what the Federal Reserve does.

In common discourse, people tend to use a muddled definition where it refers to both the physical factor of production and the money used in investment, but in actually trying figure out how things work, one finds that different definitions of capital work differently.

Things become even more convoluted with the absurd convention of using the term "capitalism" to refer to the free market economic system favored in the United States.

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