Universitas, Number 10, November 2001

St Thomas Money And Capital

dgboland © 2001

In order to define money we need to be clear about certain other things, whose understanding is presupposed. A large part of the difficulty derives from a lack of proper distinctions made in our notion of capital. Hence we must first gain a reasonably clear idea of what capital is. This is more than a matter of determining what the word "capital" means to those who use it. For such meanings as are applied to the word, even within the technical terminology of the science of Economics, are many and various. One noted economist, quite some years back now, counted up something like 37 different usages of the word within Economic Science. If we are to get anywhere at all, and not be sucked into a maelstrom of mental confusion, we need to achieve at least something approaching an understanding of what this thing capital, which we deal with every day, really is. Putting this in Aristotelian terms, there may be a multitude of nominal definitions of "capital", but there can be only one real definition.

The search for such a definition can proceed upon one of two lines of enquiry; from general notions to the specific thing; or from particular examples to the common notion that prompts us to call them all "capital". In either case, however, it is advisable to start with one or other nominal definition. For a good nominal definition tells us something about the thing through its name. As Aristotle says, "We name things as we know them".

Let us start, then, with the definition given by Adam Smith, for whom capital is "that part of a man's stock, which he expects to afford him a revenue". (Wealth of Nations, Book 2, c. 1). Though put in rather old-fashioned language, being addressed to readers living in the seventeen hundreds, it states pretty accurately what the word means to many today. This becomes clear if we simply replace the words "stock" and "revenue" by the more familiar modern terms of "wealth" and "income". Moreover, Smith knew his logic and so his definition respects the primary condition of a definition, namely its immediate division into something general and something that differentiates it from others in that same general category, or into genus and specific difference. Thus, Smith was attempting to give a real definition. Why he did not succeed we will discuss below. But the correct logical form of the definition serves well our purposes here.

Etymologically, "capital" comes from the Latin word meaning "head" (capita); and apparently referred to the number of cattle (farm animals) kept "for the increase". There is in the notion, then, the idea of wealth set aside from consumption with a view to the production of further wealth, or for the sake of an "income". The idea is clear enough when applied to things that reproduce themselves, or to living capital. As with the word "stock" however, the notion of capital is not limited to living things, but is applied to any kind of wealth that produces an income.

So too the "increase", in this extension of meaning, is not limited to a separate thing produced by the capital. Some things, such as printing machines, are (or were) useful for producing other things, such as newspapers. But there are other things, which are useful without necessarily producing something separate. Such are buildings and the thousands of other things we make use of every day. The use we make of these things (without greatly affecting them) is something distinct from the thing itself, and can be looked at as a sort of "increase" over the mere possession of the thing. Thus, even houses normally used by the owners are a natural part of their capital, for which they expect a return when they let someone else use them. The notion of capital, then, is very wide, indeed as wide as the notion of wealth but for the difference of being kept "for the increase", or "return", i.e. for the "interest" or "rent".

There are, however, other things, the use of which cannot be distinguished from the thing itself. To use it is to "lose" it. These are "consumables"; their use is to be consumed. The division of wealth or goods into those devoted to production and to consumption is not an entirely satisfactory one, unless we include in the notion of production that which is not production but mere use. We use things without consuming them not only when we produce from them but also simply when we use them. The grinding machines in the mill produce flour, and they are called capital. But the mill as a building produces nothing, yet it too is called capital. Both are wealth that one expects to afford an income.

But where the use of something cannot be distinguished from the thing itself we do not have production in any sense but consumption. With bread, for example, the use of it lies in its consumption. As such, therefore, it is not capital. (That does not exclude the possibility of a use that does not involve eating the bread, such as putting it on display, for example, in which case the use is distinct). So where something, such as a kilo of sugar, is "lent" to another for the purposes of consumption we do not seek a payment for its use over and above the thing itself. We simply expect to receive back the same amount. The expression of this kind of transaction as a loan comes about because we treat these things as the same provided they are equivalent in value; i.e. if they are the same in quantity (and quality) - or which "function" the same. Hence the name "fungible". The only basis for repayment is either another kilo of sugar, or its equivalent in value. Not being capital one does not expect the use of such an item of wealth to afford an income (interest, rent). To exact such an income or interest over and above the return of an equivalent of the thing "lent" is an illegitimate and immoral charge for a non-existent distinct use, as if it were separable from the thing itself. That is precisely the notion of usury. A preliminary (nominal) definition of usury, therefore, may be "a revenue expected from the use of wealth that is not capital".

