13: The Capitalist Class
Capital consists of items that have the potential to be put to productive use. There is some argument over what is subsumed by this classification, and in particular land is often separated from capital, but there seems to be little reason in this as land functions in exactly the same manner as other capital resources. Its natural origins and indestructibility are interesting points, but they do not cause its economic function to be different to other forms of capital - so Walker sweeps it into the category.
The distinguishing feature of capital is in its ability to be employed productively in order to produce something of value - and, generally, to provide a benefit to its owner whether in the use of his product or the profit of the sale of it. Capital is property, generally of a durable nature, which is required for production.
It is generally accepted that production is the application of both labor and capital. A field does not yield a crop unless it is planted, and a laborer cannot plant a crop without a field (and seeds, and tools, and a few other sundries). As such, when capital and labor are contributed to a productive effort, it is generally accepted that a share of the outcome is owed to the providers of capital and labor.
The arrangement by which the profits of labor and a capital are divided vary. A proprietor who furnishes both labor and capital keeps all the proceeds. If he partners with another, there is some division of profit between them - whether they both contribute a share of capital and a share of labor, or one contributes capital and the other contributes labor. It is a matter of negotiation between the parties involved, so the arrangements are varied and idiosyncratic, but fall into a few arrangements that are widely accepted.
Even to say that each man receives a share of the proceeds of production is an assumption that does not always hold true though it is usually the intent. A farmer who pays his laborers a wage does so according to his expectations of the earnings he will gain from the sale of his crop - but if there is a disaster and his crop is destroyed, the laborers do not return their wages. Although, if the farm hands were working for a share of the sale of the crop rather than a fixed wage, their fortunes are married to that of the farmer when the crop is destroyed before it can be sold.
A few common method by which capital owners profit from their possessions is through rent or interest - when their capital is leased or loaned to another for a fixed amount of profit, regardless of the profit that their lessee or borrower makes from the capital that has been loaned. In these instances, the profits of capital are "pure" as they are not related to production - though a willingness to pay interest or rent is likewise based on an individual's expectation of profit.
The precise identification of individuals who belong to a "capitalist class" as opposed to the "labor class" is thus difficult to define. If the definition of capitalist is as broad as "anyone who owns capital" then the miner who brings his own pick to a site where he works for a wage is a capitalist. This is obviously too broad a definition. If the definition is a person who contributes only capital, and no labor, to production, then a great many owners of businesses who participate in directing the operations are not capitalists because they contribute effort to production. It's rather problematic, and Walker views this as a sign that this entire method of distinction is merely a "perversion of economical terms" that results from attempting to sell a bad argument.
There's also some haggling over the notion of "capital" versus "wealth" - as not all wealth is made available for productive use. Most wealth is consumed, some is set aside for future use, and some is simply not utilized for no reason other than the owner does not wish to place it into productive use. So the horde of a miser is not capital, nor is that miser a capitalist, however much money he has at his disposal. Neither is a person who saves money a capitalist if his savings is removed from circulation. It is only when wealth is invested or loaned that it functions as capital.
Further distinction is made between the capitalist class and the employing class - as capital may be used to create a profit without creating employment. In some instances, the creation of employment is indirect - a capitalist loans money to an industrialist to fund a productive operation. The industrialist employs labor, and is thereby the employer of his workers. While the capitalist has facilitated employment, he is not himself the employer.
After a great deal of fussiness, Walker defines the three classes:
- Wages Class - Whose primary income derives from a wage paid by others to perform tasks
- Capitalist Class - Whose primary income derives from the loan of their property to others (rent or interest)
- Employing Class - Whose primary income derives from the profit of a business
He then considers the economic arguments about the importance of investing in domestic business rather than investing abroad, which does not seem to make much sense. The profits to the investor are the same either way, such that loaning money to finance operations abroad brings a portion of its profits home. Arguments contrary to that often seem to rely on the assumption that the same operations that can be run profitably overseas could be run profitably at home - which is specious reasoning because if that were so, then they could offer as much interest as investing abroad at less risk, and there would be a preference for domestic investment.
He also disputes the notion that profits of capital belong to the wealthy few, as the banking system enables the small amount of money owned by large numbers of common people to share in the profits of investment. In France, in particular, there are vast sums of wealth that are owned by "the peasantry" and are invested by bankers in productive pursuits - but they remain within the wages class as this income earned by each does not suffice to provide for their needs.
He also dismisses the notion that capital and labor are in conflict, as both are derived from the profits of a business operation - both derive from the productivity of a business, and tend to rise and fall in tandem. It can often be found that wages and profits are both high in a profitable industry, and wages and profits are both low in a struggling industry. Profit is best when both capital and labor are most productively employed, and they are best for both the providers of both.
(EN: This skirts the issue of what makes a given industry highly profitable - which is the customer's willingness to pay a premium for the products. When competition drives prices and profit margins down, there is less for all.)
He then spends a bit of time refuting the notion that the profits of capital have reached a minimum in developed countries, which seems an arbitrary statement and is entirely theoretical: there is certainly a point at which labor is fully employed and there is no opportunity to invest in a new venture because productive use cannot be made from capital. But there is no evidence this has occurred or is even remotely possible.
He also makes a case against a few criticisms of the way in which people use their wealth. The investor in search of profits creates more goods for the market and more employment. The miser who takes money out of the system does not prevent people from being productive, and makes circulating capital the more profitable. The waste of wealth is also of little concern because those who "waste" money spend it on something, returning it to circulation. As such, much of the criticism of the wealthy is merely an attempt to cloak covetousness in more sophisticated garb.
(EN: This goes on for quite a while, with random bits of economic perspectives about the struggle between labor and capital being dismissed as illogical, as the two are ultimately partners in productivity.)