Short answer
The clay is the Jewish chief priests, the Sanhedrin, the elders of the people as the heads of the theocratic nation state of Judaea, which will be crushed, ground to powder and scattered to the four winds because of the Jews’ rejection of Christ (Matt 21:38-46, Luke 20:14-18).
The clay is the (unbelieving) Jews because the clay is not anything trivial – the “clay” is mentioned nine times in the passage;
the whole vision is centred on the Jews (the empires mentioned are only those which controlled the land of Judaea e.g. neither the Parthian Empire, nor the huge Indian empire of Chandragupta Mauyra nor of Ashoka are mentioned);
the clay is hidden from clear explanation, there must be a good reason for this obscuring - a good explanation could be so as not to cause offence to unbelieving Jews (especially the religious leaders themselves from the time of Daniel onwards who might, because they were offended, try to exclude the book of Daniel from the holy canon) or so as not to hinder some Jews coming to faith in the God of Daniel;
the clay does not exclusively relate to the Roman Empire alone (Dan 2:45);
the clay is a people with which the Roman authorities will try to mix in terms of allowing a measure of rule in the ruling of the land of Judaea (Dan 2:41-43) (and the Romans did indeed permit a measure of rule in Judaea to the Sanhedrin, the chief priests and elders), but this attempt to “share” rule would ultimately fail (Dan 2:43);
and the clay is a people who will be crushed and ground to powder around the time of the beginning of the New Testament era and the coming of the Kingdom of God because of their rejection of Christ (Luke 20:14-18).
And so it was that finally the Romans destroyed the Jews including the destruction of the genealogical records upon which the national covenant with God was based. Only those who could prove they were descendants of Jacob by legally verifiable records kept by the priesthood were entitled to the benefits of the covenant (Ezra 2:59, 62). With the destruction of the genealogical records the covenant with the Jews ceased forever – the Jews were ground to powder and scattered. The Kingdom was taken away from the Jews and given to others.
Long Answer
I believe our Lord JESUS tells us, or at least gives us a very broad hint of, what the clay is.
Allan Harman in his Commentary says the NIV translation of Daniel 2:43 is good:
"And just as you saw the iron mixed with baked clay, so the people will be a mixture and will not remain united, any more than iron mixes with clay".
Judging from this the clay is a body of people, just as the iron and other metals are bodies of people. The gold is the Babylonians and the Babylonian Empire; the silver is the Medo-Persians, the bronze is the Greeks, and the iron the Romans. The clay represents another people found within the Roman Empire who did not mix with the Romans.
Median Empire and then Persian Empire or Medo-Persian Empire?
But first, some claim the Median and Persian empires are two separate empires and thus the four empires are the Babylonian, the Median, the Persian, and the Greek. But the Scriptures testify throughout that there was just one Medo-Persian Empire. They had one law, “the law of the Medes and the Persians” ( Daniel 6:8, 12, 15); Belshazzar’s kingdom was given to “the Medes and the Persians” (Daniel 5:28); the royal archives were “the book of the annals of the kings of Media and Persia” (Esther 10:2) from which a royal decree of the Persian King Cyrus was found not at Susa or Persopolis in Persia but at the royal palace at Ecbatana, the capital of Media (Ezra 6:2); and in the days of Xerxes (Ahasuerus) there were “the military leaders of Persia and Media” (Esther 1:3), the wives of the nobility were “the Persian and Median women of the nobility” (Esther 1:18); and “the two-horned ram which you [Daniel] saw represents the kings of Media and Persia” (Daniel 8:20).
[And in my opinion with a bit of investigation and effort, it can be surmised from Ezekiel 4:5 that scripture dates Cyrus’s reign from the Fall of Babylon, despite the fact that Darius the Mede was made king of Babylon. (See my answer to “What historical periods do the 390 year and 40 year periods refer to in Ezekiel 4:1-8?” on Stack Exchange, Christianity here:
Finally, in the days of Ahasuerus and Esther, there were “seven nobles of Persia and Media who had special access to the king and were highest in the kingdom” (Esther 1:14). It was the Kingdom of the Medes and the Persians: that is how it began (Dan 5:28), continued (Esther 1:14), and ended (Dan 8:20). It was the Medo-Persian Empire.
If that is not enough there is more!
If a Median Empire (silver) was followed by the Persian Empire (bronze) then the Kingdom of God started in the days of the Greek Empire (iron). But it is a historical fact that the Kingdom of God started in the days of the Roman Empire. Who says so? Our Lord Jesus says so! “The time is fulfilled and the Kingdom of God is at hand: repent ye, and believe the Gospel.” (Mark 1:15). There was no Kingdom of God before the start of our Lord’s ministry according to our Lord. So the Roman Empire must be the fourth empire, represented by the iron.
Thus the Babylonian Empire is the gold, the Medo-Persian Empire is the silver, the Greek Empire is the bronze, the Roman Empire is the iron.
