What Is Capitalism?
by Paul Le Blanc
Socialists keep talking about the problems of capitalism and how it hurts everything from ecology to morality — and especially the working conditions and living conditions of the working-class majority. But what is this allegedly pernicious capitalism?
First of all, it is a type of economy. An economy could be described as “the activities and relationships that people enter into, and the resources that they use, to get the things they need and want.” Every economy involves tools and raw materials, plus the creative factor of human labor that applies tools on raw materials to produce the things that people need and want.
In primitive tribal societies, we generally find an economy that doesn’t even use money and in which the people labor together and share in the things they produce. Since the rise of civilization, however, there have been powerful elites that become wealthy by squeezing the majority of laboring people. Some forms of econ omy have involved slaves who en rich slaveowners, some have involved peas ants who enrich landowning aristoc racies. But world capitalism today happens to be the most powerful and dy namic economic system in human history.
The dynamic quality of capitalism is illustrated when we examine the meaning of the word “capital” and the transformations it goes through in the normal functioning of our economy. A capitalist is someone who invests capital (in the form of money) into tools, raw materials, and a labor force (all of which is also is termed “capital”). This results in the production of commodities (shoes or cars or whatever — which are also considered “capital”) to be sold for more money than was originally invested, meaning an increase in, or accumulation of, capital.
A Four-Point Definition of Capitalism
1. First of all, under capitalism the economy is privately-owned. It is not the case that each person in society owns a little piece of the economy — the way it works in the real world is that the economy is owned by a small minority of the population: the businessmen or capitalists. Historically, the bulk of the economy comes under the ownership of the biggest business enterprises.
2. Second, the economy is controlled by the owners. This assertion can be understood intelligently or stupidly. It would be stupid to imagine that a businessman exercises total control over his business — charging whatever he wants for his products, paying his workers whatever he chooses, ignoring the government, even having the power to raise his factory into the air by command!
A capitalist cannot ignore the laws of gravity which keep his factory firmly on the ground. He cannot ignore the law of supply and demand which forces him to sell his products within a certain price range and to pay his workers at least a certain minimum (and even more, if they have a strong enough union). And sometimes the government will pass certain laws (and sometimes even enforce them!) to make the employer follow certain rules (having to do with truth in advertising, child labor, minimum wages, health and safety, pollution control, etc.). But within these limitations, about which they often complain loud and long, the businessmen run their businesses as they see fit.
3. Third, the economy is utilized for the purpose of maximizing profits for the owners. The spark plug that makes the mighty engine of capitalist go is the profit motive. Businessmen are not in business in order to provide goods and service to those who need them, nor are they in business to provide jobs for people who need money for food, clothing, shelter, etc.
If businessmen can maximize their profits by providing lots of good-paying jobs to workers who, in turn, supply everyone with all the goods and services that are needed, then that is what businessmen will try to do. But if they find that they can make more money by supplying only some of their better-paying customers while ignoring others, or even by halting production for a while (during a depression or recession), then that’s what they’ll do.
And if more money can be made by replacing well-paid skilled workers with new machines tended by poorly-paid unskilled workers, and then laying off some of the less-skilled workers and forcing the others to work overtime, then that’s what they’ll do. And if even higher profits can be made by moving operations to cheap-labor areas somewhere else in the country, or in another country, that’s what they’ll do. The bottom line is making profits for the owners — and as much profit as possible, regardless of the needs of most people in society.
4. The fourth point in the definition starts off in a very complicated way, but gets very simple by the end. Take a deep breath and say this: Capitalism involves generalized commodity production — it is a buying-and-selling economy (a market economy). Now let’s unpack that.
Generalized commodity production. What does that mean? First we need to understand that a commodity is something which is produced for the purpose of selling it. If I produce a pair of shoes for myself because I need a pair of shoes, or if I make a pair of shoes for you as a gift of friendship, those shoes are not commodities. But if I produce a hundred pairs of shoes for the purpose of selling them, each one of those shoes is a commodity, produced for the purpose of selling it.
If we look at America in 1776, we find that a majority of the people made their own food, clothing, shelter, entertainment (sports, music, etc.) — but that as capitalism developed in this country, more and more of those things were turned into commodities for more and more people. Today, almost all of us buy our food, our clothing, our shelter, our entertainment, etc. There has been a dynamic process drawing more and more things into the whirlpool of a buying-and-selling economy (also known as a market economy), a process of generalized commodity production.
As a matter of fact, essential parts of ourselves also get turned into commodities. Where do we get the money to buy the things that we need and want? Most of us rely on someone, often ourselves, having a job, being an employee. What this means is that we take our own labor-power, our own ability to work — the energy in our bodies, our intelligence, our actual and potential skills — and convert that into a commodity, something that we sell to an employer for a paycheck. In 1776 most people didn’t do that — but as capitalism developed, more and more felt compelled to turn their own ability to work into a commod ity, so that today the overwhelming majority of us are part of the working class. We depend on being paid a wage or a salary for our work in order to survive.
Achievements That Pave the Way for Something Better
At the same time, however, because the market economy seeks to maximize profits, there have been certain achievements realized which pave the way for a better future. As capitalists compete with each other for a bigger share of the market (that is, for more consumers to buy their products), they look for ways to cut costs. This will enable them to sell their products for less than their competitors, resulting in more people buying products from them (and therefore greater profits). There is a desire to increase productivity, which doesn’t mean merely producing more, but producing more with less labor (thereby cutting the labor costs and allowing for a price decrease).
The employer often seeks to squeeze more actual labor out of his workers. Remember: he paid for their labor-power, so the more actual labor he can squeeze out of them (through speed-ups, compulsory overtime, etc.), the greater his profits. But no less important has been the development of new technology — more sophisticated tools — that enable him to produce more products with the same amount (or even less) labor. The rising productivity leads to lower labor costs which, in turn, lead to lower prices (and consequently a bigger share of the market). As different capitalist enterprises have competed with each other, the result has been the ever-forward motion of industrial development and technological innovation — the Industrial Revolution which began in England in the late 1700s becoming a “permanent revolution” continuing down to our own day.
This powerful tendency has meant that an ever-increasing economic surplus has been generated which creates the possibility for one of two things: either increasingly huge profits for the biggest private owners of the economy, or the guarantee of a decent life for all people. Since capitalism — simply by the way it is structured and “wired” — necessarily pulls the productive power in the direction of profits for the few at the expense of the many, some of the more thoughtful people in and around the labor movement have for many years called for an alternative that would place human rights above private profits.
For many people, this alternative is seen as socialism. We can create a useful definition that parallels the way we defined capitalism. Socialism involves an economy which is: (1) socially-owned, by all of us, (hence the word social-ism); (2) democratically controlled, establishing “rule by the people” over those activities, relationships, and resources on which our lives are dependent; (3) utilized to meet the needs — the healthy and free and full development — of all people in society; (4) involving democratic, humanistic planning to create a situation in which, as Marx and Engels put it, “the free development of each is the condition for the free development of all.”
Of course, there is much more to be said about socialism. We’ll save some of that for a future column.
Additional reading:
Paul Le Blanc, From Marx to Gramsci, A Reader in Revolutionary Marxist Politics (Atlantic Highlands: Humanities Press, 1996).
Ernest Mandel, Marxist Economic Theory, 2 vols. (New York: Monthly Review Press, 1968).
Paul Sweezy, The Theory of Capitalist Development (New York: Monthly Review Press, 1968).