So why is Adam Smith's definition of capital not good enough? There are a number of points to be made about it, but they can be classified according to what relates to the genus of his definition, his notion of wealth, and what relates to the specific difference, "that one expects a revenue from". Taking some points relative to the latter first, to state something in a definition of a thing one should refer to something in the thing or object. Adam Smith's differential is subjective, and consequential on something about the thing. What I expect and what I may reasonably expect may not be the same. One may expect to receive a "revenue" of say 50 cents a day from lending the neighbour a dozen eggs for a couple of days. What one is likely to get upon demanding this is egg all over one's face. To some extent, this fault in the definition may be overcome by qualifying my subjective state by a rational assessment based upon reality. Thus, Smith should at least have said: "that one is entitled to expect, or with (good) reason expects, a revenue from".

The second point about it is that it brings into play a social consideration that is not relevant at this stage of the consideration of capital. We are seeking at this stage a positive notion of capital, not a relative one. "Revenue" and "income" are terms used primarily in the context of the exchange of wealth where wealth and income are measured and expressed in terms of money. But we are trying to obtain a definition of capital before we bring the social notions of "return" or money into the picture. The calf of the cow is so much "income" to the grazier. But we want to think of the calf as positive new wealth before we bring in the complication of considering it as so much money accruing to the grazier, looking forward to its sale. Similarly, the use of the house is so much "rent" or "revenue" to the landlord but that is looking at it from the aspect of payment for the use. Hopefully, the house is really useful. The "rent" only measures, in a social context, relative assessments of such utility. It is the positive utility of the premises that is the "increase" upon which this assessment is based.

This second defect in the specific difference adopted by Adam Smith points up the confusion of capital and money that underlies his definition as a whole. This comes out in his failure to make a most important distinction in the notion of wealth, which is the genus, the fundamental part, of the definition of capital (see below). Though the notion of "stock" or "wealth" most naturally conjures up tangible goods, in a commercially orientated economy it very readily becomes absorbed into its monetary equivalent. Adam Smith, despite his opposition to Mercantilism, was not unaffected by the rise of the modern commercial state.

The error of Mercantilism in identifying national wealth with holdings of gold or money was recognised in the international context. But it was not so clearly seen in the national or "domestic" context. "Free Trade" did not mean the absence of internal monopolies, but free foreign trade. The colossal value "produced" by restraint upon trade internally, or political protection at the expense of one's own fellow citizens, was very much part of the notion of "property" that was just as fiercely fought for as "free trade". Unfortunately this narrow notion of free trade persists - as in the present international push for free trade zones. Mercantilism, too, remains the underlying mood of modern economic thought, which from time to time surfaces to modify the official liberal theory, as in Keynesian economics. For people, including economists, somehow sense that our economic troubles have more to do with the management of money than with lack of natural wealth or productive power, with the distribution or sharing of wealth (through "the market") rather than with its production.

However, these matters of general economic theory and of economic history belong to another discussion. What we want to say here is that, when the economists think of wealth, they tend to think in terms of money. Indeed, we might say that the new science of Political Economy grew out of the need to make sense of the newly emerging commercial world, and all its notions were correspondingly commercially (and financially) oriented. In the transition, however, a very important distinction with regard to the notion of wealth had been lost. This distinction goes back to Aristotle, and is the cornerstone of St. Thomas' treatment of wealth and money. Without it one can hardly comprehend the discussion of usury, as a return expected for the use of money.

The distinction is that between what St. Thomas called "natural wealth" and "artificial wealth". It is connected with Adam Smith's distinction between "use value" and "exchange value" but has to be kept clearly distinct from it. From a more general point of view the distinction is between positive wealth and relative wealth. St. Thomas calls the former "natural" not in a physical sense but in a moral sense. For the context of the discussion is Ethics or rather Social Ethics (Aristotle's Politics). Similarly, he calls the latter "artificial" not in a technical sense, but in a moral sense. For the gist of the distinction lies in the fact that "artificial wealth" is a creation of an agreement of wills, or social convention, whereas "natural wealth" is not. Hence, "natural wealth" includes not only natural resources but also all the products of human industry. The fact that the existence of the latter depends upon individual wills is not to the point. We can add to those items of wealth the distinctive utility belonging to these things, though this more specifically might be called (natural) "income", something coming from the continued use of things and hence generally taking place over time.

