In Search of a Concise Explanation of Capitalism

24 05 2011

A few months ago I decided to give myself to a Marxist study of Capitalism for the purpose of being better able to explain its ills to friends, family, coworkers, and to people in general. Too many conversations have ended in me screaming “capitalism is just evil” at the top of my lungs in a crowded bar. That, or I get far too technical and obsess over the distinctions between use and exchange values (as a general rule, never try to explain TRPF on karaoke night).

This week I’ve just finished reading Das Kapital Volume I and watching David Harvey’s lectures to better prep myself on theory. And yes, Das Kapital is a long, boring book that uses antiquated language and is pretty redundant. It’s also well worth the read.

After reading the behemoth, a few other books by famous dead people and a couple more from not-so famous living people this is the most concise explanation of capitalism I came up with:

Capitalism is a historical system where workers, divorced from the means of production, must sell their labor for subsistence so that the upper classes may extract surplus value from their work.

Not really something we can fit on a t-shirt. Nonetheless, this statement incorporates 3 main attributes of capitalism that are critical to bringing people towards anti-capitalist beliefs.

1) Capitalism is a historic process.

Artistic depiction of the historical process of capitalism.

Artistic depiction of the historical process of capitalism.

We did not always have capitalism and the process that brought it to the forefront should be more widely know. The enclosing of the commons and the subsequent forcible divorce of peasants from their means of subsistence cannot be overly stressed. The succeeding passage of vagabond laws in which vagrancy was punished by brandings, beatings, and in some cases death highlight how unnatural the transformation from feudalism to capitalism was. Many people just wouldn’t accept a life in which they didn’t directly keep/sell what they produced.

This is a basic concept for most Marxists but fundamental to winning people over to alternative economic politics. Once it’s accepted that capitalism came about unnaturally we can start to discuss more just economic systems. This is also a great lead into a discussion on the need for accumulations of capital and its logical byproducts of imperialism and neo-liberal globalization.

2) Capitalism is based on the extraction of surplus value from exploited labor (i.e. labor theory of value [LTV]) through a wage system.

The banner “Workers Create All Wealth” might resonate with some but it seems like empty sloganeering to a lot of the population. LTV can be best explained through examples. Because America is more and more based on the service industry (an enviable result of mechanization according to Marx) I like to use the burger example.

Say you buy a burger for $4.00. What went into that price? The meat, buns, and other raw goods were purchased for $1.50; the electricity, water, rental, and other miscellaneous costs another $1.50; and the workers who produced the burger were paid $0.50 to an average of $7.00/hr each. This leaves $0.50 of profit for the burger going somewhere (Marx calls them the capitalist class). How was that $0.50 made?

Because the costs of machines, electricity, rent, etc. are at a relatively fixed price (constant capital) they cannot create this value. Also, because investment in start up capital only fronts the set-up costs it too cannot create value. The surplus vale (amount the burger is sold at minus the amount need to produce it) can only come from paying the worker less than s/he produced.

This revelation is intrinsic to a lot of the working class. It’s hard to force people to accept “innovation” or “investment” as the source of all wealth, and for good reason. Workers do indeed create all wealth.

Furthermore, due to LTV a wage system is needed. This is usually in the form a time-wage but it can also come as a piece rate system (paid based on number of items produced). The scheme is simple: buy labor from someone for, say 5 hours, and pay them enough to keep ‘em happy. The capitalist breaks even at 4 hours (that is, has covered all costs associated with selling burgers, hiring labor, etc.) and the last hour of work is solely for the capitalist’s profit.

This wage system is needed to obscure the true source of profit. Could you imagine what would happen if the burger maker stopped working after s/he had paid for his/herself?

3) Capitalism requires workers to be divorced from the means of production.

Social classes are fundamental for capitalism to function. Class differentiation starts by separating the majority of the population from ownership of the means of production; something that has been done historically through the closing of the commons and various repressive vagrancy laws.

If workers controlled the means of production they would not only own all the wealth they produced but also have a say in their exploitative conditions. Would 29 works have died in the Upper Big Branch mining disaster if they had a say in safety protocols? No, they would have never allowed their lives to be endangered by an endless search for profit.

What separates capitalism from other exploitative forms is the workers’ relation to the means of production. Under feudalism people owned most of what they produced. Everyone got screwed with having to pay tribute and didn’t own land but the vast majority still owned what they produced. Once liberated from serfdom the poor soon found a new lord under the bourgeoisie.

Craftsmen and small farmers became obsolete as a consequence of capitalism. Weavers, dye-makers, and any others had their knowledge centralized through the scientific revolution and then latter commodified through capitalism.

With the peasants having no access to land and the craftsmen having no “craft” the working class was born. The working class are people who have to sell their labor for a living (usually under the time-wage system) and have no control over the means of production. They create the wealth of nations and constitute their poor.

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This is a short introduction into why capitalism sucks and is by no means meant to supplement  an actual study of capitalism. From here we can go to what better systems would look like and what needs to be done to get there. Leave a comment. Constructive criticism is welcomed.