The metals are not just Empires but individuals also
Daniel says to Nebuchadnezzar “Thou art this head of gold” (Dan 2:38). Continuing on this basis then the silver would be Cyrus the Great, the bronze Alexander the Great, and the iron might be Augustus Caesar the first emperor of Rome. The Rock would be the King of the Kingdom of God, our Lord Jesus Christ. But what individual would be best represented by the clay?
The clay…. Christians?
I first thought the clay was "Christians": they were persecuted by the Romans. The Romans were fierce and strong, the Christians brittle, and in an earthly sense weak and destroyable. We still are and will be until the world's end when the Kingdom of God will be finally established. But the problem with this interpretation is that the rock not only smashes the metals but also the clay which will also be ground to powder and scattered by the wind, so “that no place was found for them” (Dan 2:35).
Five lines of attack
Our interpretation of what the clay is must make sense within the narrower context of chapter 2, and within the broader context of the whole book.
There are two types of people in the Old Testament who do not mix: the Israelites/Jews and the Gentiles. And there are two types of people in the New Testament who do not mix: believers and unbelievers (2 Cor 6:14-18). These two possibilities are the only distinctives of people groups that really matter throughout the whole Bible.
We could and should look at other passages of the OT where "clay" is spoken of.
The New Testament, in various places, throws light on the book of Daniel.
We have the benefit of history.
Context of the vision of the statue – its nexus
A nexus is a central or focal point. E.g. “The nexus of any British Government is 10 Downing Street.”
Essential to any interpretation of “the clay” is to know the nexus of the whole vision. There are four empires named, but why only four?
The Seleucid Empire is not named nor the Egyptian Empire of the Ptolemies. But these are incorporated within the bronze Greek portion: the Seleucid Empire was Greek as was the Ptolemaic Egyptian “Empire”.
But there are many more empires that are not named. For example, in the days of the Babylonian Empire, Egypt had its own “empire”. Throughout the early period of the Babylonian, Medo-Persian, and Greek empires the Carthaginians had a trade empire. After the Persian Empire, there was the Bactrian Empire and the Parthian Empire: the Parthian Empire even fending off the Romans and continuing during the days of the Roman Empire. And further east there was the huge Maurya Empire of Chandragupta in India and later of Ashoka, emperor of almost all India. It was very great. Why are these not included in the statue?
The focal point of the vision is Judaea. Only those empires which ruled Judaea are mentioned. Now consider: if the gold, the silver, the bronze, and the iron relate to Judaea and Judaea is the nexus of the vision then the clay must also in some way relate to Judaea.
Why does the statue not have any metals for the Muslim Empire, the Ottoman Empire, or the British Empire
The Judaean nation-state came to an abrupt end in the days of the last empire represented by the statue’s metals, the iron Roman Empire. The focus is Judaea which was destroyed by the Romans. There was no longer any need for any mention of empires beyond the destruction of the nation of Judaea. The Jews were the covenant people of God in the Old Testament, but that came to an end when the New Covenant began. It was just and fair of God to end it because the Jews rejected the Messiah and hence they themselves rejected God.
The clay
So who ruled Judaea in the days of the Roman Empire? Firstly, obviously the Romans, with the Herodian kings as their puppets, ruled Judaea from the secular perspective. But secondly the Jewish religious leaders, the Sanhedrin, although they were not permitted to administer the death penalty, were given by the Romans considerable power to rule the Jews. For example, the Sanhedrin had their own soldiers (Matthew 27:65). For other examples of their power see Matt 27:2; John 11:48; Acts 5:28, 5:40, 22:5. The clay then is the Sanhedrin, plus the chief priests with the help of the scribes and Pharisees as the leaders of the theocratic nation-state of Judaea.
Maybe better, the clay is the Israelites/Jews and especially the Jewish theocratic nation-state as set up by God in the Old Testament. This was partly destroyed in 70 AD with the destruction of the Temple, the killing of maybe a million Jews, and the sending into slavery of many more. . (Many were taken to Rome where these Jewish slaves built the Colosseum.) The nation was finally destroyed in the Bar Kokhba rebellion ending in AD 135. Clay utensils were unlike metal in that they were never built to last. When the clay was smashed by the rock and scattered that was always the original intention of the builder. The OT (Israelite/Jewish) dispensation was always intended to be temporary.
Perhaps the vision is saying that it was not principally the Romans who destroyed the Jewish theocratic nation-state, rather it was the potter: God was their potter, and had the right to destroy his own pot.
"Yet you, Lord, are our Father. We are the clay, you are the potter; we are all the work of your hand" (Isaiah 64:8); and "Does not the potter have the right to make out of the same lump of clay some pottery for special purposes and some for common use?" (Romans 9:21).
What do I mean by the Israelite/Jewish theocratic nation-state? And was it not also the Kingdom of God? Did not the Kingdom of God exist in Israel in the OT? If Israel was not the Kingdom, how did it differ from the Kingdom of God?
OT Israel/Judah was not the Kingdom of God according to John the Baptist and our Lord Jesus (Matthew 3:1,2; Mark 1:15). The Kingdom of God did not exist before the New Testament era.