What, then, is "artificial wealth"? Money, in fact, is one of the best examples of this "species" of wealth. For its "production" depends purely upon social convention. Not only fiat money, which is the "product" of government will, presumably on behalf of the community, but also money that evolves out of the exchanges of products among people, comes into existence simply from the agreements or promises to complete the exchange of goods in due course. Once again, we may make use of a good (nominal) definition of Adam Smith, made it seems without fully appreciating the implications of what he is saying: Money is "a 'bill of exchange' endorsed by the whole community."

From particular exchanges mediated by "bills" or "notes" of obligation to pay (ultimately "backed" by goods) for the goods received, there arises a system of common "promissory notes" that is, as it were, a bank of (individuals') credit within the community. One's entitlement to such credit is measured in terms of the amount of notes held at any particular time. This evolves slowly of course and for a long time there will not exist the trust needed without the community "debt" to the individual exchangers being represented by natural wealth that can conveniently act as money. Thus gold or silver come to serve as money, as the common medium of exchange, not being generally desired for their proper utility, and having the necessary properties of divisibility and portability.

The best money, though, is that which has, in Adam Smith's language, no use value but only exchange value. This is in fact what money is essentially, for the paper or other evidence of the (social) agreement to pay has virtually no natural utility. This is very evident in the 'electronic transfer of funds' which is now so common. It is not natural wealth. It has a utility from the agreement of those involved in the exchange process purely for the purposes of exchange. The value of the money is not from production in any natural sense, but solely from an obligation based upon a promise.

In St. Thomas' language, derived from Aristotle, money is useful, and has a great utility at that, but its utility is not to be confused with the natural utility attaching to natural wealth. Its utility, if you like, is rationally created, rather than naturally produced. Its utility is as a means of (facilitating) exchange. Aristotle had already made the necessary distinction: "Twofold is the use of the shoe", one to protect the feet, the other to exchange for something else; the one proper to the shoe as an item of natural wealth, the other common with all other products in exchange. Money, as the common means of exchange (by social agreement) is that which has no proper or natural utility, but only the utility common to all exchanging products. If we want to distinguish it from all other goods in exchange we can say that its "proper" utility is in exchange. What Aristotle calls a thing's proper use, Smith calls its use value; what Aristotle calls its common use or use in exchange, Smith calls its exchange value or value in exchange. It is significant that Adam Smith introduces the notion of "value" into the distinction between the two uses of the shoe. It is another sign that he is thinking in terms of the social measure of wealth, in relative rather than positive terms, and consequently not properly distinguishing wealth from money.

To complete our discussion of the definition of capital, therefore, we see that we must distinguish the genus "wealth" into natural and artificial. Instead of "wealth" being the most proximate genus, it is a remote one. Capital defined in such terms is therefore ambiguous, or at least analogous. Just as there are two distinct notions of wealth it is possible that there are two distinct notions of capital. It will not be difficult to see which of the two would be primary. So, using Adam Smith's language (adapted for our purposes), we should define "natural capital" first, as "that part of a man's natural wealth that he (reasonably) expects to afford him a revenue". Can we then define "artificial capital" (to which belongs the notion of money) as "that part of a man's artificial wealth that he expects to afford him a revenue"?

Here we strike a difficulty. For, at least in the case of money, the utility that needs to be the objective basis of the expectation of a revenue is not something proper (in which there may be property) but common only, which if it belongs to anyone belongs to the community. The promise to pay is not any individual's promise (or debt), for the community has taken it over. Money's (social) function is to act as a common medium of exchange. That is its common utility. It is also a common measure of exchange. So it is like a common measuring stick that is passed around. No one can claim it as his. The very nature of it is to be everyone's property and therefore no one's. No individual possessing it, for the time being, would have the audacity to claim "interest" on the basis of someone else's use of it.

St. Thomas' argument for the illegitimacy of usury, as a payment for the use of money, relies not directly on the fact that it is artificial wealth, or that its utility is common, but on a comparison with "fungibles", i.e. wealth whose sole use is in their consumption. For, the use of money as money is to be passed in exchange for something else. Once the transaction has been completed the money is "gone" so far as the borrower is concerned, "consumed" in the process. The use of the money is now in the hands of someone else. How, then, can anyone charge the borrower for the (continued) use of the money?

However, what we are primarily concerned with in this article is the definition of money. It is not natural wealth, and so cannot be regarded in the same way as natural capital. As St. Thomas notes, money is artificial wealth, which means that it depends upon (social) convention or agreement. This does not mean that its value is arbitrary, for it is a supremely rational thing. But where there is no social interaction there is no money. Yet there is nothing to prevent us thinking of capital on Crusoe's island.

