5.

Capital
Jayati Ghosh

Before Karl Marx – and indeed, after him, in the neoclassical economic tradition – capital
(or the means of production) was treated as a resource that is simply a factor of produc-
tion, analogous to land and labour. This makes it something that exists in all types of
economy and over all historical phases, and production occurs by bringing together all
the factors of production. In a ‘capitalist’ or ‘market’ economy, the various factors of
production are seen as being brought together by the market. This view treats all the
factors on a par, with each of them getting a return for their contribution to produc-
tion, so that profits on capital are simply the return to a particular factor, just as labour
receives wages and land receives rent.
Marx treated capital very differently, by recognizing that it is much more than a simple
resource and expresses more than a purely technical relation of production. The central
point about capital for Marx is that it is not a resource in itself, but rather an expression
of very specific social relations of production, in particular historical contexts. Thus, all
means of production need not be capital. For example, a loom that is required to weave
cloth is capital if it is used in a factory by a worker employed to produce cloth to be sold
for profit, but it is not capital if it is used in a peasant household to create cloth to be used
by the members of the household. What makes the means of production capital are the
social relations that underlie the production process.
The particular social form that capital embodies is the relation between employer and
worker, which enables capitalist production to take place at all. This requires workers to
be ‘free’ in a double sense. First, they must be ‘free’ to sell their own labour power, that
is, not bound by other socio-economic ties and constraints that could prevent them from
working for wages, and not be tied to any particular employer. Second, they must also be
‘free’ of any ownership of the means of production, so that they have no choice but to
make themselves available for paid work for their own survival. This makes labour power
also a commodity, sold in the market for a value which is determined by social subsistence
norms. The peculiar nature of this commodity is that those who sell it may appear to be
and, in some respects are, free, but they live only as long as they find work, and they find
work only as long as their labour serves capital.
The concentration of ownership of the means of production in a few hands is effec-
tively what enables capital to play its role in production: ‘The existence of a class which
possesses nothing but the ability to work is a necessary presupposition of capital’ (Marx,
1847, Wage Labour and Capital (WLC), ‘The nature and growth of capital’). This con-
centration must be based on the expropriation of the means of production from those
who previously possessed it, such as peasants and small artisans who could have pro-
duced on their own. Marx points out that historically such expropriation (the primitive

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accumulation of capital) has been a violent process, emphasizing the forcible creation
of the ‘double freedom’ of labour. Capitalist production and capitalist private property
‘have for their fundamental condition the annihilation of self-earned private property; in
other words, the expropriation of the labourer’ (Marx, Capital I, ch. 33).
This conception of capital is very different from that which sees it as one among
several factors of production that operate on equal terms. Capital is an expression of a
class society, in which one class is able to live off the labour of another class or classes,
by virtue of control over the means of production. However, it can be contrasted with
other class societies such as feudalism, which relies on extra-economic coercion to
ensure that one class works to provide surplus for the ruling class, and ensures this not
only through force but also a set of religious and political illusions. By contrast, capital
operates on a purely contractual economic basis, through voluntary market exchange of
goods and commodities. But even to do this, capital also relies on an illusion, what Marx
calls ‘commodity fetishism’. This can be described as the situation in which relations
between people become mediated by relations between things: commodities and money.
Commodity fetishism occurs when value is seen as intrinsic to commodities rather than
being the result of labour, and the exchange of commodities and market-based interac-
tion are seen as the ‘natural’ way of dealing with all objects, rather than as a historically
specific set of social relations.

CAPITAL IN THE PROCESS OF PRODUCTION

The essence of capital is that it is deployed to produce commodities for profit, not for
use-value, or simply to be used. Thus, what is produced must be sold, or exchanged, to
generate a profit, and that is the sole purpose of production, rather than to meet existing
needs: ‘Capital does not consist in the fact that accumulated labour serves living labour as
a means for new production. It consists in the fact that living labour serves accumulated
labour as the means of preserving and multiplying its exchange value’ (Marx, WLC, ‘The
nature and growth of capital’).
How is this profit generated? It occurs because production organized by capital gener-
ates surplus value, which in turn is based on the distinction between the value created by
labour and the value of labour power. According to Marx, only workers can create value,
by using the means of production to transform raw materials into finished goods through
their labour. When any commodity is produced, the labour that is used in its production
does two things: it transfers the value of the raw materials used up in production to the
value of the final product, and it adds value over and above what is transferred. This value
which is added is necessarily different from, and more than, the value of labour power,
which is what the workers receive as wage. This difference, which is the unpaid or surplus
labour provided by the worker for the capitalist, forms the basis of profit.
Obviously, in this process, money plays a crucial role. Money capital is a critical part
of the circuit of capital. Without it, the transformation of commodities and labour
power into something of more value, which forms the basis of the capitalist production
process, cannot take place: ‘As a matter of history, capital, as opposed to landed property,
invariably takes the form at first of money’ (Marx, Capital I, ch. 4). But money in itself
is not capital, it has to be transformed into capital. Thus money as a mean of purchasing

