What is Capital?

I like Hernando de Soto’s answer from his book, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else (p. 41):

To unravel the mystery of capital, we have to go back to the seminal meaning of the word. In medieval Latin, “capital” appears to have denoted head of cattle or livestock, which have always been important sources of wealth beyond the basic meat they provide. Livestock are low-maintenance possessions; they are mobile and can be moved away from danger; they are also easy to count and measure. But most important, from livestock you can obtain additional wealth, or surplus value, by setting in motion other industries, including milk, hides, wool, meat, and fuel. Livestock also have the useful attribute to reproduce themselves. Thus the term “capital” begins to do two jobs simultaneously, capturing the physical dimension of assets (livestock) as well as their potential to generate surplus value. From the barnyard it, 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.


1 thought on “What is Capital?

  1. It’s a great book…I read it years ago and loved it. Sacrifice is basically where you give up one thing that you value in exchange for another thing that you value even more. Everybody wants their sacrifices to generate the maximum surplus value. In other words…everybody wants the most bang for their buck. Nobody wants their sacrifices to be in vain.

    Taxes are simply a sacrifice we make. We give up one thing that we value…our money…in exchange for something that we value even more….public goods. Do you think the government the government is ripping us off? Do you think that the government is providing us the maximum surplus value possible? Perhaps our sacrifices are wasted?

    What happens if taxpayers had the freedom to choose which government organizations they gave their taxes to? Would 150 million taxpayers come to understand that their sacrifices are being wasted? Or do you think they would be satisfied with the value that they received in exchange for their money?


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