Money, therefore, is a creature of social communication (of goods, not ideas). Just as language arises out of a need to communicate more easily one's thoughts so money arises out of a need to exchange more easily one's goods. (Does anyone have property in the use of language?) However, money is not the only example of artificial wealth. Any promise to pay made (by the promisor/debtor) gives rise to new "wealth" on the part of the creditor, even before any new natural wealth has been produced. From the point of view of the creditors it is an addition to their wealth. But from the point of view of the community as a whole such an increase in wealth (by extending "credit") is purely relative. For the community includes not only the creditor but also the debtor (in the case of money the community as a whole is the debtor). So there is no real increase in (natural) wealth.

There are therefore many kinds of artificial wealth dependent upon mutual arrangements between members of the community. Such are evidenced by promissory notes, bills of exchange, letters of credit and so on. But there is one system of credit/debt that is invented by the community as a whole for the benefit of all, in facilitating exchange. That is the strict notion of money. It is wealth artificially created (i.e. by agreement) primarily for the purpose of facilitating the exchange of goods (natural wealth), though secondarily it serves also as a means of exchanging debts (artificial wealth). It is thus the community's medium of exchange, or simply speaking the common medium of exchange.

Now every useful product within a community has a value in exchange and indeed thus serves as a measure of the value of another useful good. So too can a promise to provide a (naturally) useful thing (whose value is fundamentally determined by reference to the community's comparative need for same as estimated in the market). Thus, a debt measures wealth. Money is a debt, but it has peculiar characteristics. Firstly, it is (an agreed symbol of) the community's promise to pay individuals according to the "bills of exchange" (money) they hold. Though historically the "bill" may have originated within a part of the community it has been "endorsed" by the whole community. Secondly, it assumes the role of the common measure of value, the standard of value. Other characteristics sometimes given it, such as "store of value", are not peculiar to it, for any valuable item of wealth is a "store" of value. Similarly, such synonyms as "currency", and properties such as "liquidity", are only metaphors for the fact that it is immediately accepted by all within the community for the purposes of exchange.

It is to be remembered that we are here talking of money in the strictest sense, and only with regard to its use as money. St. Thomas has already noted that coins etc might be used for other purposes, as collectors' items, for instance. Moreover, there are many senses in which the word "money" is used that are not relevant here. Because it is the way we measure our wealth we often use the word "money" for wealth. Rich people are those who have a lot of money (in the sense of possessions), but they may in fact have very little money (cash). Even economists stretch the meaning of money to include all sorts of debts that are readily negotiable. But only such promises to pay as are endorsed by the whole community (or at least honoured immediately by the government on behalf of the community) are strictly speaking money. Our present concern is to obtain a definition of money in its strict sense.

Is money capital? The answer as seen from the above analysis is that it is not if we are talking about natural capital, for it is not natural wealth. Is it artificial capital? Well, it is certainly artificial wealth. Such wealth has no natural utility but a conventional one. Generally, such a notion would seem to cover all sorts of agreements to pay someone else. All these can be considered media of exchange and even measures of value in the market. So we need some differentiating feature to indicate how money differs from other such agreements. This lies in its commonness or community wide acceptance. Thus money has been described as the most common medium of exchange. But we have to be careful with this way of expressing it, for one of the rules of definition that Aristotle gives is not to have "most" or any word signifying degree in a (real) definition. For one thing the "most" common medium may fall short of the truly common, if there is none such. Also the "most common" could very well vary according to change of circumstances.

How do we relate money to capital? If anything it is artificial capital. But how do we distinguish artificial capital from artificial wealth? Can we differentiate artificial capital from artificial wealth by comparison with the distinction between natural wealth and natural capital? On that basis money would be compared with wealth that is consumed in its use, and hence would not be capital. However, the reason why we cannot call money capital seems to lie in something more fundamental. Its "nature" is purely rational (if it is "held" in material signs). One cannot put a measurable value on its utility. This applies to all artificial wealth, whose existence depends on simple agreement to do something in the future (i.e. "realise" the promise, complete the exchange of natural wealth). It is not a matter of wealth so much as a matter of honour. In truth the healthy functioning of the whole economy depends upon the utility of people's honour in this regard. But who is going to charge for its use? Are the more honourable able to put a higher "price" on their promises? No, essentially this utility is priceless, too good to measure in economic terms, not for sale.

