1) The Marxist understanding of the meaning of capital is connected to the everyday and non-Marxist economist use of the term to refer to an asset owned by an individual which is capable of generating income. For Karl Marx, capital is better understood as a social relation than as a thing, and it is a social relation that is specific to a particular historical formation of society, namely, capitalism. So, as with the more usual usage, capital does refer to assets that generate income, but in what amounts to a critique of non-Marxist economists and their use of the term, capital can only be seen as historically specific and not as something found in all societies, and also it is not a thing but a social relation. In describing it as a social relation, Marx intends to convey the idea that capital, while appearing to be a thing, actually embodies the predominant social relation in capitalism where the means of production are owned and controlled by a tiny minority to whom the vast majority must sell their labor power. Capital may take different forms including the form of money, credit for the purchase of labor power and other requirements for production, machinery and stocks of goods.
   Marx distinguishes between what he terms “constant capital” and “variable capital,” and these terms are important in his theory of exploitation and his law of the tendency of the rate of profit to fall.
   Constant capital refers to machinery and raw material used up in the process of production, and variable capital refers to labor power. The former is referred to as constant because its value does not vary in the course of production; it does not create or increase value and represents what Marx calls “dead labor.” Labor power, because it is capable of generating value is called variable: its value can vary (see LABOR THEORY OF VALUE). The ratio of constant to variable capital changes over time according to Marx, with an ever greater proportion of constant capital in what Marx calls the “organic composition of capital.” This increase in the ratio of constant to variable capital results in a reduction in surplus value (because only variable capital, or labor power, creates surplus value), and ultimately in a decline in the rate of profit. The tendency of the rate of profit to fall leads to economic crises and ultimately the collapse of capitalism.
   Marx also talks about what he calls the “circuit of capital.” He suggests that in a relatively underdeveloped exchange economy individuals produce goods (commodities) to sell for money which they then use to buy other commodities, such as food and clothes, that they need to live. This process Marx calls the “circuit of commodities” and he represents it as the formula C-M-C, with C standing for commodity and M for money. In a more developed industrial capitalist economy the starting point is money, which is advanced to purchase commodities such as machinery and labor power in order to create new commodities that are in turn sold for a greater amount of money than was originally invested. Marx represents this with the formula M-C-M', where M is money, C is commodity and M' is the increased amount of money obtained from the process. It is this circuit of capital that highlights the issue of the source of profit: if everything exchanges for its value, where does profit come from? The answer lies in the special nature of labor power and is explained in Marx’s theory of surplus value and notion of exploitation.
   2) Capital
   The culmination of Karl Marx’s life’s work, Capital (volume I, 1867; volume II, 1885; volume III, 1894), contains Marx’s analysis of capitalism. In his theory of historical materialism Marx identified the economic structure of society, and in particular the forces and relations of production, as the crucial factors in shaping the nature and character of society, and in Capital Marx applies this insight to the system of capitalism, in his words, “to lay bare the economic laws of modern society.” Marx’s analysis of capitalism is not a straightforward descriptive account of the capitalist economic model, and it is not pure economic theory. Rather, Capital examines capitalism as a historical epoch, a mode of production, the origins, development and decline of which he seeks to trace. He sees capitalism as a form of economic organization that has arisen and developed only recently in historical terms, and which contains tendencies and contradictions that will inevitably lead to its decline and collapse. Capital is also, according to Marx, a scientific and critical work, based on solid research and rigorous reasoning, and containing a critique of both capitalism and the bourgeois political economists who have misdescribed capitalism as a harmonious, efficient and stable system.

Historical dictionary of Marxism. . 2014.

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