What is the capital in capitalism? Many people will reply that capital is money, but this is a mistake. It is an honest mistake, because money is one form in which capital travels, but money is by no means the heart of capital itself.
When thinking of capital, consider the semantic history of the word. As Hernando de Soto describes this history in his recent book, The Mystery of Capital, “in medieval Latin, ‘capital' appears to have denoted head of cattle or other livestock, which have always been important sources of wealth beyond the basic meat they provide.” Like money, livestock are highly mobile and easily countable forms of wealth. More importantly, de Soto explains, “From livestock you can obtain additional wealth, or surplus value, by setting in motion other industries, including milk, hides, wool, meat, and fuel.” Furthermore, livestock can reproduce themselves. The word capital, then, starts to take on two meanings; one describes the physical attributes of assets–in this case, livestock–while the other describes the assets' capability to produce surplus value. And it is this production of surplus value that is the hallmark of capital. As de Soto concludes, “From the barnyard, it was only a short step to the desks of the inventors of economics, who generally defined ‘capital' as that part of a country's assets that initiates surplus production and increases productivity.”
Why is capital important? Because such surplus production and increased productivity are the primary tools that entrepreneurs use to create wealth, thereby enriching those around them. In this way, the free market enlarges the economic “pie”–far preferable to redistributing ever-diminishing slices of static wealth. The wealth-creating power of capital is one good reason for defending the morality of the free market. I thank you for the support that allows the Acton Institute to articulate this defense to our religious, political, and business leaders.
Fr. Robert A. Sirico