Hence, if any "price" attaches to the use of promises, or on bills of exchange, including money, it does so by reason of something extrinsic to such usefulness. Intrinsically, such utility is without price, because it is above price. There are indeed many extrinsic reasons why certain costs might attach to the lending of money, or the extending of credit, to someone who is not in a position to pay for something for some time. (To traders, for instance, unreasonable delay by someone in honouring a bill of exchange usually means a loss of business. The discount on the value of the bill relates to this loss rather than to any "interest" on the use of the bill). These costs can be called "interest" and imagined to be like a payment for the use of money, or credit, upon analogy with natural capital. They give the appearance of being exceptions to the moral law regarding usury. But in reality they are not a payment for the use of money.

What are some of these possible costs in relation to the lending of money? Let us list a few. It is convenient to distinguish the case of someone in the business of lending money such as a bank (A) from that of someone doing so on an ad hoc basis (B):

A.1. Cost of labour of management and employees together with the host of costs connected with the employment of others, such as provision for sick pay, long service leave, workers' compensation, and so on.

A 2. Cost of a capital nature required, such as land and buildings, equipment (accounting machines etc), books or other means of keeping records and archiving, computers, and other costs incidental to the business, such as telephones, teller machines, cars, etc.

A 3. Cost of maintaining and repairing the above capital.

A 4. Provision for a proper return for the use of such capital (i.e. rental value).

A 5. Cost of insurance against risks of every kind, including the risk of not being repaid the principal sum (normally reduced, however, by insisting on "security").

A6. Costs of taxes associated with the business, including land tax, income tax, payroll tax, GST, etc.

A.7 Cost of "interest" paid to depositors who provide the money to others through the banks or other lending institution. In regard to the legitimacy of such interest paid to these lenders/depositors it can at least be assumed that they have forgone the opportunity to profitably put their money elsewhere. So far as the banks are concerned, however, it is a legitimate cost of their operations. We are not referring here, of course, to the banks' expansion of credit facilities beyond the extent of their deposits, where usurious returns may come into play.

B 1. The above are examples of what the scholastics called damnum emergens (losses arising), costs associated with the loan. The individuals making a loan to others may not be subject to costs of this dimension, but would be entitled to require the borrowers to compensate them for any measurable costs connected with the loans. This would include their time and trouble (labour), together with the capital costs associated with keeping a record of the transaction, and any taxes levied in respect of same.

B 2. Besides these direct costs there may be indirect ones such as diverting one's funds from, or deliberately forgoing the opportunity of investing the money in, some profitable enterprise or venture (e.g. in shares), so as to help out the borrower. Such like indirect costs the scholastics called lucrum cessans (profits ceasing). There is no reason why considerations of this nature might not also apply in the case of operating a business of lending money, or extending credit.

Considerations of this kind would apply to the operation of Credit Unions and other credit co-operatives. They could not be expected to operate at a loss. They simply are not looking to make any profit over and above the usual costs of running a business. There is no reason, however, why a private bank should not make an additional, competitive, "profit" in the sense of a return to enterprise comparable to that of non-banking businesses.

Unwarranted profits arise, though, in situations of monopoly arising from political protection of the rich, or lack of political action where the (economically) strong exploit the weak. Then, the business can set its own rates or "prices" according to "what the traffic will bear", paying hypocritical homage to the "laws of supply and demand". (see note * below)

The ones that suffer then are generally the poor, and where money and finance are the businesses involved we can have institutionalised usury. For, though usury is defined as payment for the use of what is not capital, such as money, this is considering the question according to the intrinsic nature of money. When extrinsic factors are taken into account, the notion of usury rather becomes a payment for use in excess of cost. It is in this regard that we talk of usurious interest, as if it amounted to excessive charging for the use of money.

These are some of the circumstances that may affect the judgement of what is usury. Another circumstance, where the position is not so clear, is where the loan is tied to a particular purpose or end, as in a housing loan. Normally, the purposes for which the borrowers want the money borrowed are not relevant. What they do with the money, how they use it, is their concern, not the lenders'. St. Thomas, in dealing with the just price, asks whether the sellers can demand an increased price, over and above the market price, because of the buyers' particular need or use for the things sold. The answer is no, because that utility attaches to the thing not from anything that the sellers have contributed, but only from something to do with the buyers. The sellers are not entitled to sell what is not theirs. (On the other hand, an extra "cost" arising from the sellers' particular need for the thing may be taken into account).

