Lesson 4: Capital, Interest and Profits

Stuff to read: Capital, Interest and Profits — The Dynamics of Distribution

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1. Before you started this course, if you'd been asked to define "capital," what would you have said? (7 pts.)

2. Reference to "Capital" as a social class (7 pts.)

lumps together the factors of land and wealth.
is a feature of Marxist theory.
uses a different definition of "capital" than we use in this course.
All of the above.

3a. (4 pts. each) Briefly describe the term "capital" as it is used in day-to-day conversations about business and investment.

3b. as it is used in this course in political economy.

3c. as it is used in discussions of class struggle and revolution.

4. Which of the following things can correctly be called "capital" in terms of political economy? (7 pts.)

a lawn mower
a $100 bill
432 Park Ave., New York, NY 10022
your sterling reputation as an honest businessperson

5. "Economic profit" is defined as the return gained by an activity over the return that could be gained in the best available alternative activity (also called its "opportunity cost"). In terms of political economy, which of the three factor payments (wages, rent and interest) includes economic profits? Explain your answer. (7 pts.)

6. Why does rent take a greater share of aggregate wealth as a society grows? (7 pts.)

7 What is the basic law of wealth distribution in society? (8 pts.)

8. Why can a capital owner not demand an exorbitant price for the use of capital? (8 pts.)

9. What determines the general rate of interest (a.k.a. the return to capital)? (7 pts.)

10. Why are there many different levels of wages in society, while capital tends to get just the general rate of interest, regardless of what form it's in? (7 pts.)

11. When do bonds (governmental or corporate) represent capital? When do they not? (7 pts.)

12. What are some examples of income that is commonly mistaken for interest? (8 pts.)

13. How does Henry George "untie the Gordian knot" of capitalism? (8 pts.)

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