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11 responses

24 05 2011
Kaya

This was a very succinct introductory post to the mechanics of capitalism! I especially appreciated the comparison to feudalism and the clarification as to why feudalism lasted for as long as it did. For future posts, I would be very interested in reading about alternative economic structures, how they would resolve the divorce of workers from the means of production, and the parameters for state involvement and enforcement.

Love your blog title, by the way, and the inclusion of visuals!

27 05 2011
Dave0

This is a very distorted view of capitalism, and feudalism. While I’m not for the free-market anarchy that some right-wing wackos believe in, capitalism is not as bad as you make it out to be, as long as it is regulated to stop unethical practices. I’ll take on some of your points below:

You mentions the “enclosure of the commons” as the “divorce of peasants from their means of subsistence” which started this evil thing called capitalism. Ok, so lets say that we create “commons” again, opening up all land for everyone to use and graze. What’s to stop one person from using all the land for himself, such as mowing all the hay before anyone else can get to it? How would you make sure everyone gets to use their fair share? What would a fair share be? By creating private ownership of the land, and creating a market where land can be openly bought and sold, you solve this issue. Opening this up for all to use provides more of an open door for unethical people than today’s capitalist system.

You also give the following example of how workers are exploited:
“Say you buy a burger for $4.00. What went into that price? The meat, buns, and other raw goods were purchased for $1.50; the electricity, water, rental, and other miscellaneous costs another $1.50; and the workers who produced the burger were paid $0.50 to an average of $7.00/hr each. This leaves $0.50 of profit for the burger going somewhere (Marx calls them the capitalist class). How was that $0.50 made?”

That last marginal $0.50 per burger was made when the “capitalist” quit his job and put his own money on the line to build a burger making facility, find people to work there, line up suppliers to provide raw materials at a competitive price, and market his new business to attract customers. If the “capitalist” couldn’t make that marginal $0.50 per burger, what would be his incentive to take on this large upfront risk? If that were the case, there would be no convenient burger joints to go just get a burger. $0.50 sounds like a fair price to me, especially since he is making the same marginal amount per burger as the workers. If $0.01 per burger were going to the workers, and $0.99 per burger were going to the business owner, that would be another story, but this is an example of a competitive industry. If the worker is unsatisfied with his pay he is free to leave and start his own burger joint. That is the great thing about capitalism.

You speak of feudalism as if it is this great time when everyone got to keep their means of production, and everyone was happy doing what they loved as a farmer or craftsman. This is way too rosy of a picture. There have always been rich overlords, back then it was even worse. All of the power was in the hands of these rich overlords, there was little if any opportunity to leave and find work someplace better, or unions to advocate on your behalf. There was no chance of a peasant rising into the wealthy class; you were born into your class. At least now there is that one in a million chance that you could become the rich elite, if luck and talent work in your favor.

Sure, the capitalism we have now could be improved upon. We could adjust the income and estate taxes so wealth is not determined so much by birth. We could create laws that limit unethical actions from happening within our economy. We could create incentives for more businesses to be owned by the people that work there. Yes we should work to improve capitalism, but it is not capitalism itself that is inherently evil. Capitalism is simply (from wikipedia) “an economic system in which the means of production are privately owned and operated for profit.” Capitalism allows people to be rewarded for the risk take to create a better society. It allows for the creative, dynamic and innovative evolution of our society, rather than having government set up a static economy where industries are never born or killed, based on demand.

Yes, if capitalism is left unchecked, unethical people will become powerful, but this is no different than any part of our society, whether it be the bully at school or dictators ruling a country. Capitalism can work just fine, we just need to get the right regulations in place.

27 05 2011
Daivd

So, we have this ownership of land. That can be bought and paid for. And this solves the problem of people just using land. Well My first argument would be its owned by force. I mean. If you go back to zero, and civilization is born, no one owns any of it. So how do you claim land? Well its been claimed by force and whoever has the best force owns that land. If it were truely fair. Everyone who is born, owns a percentage of the planet to live on.

27 05 2011
More Left Than Thou

“By creating private ownership of the land, and creating a market where land can be openly bought and sold, you solve this issue. Opening this up for all to use provides more of an open door for unethical people than today’s capitalist system.”

I disagree. The commons were managed before and they would be again. There are beliefs that there would be no need for a state (anarchist tendencies) but I’m not for that. I don’t see how private property solves the problem of access to land. I think it’s the other way around.

You also use the term marginal a lot. From this I assume you believe in the marginal theory of value over the labor theory of value. The capitalist sets everything up but does not actually create value. The workers could set up everything but without a worker putting labor into something to create a commodity there would be no value.

“You speak of feudalism as if it is this great time when everyone got to keep their means of production, and everyone was happy doing what they loved as a farmer or craftsman…”

I actually think feudalism was worse then capitalism. My point was that in order for capitalism to rise there needed to be a removal of the peasants from their access to the means of production. This is the historical process that was needed to bring about capitalism.

You are wrong about capitalism. The exploitative nature of profit (which leads to class conflict), incessant need for growth (3-5% is not sustainable with limited resources and environment), and the concentration of wealth/creation of monopolies all make capitalism the wrong economic choice.