Similarly, the lenders are not entitled to take advantage of the borrowers special needs for the money, nor of the fact that it might be of much greater use to them than to most. The fact is, of course, that the lenders are not entitled to charge for any use of the money as such, and are entitled to charge "interest" only to the extent of the costs attaching to their, the lenders', circumstances.

However, if the loan is made specifically on the condition that the borrowers use it for one purpose only, different considerations may apply. For we may be able to argue in this case that the lenders intend to provide the borrowers (by medium of money) with the use of a house. The lenders put up the money for the house, and secure the loan by a mortgage. Are they lending money or making the use of a house available to the borrowers/purchasers?

Personally, I do not see why it cannot be viewed as the lenders making a loan of money specifically for the sake of the purchase and use of a house. The following considerations are offered, therefore, as a possible way of looking at modern practices that seem to make the notion of usury untenable. According to Aristotle, those who steal for the sake of adultery are more adulterers than thieves. Could we not say, then, that those who lend money for the sake of housing others are more house providers than moneylenders? Hence, though they may not be entitled to charge interest on the money lent there would seem to be no reason why they could not justify a charge for the use of the house that has been purchased with the lenders' money.

In fact, the transaction of mortgage could be viewed as a (interim) purchase by the lenders with the borrowers having the right to the absolute transfer of the property into their names upon full payment of the loan. This indeed was the legal position under the common law of England until quite recent times, with such a right being termed an "equity of redemption". There could be no question from such a purely common law point of view, admittedly a partial and artificial one in the full context of law and equity, that the lenders would be entitled to a payment for the use of the land (or house) - until its redemption by the borrowers upon payment out of the mortgage sum. If, though, a transaction that prima facie is a loan of money can also be looked upon as a loan of property, or capital, the "interest" upon the loan will need to be governed by the market assessment of returns or rents for properties of like nature. That is to say it must be treated like a charge for the use of natural capital rather than for the use of money. And any attempt to charge the borrowers more than what is a reasonable "rent" (and any costs associated with the whole transaction) could amount to usury.

Seemingly related to this aspect of the use of money is the question of joint ventures. St. Thomas sees no problem with money "lent" to another where an association or some sort of partnership is formed for the purpose of a productive enterprise. Hence, if money is "advanced" on the understanding that it is to be used in purchasing or hiring capital goods or labour, say in the operation of a flour mill, the profits of running that undertaking are shared by all concerned according to their contribution. For those who have contributed the "financial capital" there would appear to be in this case a return on the use of their money. Yet the return would not be directly related to the use of the money but to the utility of the natural capital purchased or hired (with the money) for use in the productive process. The labour of all involved, including management, would merit its due return so that apart from incidental factors that really amount to compensation for costs, as explained above, the return to the contributors of money would essentially be reflected in the return on the use of capital goods purchased jointly for the purpose of the enterprise. That is to say, the return would be based on the natural capital used in the business.

There is one kind of business, however, where money does function like capital and appears to bring a return from its use. That is the case discussed at length in my article "St. Thomas on the Stock Exchange", namely, the case where one buys "commodities" in order to sell them at a profit. This is what I have given the name "dealing" to. For it is possible to "make a profit" from trading in such a way that one uses money as the principle and end rather than as the medium of exchange. This is a secondary kind of exchange that Aristotle tended to classify as "unnatural" but as we have seen is better called "non-natural", for it can be legitimate if limited to natural and rational needs.

Money may be "lent" or "invested" in a business of this nature, just like investing in a flour mill business. Here it looks as if one is obtaining a return directly from the use of money, as if money is productive just like the flourmill. But even here all that is happening is that the provider of the money shares in the profits of the enterprise as a partner. The profits are from the activity of the enterprise, the difference between buying price and selling price of the commodities involved. It is the "dealing" that is profitable. Because it needs money to start the process the money is likened to natural capital needed to start up the flourmill. However, in fact, the profits are due to the astuteness of the dealers, not to any utility in money as such.