The Old Testament theocracy of Israel/Judah was not the Kingdom of God because 1. It did not offer any personal choice - if you were Israelite/Jewish you were a part of the theocratic nation and had to obey its rules; 2. It was maintained by the sword and the magistrate, but the kingdom of God does not operate by force: Hence our Lord said: “My Kingdom is not of this world: if it were of this world then would my servants fight” (John 18:36). In fact, all the kingdoms of men are maintained this way and so can be thought of as a single statue of a man, but when the Kingdom of God comes it will be very different; the vision is highlighting the big difference between the kingdoms of men and the Kingdom of God, and between the kings of the earth who are very well pictured in Daniel chapter 1 - cruel and heartless - and the King who is coming; 3. It enforced merely an outward obedience by threat of punishment, not an inward obedience because of love to the King.
When a person was born Israelite/Jewish in the Old Testament time they automatically entered into a covenant with God, they had no choice in the matter. This was a blessing for those who wanted it, but a curse for those who did not want it. For instance, it wasn't a blessing for the man who was stoned to death for picking up sticks on the Sabbath Day (Numbers 15:32-36). The Kingdom of God, which began with the ministry of our Lord is a voluntary kingdom, those in it have chosen to be in it. Furthermore, God gives them his Holy Spirit to enable them to please Him (Ezekiel 36:25-27) ( - and where they fail "we have an advocate with the Father, Jesus Christ the righteous" (1 John 2:1).)
The involuntary theocratic kingdom of the Israelites/Jews was destroyed, once it had fulfilled its purpose of providing types and shadows, to make way for the Kingdom of God.
In many ways ancient Israel/Judah was a picture of the coming kingdom, but it could not possibly be a picture of the voluntary nature of the Kingdom of God because the OT Israel theocracy was not voluntary. It could not properly represent the spiritual nature of the coming Kingdom because the Spirit was not poured out in sufficient measure until Christ rose (John 7:39 & 16:7).
Final thoughts
Why is the smallest of the empires described as the greatest of the metals? This is difficult, but perhaps it is referring not to the power of each empire, but rather to the power of each king within his domain: Nebuchadnezzar had absolute power with his empire, but the kings of Medo-Persia were themselves subject to the law of the Medes and the Persians (Daniel 6:15), the culture of the Greeks was democratic, and at least at one important time the soldiers refused to obey Alexander, the Roman Emperors had a senate, etc.
If Nebuchadnezzar is the head of gold (Dan 2:38) then who does the clay represent? It perhaps is not so important, but I would offer three men to consider: 1. the High Priest Joseph Caiaphas; 2. Annas the High Priest and father-in-law to Caiaphas, he also “had five sons, all of whom achieved that high office [of the High Priesthood], which was unparalleled” (Josephus, Jewish antiquities, in “Josephus, the essential writings” by Paul Maier, 1988, Kregel Pubs, p276, 1st paragraph).
The Doomed Statue
But there is another way to view the statue.. namely, the overall structure is absurd and ridiculous. As one begins to read about it you hear it has a head made of gold.. impressively durable.. is this statue going to last forever? Then comes the silver, still very durable but not quite so good as gold. Then the bronze.. actually bronze requires quite a lot of attention to maintain its shine, it reacts more with its environment than silver, but still, it looks as if this statue is designed to last, it is still quite awe-inspiring, then the legs are made of iron.. and hang on a bit.. iron rusts in a humid climate.. why did the maker use iron to make this statue, especially the legs which should be not the weakest part but the strongest part.. it can still last in a dry climate, but its days are surely numbered. Then finally we discover the feet are a mix of iron and ceramic clay. How absurd is that? The very place the statue ought to be strongest it is weakest. The statue only needs a knock and it is heading for destruction: it is doomed. The statue might look impressive at first (or from a distance) but on closer inspection it is weak and foolishly built; it cannot last.
And so it is that all the attempts by men to build empires which are antagonistic against the Lord (Luke 20:9-18) are foolishness - "Thou shalt dash them with a rod of iron, thou shalt dash them in pieces like a potter's vessel", Psalm 2 - their attempts cannot last, men must stand in the end before God and give an account. And all the powers of men hostile to the King might look fearsome, it is tempting to fear the persecution they threaten to the people of God, but we should not fear them.. they are doomed, much weaker than we imagine.. our God rules and reigns over all things, we must make sure we are in the Kingdom of God (by repentance and faith in Jesus) which will last forever and ever.
Finally, our Lord Jesus is telling us/gives us a clue how he interprets the vision of the statue in Matthew 21:44-45 and in Luke 20:18-19. Surely our Lord Jesus at least implies what the clay is: in Matthew, it is “the chief priests and Pharisees”, in Luke it is “the chief priests and scribes/teachers of the law (of Moses)”. Thank you to ארקדיוס of Stack exchange, Biblical hermeneutics for drawing attention to Matthew 21:44-45. But I shall quote the event as described in Luke’s gospel:
Everyone who falls on that stone will be broken to pieces; anyone on whom it falls will be crushed. The teachers of the law and the chief priests looked for a way to arrest him immediately because they knew he had spoken this parable against them. (Luke 20:18-19, NIV)