What is Capitalism?

 

capitalismYou really need to understand what Capitalism is in order to understand Marx. Wikipedia (1) is actually a useful starting point here, defining Capitalism as

“an economic system in which the means of production are privately owned; decisions over what is produced and what is bought and what prices should be are determined mainly by private individuals the free market, rather than through a planned economy; and profit is distributed to owners who invest in businesses.”

 

There are three (+1) main components of Capitalism (2)

  1. Private ownership of the means of production – rather than collective or state ownership.
  2. Goods are produced for sale in the free market – rather than for personal use of for barter.
  3. The reason producers produce goods is because they wish to make a profit – the profit motive is central.
  4. To the above I would add a fourth component- which is wage labour – The majority of people in a Capitalist system make their money through wage labour – by selling their labour power to their employers.

Four arguments for Capitalism

  • It is the best economic system for bringing about economic growth, or a sustained increase in the total value of goods and services that are produced,
  • It is the best system for ensuring that what is produced matches up to the needs and wants of the people – because producers only make a profit if they supply what people demand.
  • Thirdly it is argued that production should be efficient because Capitalists are in competition with each other – and the more efficient one’s business is, the lower the cost of production, the lower the price and higher profit.
  • Defenders of Capitalism argue that the genius of Capitalism is that it transforms individual self interest into collective good – selfish capitalists want to make a profit, but they have to produce what people want in order to make a profit!

Capitalism is a dynamic system – it is always transforming the world around it

Capitalism is an incredibly dynamic system – because it induces Capitalists to complete, they are ever looking for new opportunities to invest and make the best rate of profit –There is a natural tendency for this system to change societies and expand globally. Capitalism is restless and Marx was very aware of this fact –

Constant revolutionizing of production, uninterrupted disturbance of all social conditions, everlasting uncertainty and agitation distinguish the bourgeois epoch from all earlier ones … All that is solid melts into air”(4)

Of course, all of the above advantages are contested – Marxist writers generally arguing that there are contradictions within the Capitalist system that make it fundamentally flawed – one such writer is Alex Callinicos…

Alex Callincos (3) – Two contraditions within the Capitalist system

According to Callinicos, the above factors mean there are two fundamental forms of conflict, inherent to the Capitalist system –

  • Firstly, because the Capitalist class exploits labour –the interests of the Capitalist class are in conflict with the interests of the working class.
  • Secondly, each individual member of the Capitalist class is in conflict with other members of that class – Capitalists compete with each other to attain an ever greater amount of profit and an ever greater share of wealth.

Capitalism tends to concentrate wealth in the hands of the few and lead to greater exploitation of the many

enjoy_capitalism_2_Each individual cpitalist, faced with competition from other Capitalists, seeks to maximise profits relative to his competitors. One way in which this can be done is through technological innovation, thus lowering the costs of production below the average costs of production in the sector, which will increase the rate of profit. This will attract further investment (capital).

The problem with this is that it is only a short term solution because eventually other Capitalists will innovate in the same way and the competitive advantage will be nullified, and we return to a level playing field.

Of course some capitalists are unable to afford these technological innovations and go bankrupt, causing unemployment which reduces the bargaining power of those in work, which allows the remaining Capitalists to reduce the wages of their workers, thus increasing the rate of exploitation. At the same time, surviving capitalists buy up the means of production of those firms that have bankrupted at below market value thus leading to a concentration of ownership and a concentration of power in the hands of fewer and fewer people.

From the Marxist point of view therefore, the logic of Capitalism that wealth gradually becomes concentrated in the hands of fewer and fewer people, and the masses get ever more exploited and impoverished.

Sources

(1)  http://en.wikipedia.org/wiki/Capitalism – my version is modified slightly

(2)  Ingham, Geoffrey (2008) Capitalism, Polity – see this for a fuller account of definitions and history of Capitalism

(3)  Callinicos, Alex (2003) An Anti-Capitalist Manifesto, Polity

(4)  First appears in ‘The Communist Manifesto’, 1848. – http://www.marxists.org/archive/marx/works/1848/communist-manifesto/

http://www.learnoutloud.com/Podcast-Directory/Philosophy/Political-Philosophy/The-Communist-Manifesto/22023 – free podcast of the Communist Manifesto

http:/manybooks.net/titles/marxengelsetext93manif12.html – download free ebook – I have a copy permanently on my ipod! – Ironic I’m sure.

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