Nonetheless the profitability of this sophisticated sort of trading promotes the illusion that money is productive and provides strong support to those who wish to defend usury as something quite normal and even necessary for the efficient functioning of the commercial economy. Capital is thought of principally in terms of "merchants' capital", or "financing" an enterprise. "Capitalism" comes to mean the economic system that views money as the principal motive force in the economy, as capital par excellence. So ingrained is this in the classical economic theory that Marx and Engels were able to subtly insert it, without being challenged, into their analysis as the general formula for capital itself. Thus Engels in his synopsis of Marx's Capital says, "M-C-M' appears, indeed, to be a form peculiar to merchant's capital alone. But industrial capital, too, is money which is converted into commodities, and by the latter's sale reconverted into more money. Acts that take place between purchase and sale, outside the sphere of circulation, effect no change in this. Lastly, in interest-bearing capital, the process appears as M-M' without any intermediary, value that is, as it were, greater than itself." (1. "The General Formula for Capital"- extracted from text transcribed to the Internet in 1993 by Zodiac, according to html Markup done in early 1999 by Brian Basgen).

Marx's critique of Capitalism is able to draw upon Aristotle's distinction between (morally) natural and unnatural (if not limited) exchange and by taking the unnatural for the natural to show up the ugly face of an economic system that failed to distinguish between the two. Thus Capitalism and Communism have virtually the same distorted notion of capital, both taking the unnatural for the natural, the one interpreting it as necessarily good, the other as necessarily bad. Both Capitalism and Communism see "investment" of capital principally in terms of M-C-M' (dealing) and MM' (usury), the one singing their praises the other accusing them of being essentially exploitative. St. Thomas' position, as I understand it, is that usury is essentially exploitative, but dealing is not. We have at last seen that Communism is erroneous, so much so that it nearly destroyed whole societies and economies. We have yet to come to see clearly the deficiencies of Capitalism (so understood) which, though not as radical as those of Communism, are sufficiently serious to divide communities and the whole world into the few rich and the impoverished many. (see note ** below)

These questions deserve a much more extensive treatment than we can give them here. Since our main concern is with the definition of money, let us sum up by defining money as "artificial wealth that is the common medium of exchange of goods in a community". Money, strictly speaking, is not to be equated with natural wealth. It is not "natural" but "artificial" or purely rational; it is a pure means, the value of which is purely relative. Thus it is not capital.

That does not prevent us, however, from calling money capital in a logically improper sense, or in using the word in some other metaphorical way.

* Such monopoly privileges or power have an effect beyond the inflation of prices caused by the artificial restriction upon competition in the market. They actually "create" a whole new order of private "artificial" wealth. For the actual prices now have two elements. One part of the price represents the price as it would have been without the restriction upon competition imposed politically, or by superior economic power, and the other part represents the increase attributable to that restriction. This additional part, or increase in the price, is then "capitalised" in the market. Being a return not attributable to the ordinary factors of production it can be looked upon as if one had capital providing a separate return or "rent". But in this case it is not the capital that produces the income, it is the income that produces the "capital".

It is not true capital but only a capitalisation of an unearned income. That is to say it is a mathematical amount arrived at by comparison with the ratio between natural capital and income within the market. If, for instance, the average rate of interest on capital is 5% then in general terms an income of $5000 per annum (made through the increase in the price of the monopoly goods) would be worth $100000. The "right" or licence to that monopoly position in the market would therefore sell for about that amount.

The "capital" value represents the exchange value not of useful products (that naturally command others in exchange) but of a pure power (unbased in any useful contribution to the exchange) to command useful products. Its origin is in will, not in the wills of parties agreeing or promising to provide ultimately goods of equivalent value, but in the will of one (or some "combine") imposed upon others by either political authority or from relative superiority of one sort or another within the social order.

Thus we really have a threefold division of wealth or "capital" within any actual economy. Besides natural and artificial wealth, as already discussed, there is a third category that looks and acts like normal artificial wealth but is quite opposite even to it. Though it depends upon will it does not depend upon agreement. It depends ultimately upon force, whether legal or not. Morally speaking, therefore, unless able to be legitimised from some other (political) consideration, it is to be classified as violent or unnatural. It is not a legitimate part of the economy. It is anti-social and thus fundamentally anti-economic. It is not wealth so much as anti-wealth, not "capital" but "anti-capital". Investment in these values are really investments in restrictions upon exchange and hence against production. Such money is used to prevent others from producing and entering the market. The monopolists have bought a share in the market (which is a social thing) and hence will tend to talk as if this community institution (or part of it) were their property.

How much of the capital values within a particular economy are to be attributed to natural capital and how much to this anti-natural "capital" is difficult to assess. The price system is designed to measure only relative exchange values within the economy, not the overall "Gross National Product", or any part of it. But it is possible that many economies are labouring under a huge incubus of " wealth" or "capital" that simply represents unjust claims of one section of the community against the other - i.e. relative wealth based in debt (hidden in the price system). Because those who are thus able to enjoy wealth and incomes with no effort or contribution on their part are disposed to desire more without limit, the tendency is for them to exploit their superiority more and more. Thus the incubus upon the productive sectors of the economy can increase up to breaking point, unless wiser counsels prevail.