27 05 2011
Dave0

If you go back to zero, at the start of civilization, when agriculture was first being developed, land was not taken by force, it was given away. Before then, there were hunters and gatherers. They wandered vast stretches of land, following game. There was so much land around that they didn’t care if someone claimed it, they probably thought, “ok, you do your silly agriculture thing… I’m going to go over here and keep hunting…”

Even going back 150 years, the USA gave land away to anyone that wanted to head west. Anyone that was willing to walk across the country with a wagon could have it. Supply of land in the west was far greater than any demand.

So no, it wasn’t whoever had the most force that got the land, it was simply given away because most people did not realize the value of owning the land.

Anyway, let’s say that you do set up some system where all of the land in your state becomes publicly owned, with each resident owning an equal percentage of it. It still leaves me wondering. How do you decide what to do with that land? Do you build a city? Do you farm it? Are you going to have a government decide how every square foot in the state should be developed, to best serve the millions of residents? A government can not handle that much decision making responsibility. It is too large and complex for any one entity to control.

27 05 2011
More Left Than Thou

How did the US get that land to just give away to settlers (a tactical move to increase population, secure boarders, and exploit resources)? The Native Americans didn’t just give them their land and neither did the Mexicans afterwords.

The Christian doctrine the US government used to take the Native American land was due to them not “improving the land” or making permanent structures. Note: this was the same excuse the English used to dispose the Irish from their land in the 1500’s.

And to answer your question about government control. How is it done now? There are city, county, state, a national representatives. Why would this be any different. I’d like to add factory, neighbor, and collective to this list of democratic decision making.

27 05 2011
Josez

I’m still LOLing at:
“Even going back 150 years, the USA gave land away to anyone that wanted to head west. Anyone that was willing to walk across the country with a wagon could have it. Supply of land in the west was far greater than any demand.

So no, it wasn’t whoever had the most force that got the land, it was simply given away because most people did not realize the value of owning the land.”

A+, ill be keeping up with this blog for sure and providing my own commentary and no doubt getting dragged into some unresolvable arguement.

27 05 2011
Dave0

Ok ok, I admit we stole land from the Native Americans, I set myself up to be embarrassed about that one. When I said land was given away I was referring more to during the birth of civilization. However, I still stand by my original point that crimes like that are seperate from the core of capitalism. In a perfect world, the USA would have recognized land used by Native Americans and declared that the Native Americans own this land. The fact that private ownership of land exists had nothing to do with the USA stealing this land from Native Americans. Do you really think it would have been any different if the USA were under a socialist system? Under that scenario, the USA would have just declared that they own all this land, and USA citizens can live on this government owned land, rent free, if they just move out west. Whether the land was publicly owned or privately owned wouldn’t have made a difference.

Capitalism is the most effiecient system humanity has come up with to create a dynamic economy that can react quickly to the constatly changing demands of society. The fact that unethical behavior happens under this system makes no difference. The way to stop the unethical behavior is to force government to set up rules and regulations, and enforce them. Otherwise, this unethical behavior will happen no matter what economic system you have in place. The corruption in the USSR is a perfect example of that. They may have gotten rid of capitalism, but that didn’t stop selfish people from exploiting the system.

Don’t blame capitalism, blame the corrupt government.

27 05 2011
More Left Than Thou

Land ownership between Native Americans and that of Socialist and/or Capitalist is different. Land was owned by the community in many Native American societies. You could think of socialism as expanding the “tribe” outwards to have larger communal ownership. Just as the Native Americans decided together how to use the land (when to leave it, what to plant, etc), so should it be in society. The mineral wealth of the land (oil, gold, ect) should not be privately owned as the land should belong to the people of the nation. Many Marxist believe in something called “primitive socialism” (http://en.wikipedia.org/wiki/Primitive_communism).

You are confusing Markets with Capitalism here. Markets are very dynamic and there are many Marxist the believe in “market socialism” (famously done by Yugoslavia, the USSR’s NEP, and what China claims what they are doing now http://en.wikipedia.org/wiki/Market_socialism). There’s also a lot of hard-lined, orthodoxed Marxist the believe Markets are inherently evil. And you are very correct about corruption. It is bad under capitalism and socialism but this is a null point. The way capitalism produces profit and it’s need for unsustainable growth make it a less than desirable economic option.

You are right again about the wealth that capitalism has produced. The material wealth in America is mind boggling. But this doesn’t make it a just system. What do we do about sustainability, economic inequality, abject poverty, etc?

Marx wrote extensively that socialism can only come to a country that had already transformed from feudalism to capitalism. There was a lot of debate about Lenin and Mao coming from countries with backwards economies but these points are moot now. We have capitalism in most places around the world and in most sectors of society in America. It’s time to move on to something more just.

29 05 2011
Josez

A friend took this picture when I was living in San Jose, Costa Rica. A lot of poverty and homelessness with no real social net; ironic, considering Costa Rica is definitely one of the more developed countries of Latin America. I think you’ll find this picture very fitting for your blog: http://imgur.com/R9Qxj

30 05 2011
angrykarl

Well done. Keep up the blog, comrade.

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