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consumption goods is not capital; it becomes so only when it is used for the advances
made by the capitalist (to purchase inputs for production and the labour power whose use
will transform these inputs) to enable production for exchange and profit.
The process of production initiated by capital has the following social results: (1) the
product belongs to the capitalist and not the worker; (2) the value of the product includes,
in addition to the value of the capital advanced, a surplus value which has been extracted
from the workers but which, nonetheless, becomes the legitimate property of the capital-
ist; and (3) the worker still retains her or his labour power and can sell it again if she or
he can find a buyer.
In this process, the distinction between constant and variable capital is essential. This
is not the same as the distinction between fixed and circulating capital. Rather, it is based
on the argument that capital in itself cannot create value, which is only the result of the
application of labour: ‘the means of production can never add more value to the product
than they themselves possess independently of the process in which they assist’ (Marx,
Capital I, ch. 8). This makes it possible to distinguish between that part of the capital
outlay that does not change in value (constant capital) and that part (variable capital,
which is the payment for labour power) which does transform in value. Constant capital
refers to the outlays on equipment and materials used in production, the value of which
is conserved and transferred to the new product but does not change in the production
process. However, according to Marx, that part of capital that is represented by labour
power does vary over the production process and undergoes a change in value: ‘It both
reproduces the equivalent of its own value, and also produces an excess, a surplus-value,
which may itself vary, may be more or less according to circumstances’ (Marx, Capital
I, ch. 8). The distinction between means of production and labour power is therefore
closely related to the distinction between constant and variable capital.

FORMS OF CAPITAL

Industrial capital forms the focus of much of Marx’s analysis, and he clearly identified it
as the specific form which gives to production its ‘capitalist character’. He saw the trans-
formatory power of industrial capital, and noted that to the extent that it assumes control
over social production, it revolutionizes not only techniques but also the social organiza-
tion of the labour process and social, economic, cultural and legal institutions. However,
this does not mean that he was unaware of the existence of other forms of capital.
Indeed, because capital is clearly identified as a social relation that can take many differ-
ent forms, Marxian analysis is much more amenable to interpreting different forms of
capital through history and in changing circumstances. Marx described usurer’s capital
and merchant capital as ‘antediluvian’ forms of capital, which have existed as long as the
history of money in many different types of society, but essentially in the form of para-
sitic relations that did not have the power to transform socio-economic relations. This
occurs only when they fuse with industrial capital, when they thereby become integral to
the social formation of capitalism.
While Marx did not treat finance capital separately, later Marxists have explored the
implications of the emergence of finance capital for the transformation of capitalism
itself, through its association with the monopoly phase of capitalism and the strength

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of the financial oligarchy. While this does not change the fundamental nature of capital,
it adds additional dimensions in terms of the effect on the production process and the
nature of contradictions that are generated. The more recent theoretical elaboration of
other ‘forms’ of capital – such as social capital, cultural capital and human capital – is of
a different order, implying a shift away from the Marxian notion. Since these concepts
all tend to treat capital as a pure resource (however it is created), and assume away the
underlying social relations, they distort the notion of capital.