This "anti-capital" forms a large part of the problem of the division of society into warring elements called "Capital" and "Labour". Unfortunately, the necessary distinctions are not made on either side. The true conflict is between Anti-Capital and other unnatural elements in the economy, on the one hand, and Capital (both natural and artificial) and Labour, on the other. In a more correct (but not current) terminology, the morally justifiable fight is not against Capitalism but against Anti-Capitalism.

In respect of the above analysis of "anti-capital" I am indebted to the late Dr. H. G. Pearce and his unpublished work "Political Economy". But his basic treatment of this subject can be found also in his published work "Value - Normal and Morbid", first published in 1946, later edition 1987 printed by Link Printing Pty Ltd, Balmain, Australia. Dr. A.M. Woodbury, S.M., Ph. D., S.T.D. sets out similar ideas in his article on "Natural Capitalism" (unpublished).

** The names "Capitalism and "Communism" are taken, of course, from "Capital" and "Community". Both of these are God-given aids of incalculable value to us as individual persons. Aristotle said of the order that is social unity that it is "more divine", the common good that community brings being diffusive of a great good to all. Capital, too, is a boon of incalculable proportions. In terms of wealth it is what makes the difference between the developed and underdeveloped nations. There is nothing wrong then in those who can justly claim ownership of capital goods receiving an "incentive" to allow others to use their goods for a charge (called "rent" or "interest") that is socially determined. If that is what we mean by "Capitalism" then it is both good and natural.

Unfortunately, however, both words "Capitalism" and "Communism", though their primary significance is related to social goods of an exalted kind, have been appropriated, or rather misappropriated, by sectional interests within the community for party political purposes. They are good examples of what Chesterton called evil euphemisms, like "euthanasia", "birth control", "same sex marriages" and so on, which abound in a disordered society.

Capitalism in this sectional sense is condemned not because it argues for a system where those who have property or wealth are encouraged to lend it out to others at a profit. This is an eminently good thing for the social economy. As someone said, "The capitalist is the true socialist, for he socialises his property, for the good of the whole society". It is condemned because, as a particular expression of the ideology of Liberalism, it amounts to a systematic denial of the benefits of the use of capital to the great majority of the working population.

According to this ideology, a relatively few rich proprietors, having managed to obtain, by political or other means, a disproportionate share of the land and capital within the community, are to be allowed the absolute freedom to exploit this advantage, in the name of Capital. That is to say existing proprietors or capitalists are to be given a freedom that is not circumscribed by the demands of justice, particularly distributive justice, which would ensure freedom for all within society. That is what the social encyclicals refer to as "unbridled capitalism". (Centesimus Annus, 8)

As Chesterton again has wisely pointed out in this context one who defends the institution of private property is not defending an economic system where a few have managed to appropriate to themselves most of the wealth in the community and the many have virtually none. That is a sure sign of an unjust distribution of wealth. How this has come about, whether by political action or inaction, is matter for another discussion.

dgboland © 2001


The Triumph of Capitalism

Chesterton's thoughts of over 100 years ago on one effect of Capitalism on our culture

"I should say the first effect of the triumph of the capitalist (if we allow him to triumph) will be that that line of demarcation [between art and advertising] will entirely disappear. There will be no art that might not just as well be advertisement. I do not necessarily mean that there will be no good art; much of it might be, much of it already is, very good art. You may put it, if you please, in the form that there has been a vast improvement in advertisements... But the improvement of advertisements is the degradation of artists. It is their degradation for this clear and vital reason: that the artist will work, not only to please the rich, but only to increase their riches; which is a considerable step lower. And no one who knows the small-minded cynicism of our plutocracy, its secrecy, its gambling spirit, its contempt of conscience, can doubt that the artist-advertiser will often be assisting enterprises over which he will have no moral control, and of which he could feel no moral approval. He will be working to spread quack medicines, queer investments... And to this base ingenuity he will have to bend the proudest and purest of the virtues of the intellect, the power to attract his brethren, and the noble duty of praise." (GKC "Utopia of Usurers")





dgboland © 2001 is a lecturer at the Centre for Thomistic Studies, in Sydney, Australia.

This article posted November 2001. It was published in Universitas, No. 10 (2001).
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