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What the hell is this thing called "capitalism," anyway?

We all live under it. We all talk about it (whether reverentially or scornfully), but do any of us really know what it is? And how come, in this, the greatest capitalist country of all, no one ever takes the time to explain and define precisely what this thing is?
Why, in the greatest capitalist country of them all, do most of us never hear a clearer and more precise definition of what this thing CAPITALISM is, which is afterall supposedly so great? Without further definition and analysis, we are told that "capitalism" is nothing more nor less than "the natural order of things." As elemental and invisible as the water fish swim in. And yet, paradoxically, we here in America are blessed to live under "it," while others in some places lack "it." But if "it" really is so natural and elemental, then how could THAT be? And what is this "IT" in the first place! Could it be that this astonishing carelessness and take-it-for-granted-ness in this little matter of definitions serves the interests of certain folks in our society? And who would THEY be? (Hint for the rightwing populists and Libertarians: It ain't "the United Nations" ;-)

I think some precision is in order. We shouldn't have our discussion in a vacuum. For this purpose, you may find it helpful to dust off your copies of that infernal work, Das Kapital ("Capital") from that Great Satan, Karl Marx, that good Americans are always warned about from birth. How does Marx define "capitalism" and "capitalists"?

Marx's definition has the virtue of great precision, a virtue you will find wholly absent in typical liberal discussions of this subject, which are always full of fluffy, warm appeals about virtues of "hard work," "industriousness," "vendors on the street selling beads," such that you get the idea that anyone in any way shape or form who doesn't work on something like a Soviet collective farm is a "capitalist." Ah, no. I think we can agree that no definition of capitalism that fails to explain intelligibly and precisely what "capital" is and who "capitalists" are -- as these definitions always so fail to do -- is anything but pure propaganda. Here's how Marx defines capitalism:

Capitalism is an economic system in which certain people (capitalists, those who own "capital") are able to use their capital to acquire more capital. At first this sounds like a sort of magic. "Self-valorizing value," as Marx calls it. Now, what is "capital"? Capital is just like money -- but only when it is used in this mode of accruing value unto itself. (Otherwise, anyone with a dollar bill in his pocket would be a latent "capitalist.") But for a capitalist, the shape that this self-valorizing value takes is really beside the point: it could be computers, it could be swiss cheese. That doesn't matter. What matters is only that the initial investment be able to yield "returns" on itself. Only someone who is able to live wholly off of these returns that capital earns upon itself can be called a "capitalist." But by what magic does an inanimate object "reproduce" more of itself? [SEE TECHNICAL NOTE ON CAPITAL CYCLES BELOW]

For that, Marx immediately delves into his LABOR THEORY OF VALUE. "Capital" is ultimately an abstraction based on value. How does a thing in the world come to have value, such that some are willing to buy, and others to sell it? Marx offers this very sensible definition: a thing can only have "value" as a result of the input of a certain amount of human labor required to manufacture, extract, or otherwise obtain it. For otherwise, if something could be acquired effortlessly, why would someone else offer their "hard earned dollars" to another for it, "dollars" that they had to get by, say, slaving away at some shit job? Clearly, if people could just effortlessly acquire "things," such "things" wouldn't have VALUE in the purely economic sense of being "commodities." COMMODITIES, by Marx's definition, are precisely such things as are for sale in the marketplace.

But what about land, you say? Or what about extractive, nonrenewable resources that come from the land?

Can we not buy and sell these? Marx would explain them this way: only to the extent that these things acquire value as a result of human labor (in the case of land, permanent "improvements," in the case of such things as minerals, the effort required to extract them from the land) are they commodities. Any part of their price that derives from the accidental fact that one man or woman discovered them initially and took possession of them before others could (or, in the case of the Americas, "stole them from the Indians") is not a VALUE in the sense of Marx's "Labor Theory of Value," but rather, a form of RENT. RENT is the name given for any part of the price of a thing that derives from such accidents attendant upon its initial acquisition.