DYNAMICS OF CAPITAL
The nature of capital is constantly to transform itself and the society in which it oper-
ates: ‘The bourgeoisie cannot exist without constantly revolutionising the instruments of
production, and thereby the relations of production, and with them the whole relations
of society . . . Constant revolutionising of production, uninterrupted disturbance of all
social conditions, everlasting uncertainty and agitation distinguish the bourgeois epoch
from all earlier ones’ (Marx and Engels, Manifesto of the Communist Party (MCP), ch. 1).
This dynamism of capital has many unprecedented and positive results: a cosmopoli-
tan character of production, which is particularly evident in the current phase of globali-
zation; rapid improvements in technology and the creation of ‘colossal’ productive forces;
immensely facilitated means of communication; the agglomeration of populations into
cities; much greater interaction and interdependence of nations not only in economic
terms but also in intellectual and creative life. Capital generates new types of produc-
tion organization and economic institutions: not just the factory system but more recent
arrangements, financial institutions and structures, and legal systems. Further, capitalist
production has to produce not only commodities and surplus value, but also the capitalist
social relation, with the capitalist on one side and the wage worker on the other. This in
turn implies the continuing reproduction of a working class that is ‘free’ from the means
of production, through a continuous process of dispossession: ‘Capitalist production,
therefore, of itself reproduces the separation between labour-power and the means of
labour. It thereby reproduces and perpetuates the condition for exploiting the labourer. It
incessantly forces him to sell his labour-power in order to live, and enables the capitalist
to purchase labour-power in order that he may enrich himself’ (Marx, Capital I, ch. 23).
So capital cannot allow such enrichment of the working class as would lead to workers
abandoning the wage labour contract.
An additional aspect of this reproduction of wage labour that was not explicitly devel-
oped by Marx but which can be drawn out from his analysis is the need for the social
reproduction of the workforce. This is a process that involves and draws in unpaid labour
within households, and is typically based on the gender construction within the society,
such that women tend to perform most of such work. As this is not paid for by capital, it
constitutes part of the surplus labour supporting capitalist production even when it does
not directly produce surplus value itself.
At the same time, the accumulation of capital (its ‘extended reproduction’) can also
benefit from the persistence of non-capitalist economies or sectors which may be drawn
upon to facilitate the continuous expansion of capital. The household sector is necessar-
ily included within this, but other economies, for example, those under colonial control or

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peasant-based economies, can also play a similar supporting role, which may be crucial at
times. These features do not emerge directly from the ‘reproduction schemes’ of capital
described by Marx, but have been developed by later Marxists and play a central role in
Marxian notions of imperialism.

THE CONTRADICTIONS OF CAPITAL

While capital is inherently dynamic and constantly changing, it is also based on many
contradictions at different levels. This generates a process whereby capital over time
creates the conditions for its own destruction. There are several aspects to this con-
tradictory nature of capital. First of all, like all class societies, the society created by
capital is also ridden by conflict. Marx saw class relations between capital and labour as
fundamentally antagonistic, even though they are not always expressed openly in these
terms. In national income, profit and wage shares always have an inverse relation, and
this expresses the fundamentally different interests of the two classes. Thus the dynam-
ics of capital is simultaneously to aggrandise itself and impoverish other classes such as
workers and peasants, within and across nations.
Antagonisms are not only between the two classes. The capitalist system also generates
intra-class conflict. It pits individual capital against other capitals, as competition is the
essence of market relations, and the individual worker against other workers. The system
created by capital means that individual capitals are subject to the almost inexorable
laws of the system, including a struggle for survival among the capitalists. So individual-
ism, conflict and competition become the driving forces of the system, even when they
are implicit and not fully recognized. In addition, there can be contradictions between
different forms of capital. At the same time, the system also encourages workers to see
themselves not as a group sharing the same fundamental interest vis-à-vis capital, but as
rivals in the labour market competing for employment and wages.
Similarly, the accumulation of capital generates higher productivity and transforms
systems, but it is also associated with uneven development. A central feature is the
centralization of capital, which expresses the inherent antagonism between capitals:
‘Accumulation, therefore, presents itself on the one hand as increasing concentration of
the means of production, and of the command over labour; on the other, as repulsion
of many individual capitals one from another . . . It is concentration of capitals already
formed, destruction of their individual independence, expropriation of capitalist by
capitalist, transformation of many small into few large capitals . . . Capital grows in one
place to a huge mass in a single hand, because it has in another place been lost by many’
(Marx, Capital I, ch. 25).
The individualism and competition between capitals also create what Marx calls the
anarchy of the market and the inevitable tendency towards crises. Overproduction in
terms of the market (even when human needs of all the people in the society need not be
satisfied) is a characteristic feature simply because of the way individual capitals operate
in the drive to generate more profit. The process of accumulation cannot be smooth, but
must be uneven and punctuated by crises, and these periodic crises involve the destruc-
tion of a significant proportion of existing products and productive forces. Another
fundamental contradiction brought about by capital is the loss of control by workers

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over their own work. This alienation of the workers means that they effectively cease to
be autonomous human beings, because they cannot control their workplace, the products
they produce, or even the way they relate to each other. Social emancipation is clearly not
possible in such a context.
These various contradictions suggest why Marx viewed capitalism as a historically
bounded system, which brings about its own demise. Because it is based on competi-
tion and conflict rather than co-operation, it leads to continuous and prolonged crises.
After a point, it limits the full and free development of the productive forces of society
and excludes the possibility of social control and regulation of the forces of nature. This
is why crises in capitalist accumulation are also always crises in the perpetuation of the
class relations necessary for capitalist production. These also make them opportunities
for revolutionary change.

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