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The difference between Capital and Capitalism

Sidney J Gluck

Reproduced with permission of the copyright owner.

The 21st century is witnessing an epical change, something to be noted in the emergence of two poles – one dominated by western capitalism and the other, in the process of forming an association of the former colonial countries in various levels and forms of economic development. Sociol-economic changes have taken place in history similarly, but not in such an explosive and defining character. As an exception, capitalist colonial domination was a part of its growing industrialization and impinged on societies outside of the developing countries for personal gain.

Long before capitalism, under tribal communal society, there was no exploitation of man by man. Elders ran a collective society, which lived off nature's own production with little input of human labor other than gathering. That changed when some clever individuals learned how to use the forces of nature itself to increase nature's own production. They ultimately enslaved others, creating class dominated society. This continued for centuries, developing into control of extended agriculture terrain and animal husbandry which became the main means for human sustenance and growth – this, under feudal serfdom.

During the feudal era, private ownership in many forms developed in early stages where individuals produced desirable items as commodities and ultimately exchanged for money. This was individual production which began to flourish and created the beginning of a mass market. Some clever individuals set up facilities, inviting these individual producers into a "factory" and sell their products to the owners of the factory for mass marketing. This relationship between owner and producer changed into another form of remuneration – that is wages based on the labor-time in the production process and this was the beginning of the capitalist wage-labor system that went through a number of changes that ultimately culminated towards the higher forms of mass production, adding monopolization and today high-tech production which reduces the direct labor time content. Thus, the wage-labor form of exploitation became the basis of industrialization and economic growth. Adam Smith, in his "Wealth of Nations" [1] did not understand that and concluded that an "invisible hand" (Book IV, Chapter II, Para 9) will resolve the fluctuation of market conditions. The fact is, the quantification of labor-time is basically the value of a commodity because the monetary payment to the laborer is only a part of the values created. The total labor-time is realized in the market in the form of money and that is where the accumulation of wealth begins, since the money becomes a form of capital and can be re-injected into a growing economy and can increase financial private wealth accumulation in the market place. This concept of capitalism is Classical Economics, first developed by Karl Marx and published in 1857 [2], that was some thirty years later supplanted by British economist into neo-Classical Economics which established its own version that the wealth is created in the money market – that is merely the area into which the wealth changes its form from commodity into its money value. (The Money Value relates to the cost of labor as a part of the total labor time and that of course, is where the capitalist attempt to control the profits that they accumulate via their pricing.)

The 2008 economic crisis is a good new example of the anti-social effect of the capitalist development, since, for the first time it reveals that private capital takes its own course towards the highest rate of profit – to the neglect of the building of industries and sustained employment in their own countries. However, capitalism has contributed a historic development in the building of industrial production, through individuals amalgamating a work force of wage-laborers in factories small and large. The incentive was private accumulation, but it took the form of capital investment into production of commodities whose values were exchanged in the market, for money as a form of wealth accumulation. Capitalists compete but also monopolized – where private control of a sector of industry magnified exploitation by preventing completion to better control prices and wage-labor relationship. The quantification of wealth is created in the factories based on the labor-time input and is the primary source of the creation of wealth. Capitalist don't produce anything. They market commodities and turn them into the money-form of capital, which can then be reinvested.

Monopolization arises and leads to a higher level of capital investment but preventing competition. Ultimately, financial capital dominates the system and investments in industries ceased in the developed countries while they sought cheap labor overseas. Even further, they incorporated high-tech since there is little cost in training labor for high-tech production – further increasing their accumulation of wealth.

The fact is that the present economic crisis in the USA is an excellent example of the fact that the capitalist class itself has split into two functions – financial and industrial – with finance the dominant factor in the economic structure. The result is not only a cessation of industrial growth but the neglect of exiting industries and the continuation of an economic crisis for workers and the middle class while capital investment overseas has created more profits for the capitalists in 2010 than in the history of Capitalism. True, industrial capital seeks a profit and wealth accumulation, but at least jobs are created and the industrial capital contributes to national economic development and ultimately with high-tech, adds to the level of consumption and living standards.

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Note 1: See "The Inquiry into the Nature and Causes of the Wealth of Nations" by Adam Smith at http://www2.hn.psu.edu/faculty/jmanis/adam-smith/Wealth-Nations.pdf (or download the PDF backup (2.13MB))

Note 2: See also "Capital", volumes I, II and III by Karl Marx at http://www.marxists.org/archive/marx/works/download/pdf/Capital-Volume-I (or download PDF backup (3.78MB)), http://www.marxists.org/archive/marx/works/download/pdf/Capital-Volume-II (or download PDF backup (2.30MB)), and http://www.marxists.org/archive/marx/works/download/pdf/Capital-Volume-III (or download PDF backup (3.37MB)).