The Third Factor -- Capital

Henry George
The Science of Political Economy

Book III, The Production of Wealth*

Chapter XVII
The Third Factor of Production -- Capital

Showing That Capital Is Not a Primary Factor, But Proceeds From Land and Labor, and Is a Form or Use of Wealth.

Capital is essentially labor raised to a higher power -- Where it may, and where it must aid labor -- In itself it is helpless. 01

The primary factors of production are labor and land, and from their union all production comes. Their concrete product is wealth, which is land modified by labor so as to fit it or better fit it for the satisfaction of human desires. What is usually distinguished as the third factor of production, capital, is, as we have seen, a form or use of wealth.


Capital, which is not in itself a distinguishable element, but which it must always be kept in mind consists of wealth applied to the aid of labor in further production, is not a primary factor. There can be production without it, and there must have been production without it, or it could not in the first place have appeared. It is a secondary and compound factor, coming after and resulting from the union of labor and land in the production of wealth. It is in essence labor raised by a second union with land to a third or higher power. But it is to civilized life so necessary and important as to be rightfully accorded in political economy the place of a third factor in production. Without the use of capital man could raise himself but little above the level of the animals.


I have already, in Chapter II of this Book, generalized the various modes of production into three, adapting, growing and exchanging. Now in the first of these modes, which I have called adapting, the changing of natural products either in form or in place so as to fit them for the satisfaction of human desires, capital may aid labor, and in the higher forms of this mode must aid labor. But it is not absolutely necessary, to the lower forms at least. Some of the smaller and less powerful animals might be taken and the natural fruits and vegetables obtained, some rude shelter and clothing produced, and even some rude forms of wealth adapted from the mineral world, without the application of capital.


But in the second and third of these modes, those namely of growing and exchanging, capital must aid labor, or is indispensable. For there can be no cultivation of plants or breeding of animals, unless vegetables or animals previously brought into the category of wealth are devoted not to the consumption that gives direct satisfaction to desire, but to the production of more wealth; and there can be no exchanging of wealth until some wealth is applied by its owners, not to consumption, but to exchange for other wealth or for services.


It is to be observed that capital of itself can do nothing. It is always a subsidiary, never an initiatory factor. The initiatory factor is always labor. That is to say, in the production of wealth labor always uses capital, is never used by capital. This is not merely literally true, when by the term capital we mean the thing capital. It is also true when we personify the term and mean by it not the thing capital, but the men who are possessed of capital. The capitalist pure and simple, the man who merely controls capital, has in his hands the power of assisting labor to produce. But purely as capitalist he cannot exercise that power. It can be exercised only by labor. To utilize it he must himself exercise at least some of the functions of labor, or he must put his capital, on some terms, at the use of those who do.


I speak of this because it is the habit, not only of common speech but of many writers on political economy, to speak as though capital were the initiatory factor in production, and as if capital or capitalists employed labor; whereas in fact, no matter what the form of the arrangement for the use of capital, it is always labor that starts production and is aided by capital; never capital that starts production and is aided by labor.


It cannot be too clearly kept in mind that labor is the only producer either of wealth or of capital. Appropriation can produce nothing. Its sole power is that of affecting distribution under penalty of preventing production. This may put wealth or capital in the hands of the appropriator, by taking it from others; but can never bring it into existence.

* No introduction or motto supplied for Book III in MS. -- H.G., Jr.