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Key Takeaways

  1. Capital is an asset such as equipment, inventory, or productive resources that allows an owner to generate more capital and revenue. The generative function of capital has been key to the economic growth experienced under modern capitalist societies.
  2. Issues have emerged historically concerning the effects of unequal distribution of global capital. Critics argue that unequal ownership, or even private ownership in any form, creates power imbalances that threaten democratic representation. Others argue that private allocation of capital and democratic government are not only compatible but dependent on the other.
  3. While few doubt the productive potential or capital, normative questions remain as to whether the accumulation of capital, and the outcomes it has produced in modern society, can rightfully be called improvement or progress.

What is Capital?

As the term is commonly used by economists, capital refers to a good or asset that one can use as an input to produce further goods or services. Historically, capital emerged as a concept used to describe machinery used to process commodities, thus adding value for the purpose of sale. For example, if a London industrial firm were to import cotton and use if to manufacture cloth, then the machines that turn the cotton into cloth would be referred to as capital. Capital, as a concept, however, is not strictly limited to machinery, but rather is a description of the function that machinery, along with other assets, perform. This function is to accrue further revenue through production. In fact, along with labor and land, economists include capital within a category of inputs termed the factors of production. Economists and social have divided capital into a number of subcategories that each serve the function of producing further capital or saleable goods. For example, “financial capital” represents obligations in favor of a party that accrue and can be liquidated for trade. “Social capital” is value derived from public or interpersonal perception of some person or firm that can be drawn on to accrue further resources. Economists often refer to investment in skills and education as “human capital.” The overarching relationship between such types of capital is the relationship the assets have to further accumulation of capital and wealth. Each includes an inherent capacity to further increase productive capacity. In other words, capital begets capital.1

Capital and Democracy

Capital has a remarkable power to promote the aggregation of wealth. Consequently, one perennial concern about the relationship between capitalism and democracy is the capacity of those with that wealth to use it to influence the politics and the legal system. Therefore, many see democratic checks as necessary to prevent capitalist societies from evolving into plutocracies wherein wealthy capitalists exercise disproportionate power in participatory government. Examples of contemporary issues raising such concerns in the modern American political context include campaign contributions and corporate lobbying. One particularly famous historical episode in which the ability of those with sizeable capital ownership to sway democratic politics was that of the Robber Barrons of late nineteenth-century America. Achieving unprecedented capital ownership while developing industries for steel, oil, railroads, shipping, and manufactures, notable capitalists like Cornelius Vanderbilt, Andrew Carnegie, John D. Rockefeller, and J.P. Morgan accrued significant wealth and influence in politics. Many Americans saw wealth stratification and the use of government coercion to suppress labor movements as threats to democracy, especially after violent conflicts erupted between protesting laborers and police, most famously in Chicago’s Haymarket Square in 1886. Subsequently, political and labor movements developed in response to what they saw as capital’s corruption of government, a sentiment that found expression in the emergence of unions like the Industrial Workers of the World and political movements like the American Socialist Party, both notably under the influence of political candidate Eugene V. Debs. While limited in their support, such organizations, and popular skepticism of the political power of industrialists, influenced restraints on capital in the mixed economies of the twentieth and twenty-first centuries.2
Fault lines between the economic power of industrial capital and the social welfare of the common person, while commonly less extreme than in the past, continue to be a primary concern to the present day. Modern thought on political economy has since revolved significantly around the question of whether, and to what degree, capital ownership and democracy are compatible. The economist Joseph A. Schumpeter, for example argued that not only were capitalism and democracy compatible, but codependent. Schumpeter, writing in 1942, and having witnessed the speculative fervor leading to the Great Depression, saw the effects of capital on society as destructive yet regenerative in that it allows for new forms of creativity and production. In this view, the dynamic nature of capital ownership, its ability to take as well as give, prevents static authoritarian societies from emerging, thus supporting democratic government.3 In recent years, especially following the global financial crisis of 2008, and the significant wealth stratification that has since followed, many economists have taken less optimistic perspectives on the relationship between capital and democracy. Notably, Thomas Piketty argues that returns on capital ownership produces substantial stratification of wealth and political influence. In this argument, returns on capital increase at rates that drastically outpace increases in the real wages through which the common person realizes the benefits of economic growth. Piketty sees this disproportionate level of wealth accumulation, and consequent political power, of those with capital as a threat to democracy. He argues, unlike Schumpeter, that rather than a dynamic force that allows for creative destruction and oscillations in economic influence, unregulated capital ownership creates hard uncrossable divisions in society that eliminate the ability of a popular majority to exercise political influence. 4 Today, policymakers and academics struggle with how to characterize the effects of capital’s productive potential on societies and states, though none deny that so much of what makes the modern world distinctive emerges from its self-generating power.


The history of economic thought includes several schools of thought on the process of capital accumulation. Different thinkers have also made very different valuations on the normative effects of this capital accumulation on society. When economists and philosophers first began to formalize the modern conception of capital, especially during Scottish Enlightenment in the second half of the eighteenth century, thinkers like Adam Smith emphasized the ability of capital to accrue revenue and thus wealth both for the individual and for nations. In this conception, capital, and its role in growing global markets, allowed for human progress.5 Over the following century, capital accumulation gave industrial societies significant political power over its citizens, and other peripheral societies, as capitalist economies coevolved with the ability of nation states to tax that same wealth, yielding bureaucratization and modern fiscal states. This meant that the accumulation of capital produced global shifts in state capacity, or the coercive power of modern government.6 Some argue that this state capacity arising from capitalism has exacerbated global conflict, as when advances capitalist states intervene in the politics of underdeveloped or developing economies. Others point to the incentives for militarization that emerge in some capitalist societies, a system that such critics have termed the military-industrial complex. Along with these trends in the development of capitalist states, detractors point to environmental degradation, inequality, and financial crises which heavy industry and large financial institutions appear to produce in capitalist societies.7 At the heart of modernization, benefits and flaws included, is the productive capacity of capital. Modern thinkers often question the degree to which we can imbue capital with the power to bring us to a better future, thus modulating the idea of progress that many once saw, and continue to see, in the promise of capitalism. Capital, by definition, is that asset which accrues more capital, revenue, and wealth. The question remains as to whether, and the degree to which, this accumulative process is a benefit to a democratic society.


1 Joyce Appleby, The Relentless Revolution: A History of Capitalism (New York, NY: W.W. Norton, 2010), 7, 25; Walter J. Wessels, Economics. 5thed (U.S.: Barron’s, 2012), 68, 100, 107-18, 539.

2 Jonathan Hughes and Louis P. Cain, American Economic History. 7thed. (Boston, MA: Pearson, 2007), 369-407; David Emory Shi, America: A Narrative History. 11thed. (New York, NY: W.W. Norton, 2019), 780-831.

3 Joseph A. Schumpeter, Capitalism, Socialism and Democracy. 3rded. (1950; New York, NY: Harper Perennial Modern Thought, 2018), ix-xxxii.

4 Thomas Piketty, Capital in the Twenty-First Century (2013; Cambridge, MA: The Belknap Press of Harvard University Press, 2017), 1-45.

5 Appleby, The Relentless Revolution, 15, 19-20.

6 “Bureaucracy –Six Principles of Max Weber.” Think Insights -Accessed October 23, 2022.https://thinkinsights.net/strategy/bureaucracy-max-weber/.

7 Appleby, The Relentless Revolution, 23-6.