I would like to expand a little -- since it has come up so much recently, and always does - upon this particularly gruesome species of capital, this one that goes by the name "private land ownership," and its progeny, "rents."

Marx once wrote, "One day, the world will come to regard the notion of ownership of property in the earth as just as barbarous and archaic as we now regard the notion of ownership of property in another's flesh." By what "right" does one come to demand any additional increment to the price of a thing, beyond the value it acquired from actual human labor, just because of the luck of stumbling upon it first (or having "stolen it from the Indians"). No universal right at all of course, but only custom -- backed up implicitly, in the final analysis, by brute force -- whether that force be Custer's legions or the county marshall. What, then, is that part of the price of a thing called, if it isn't "value" as understood in this Labor Theory of Value? Simply RENT. But where does the money come to pay these rents? Does not "value" ever enter the equation? Because surely when one sells or rents "property in the earth" one can use the money to acquire other things that have straightforward value in the Marxian sense. [See TECHNICAL NOTE ON LAND below]

Now Marx's analysis goes into a very deep subject, which he calls SURPLUS VALUE. I will leave it for your summer reading. Or else read the technical note below. Suffice it to say that, essentially, when you work at a shit job -- or any job at all, even if you are self employed -- you are in essence working part of the time for a rentier capitalist somewhere, whether he owns your apartment building, or the mortgage on your house. When you, the ordinary person -- a noncapitalist, who cannot live entirely off "returns on investments" of capital -- gets paid for your labor, a part of the value you produce gets taken off the top and goes to enrich the capitalist class of all those people who don't have to work to produce value, because "their money works for them."

Now, if that is the case, then as you can see, it is quite beside the point precisely who "finances" your purchase of that new home, say. In their (righteous and laudable) zeal against "corporations" and banks, many people have mislocated the true root of the problem. You might ask yourself, "where do corporations and banks come from?" Surely capitalism as a form of economic and social organization predates these institutions in their current form. Again, it's a deep subject, that I won't speak of extensively here. But the bottom line is, it's mistaken to believe that they are strange evils that come out of some vacuum. And mistaken to believe that, without them, all our problems would be solved, or that all Americans could afford a house, say.

To debunk this hypothesis, one need look no further than history of other countries before these institutions (not to American pioneer history, an artificial condition of "free homesteads" for the taking caused by the extermination of the Indians), or to such other countries presently where the vast majority of the population have no access to credit institutions, banks, or corporate jobs or products. Or, an even better example would be the Great Depression in this country. Were there and are there still not many who have no homes in such conditions? Many who live in squalid shanties, to be driven off by police, the officers of the rich, at any moment?

I can assure you, were most Americans to suddenly lose access to all credit, they would not, under the current economic and social organization, suddenly be able to more easily "afford" to buy homes, as some purport to believe ( http://portland.indymedia.org/en/2005/07/321104d.shtml#187820). "The market" would not suddenly or even gradually bring prices of such things as land more into line with the wages of workers. Look no further than the Great Depression to realize what foolishness this is. Most ordinary people did indeed lose virtually all access to credit -- the whole credit system became largely invisible and unattainable to most of the population, but it didn't become any easier to "afford a home." In fact, it became much harder. If you study the subject more, and do the summer reading I have suggested (brush off that dusty unread copy of "Capital" in your basement, or check it out of the library in true collectivist fashion), you will understand with much greater clarity why.


Marx doesn't classify private land ownership as a capitalist institution at all. Rather, the institution of private land ownership is a vestige of feudalism, transformed and grafted onto capitalist economies as an alienable legal document -- the deed of ownership. The crucial difference between capitalist land ownership and feudal fiefdom is that the rights of the lord become alienable for money. That this is a crucial difference is made clear by the history of what is called "enclosure of the commons." Through this historical process, feudal lords (whose claims to their manors stretched back into prehistory, but which originally derived from some kind of consensual status as priests, shamans, or other special office holders or stewards of tribal societies) arbitrarily seized control of the manors on which their serfs worked, and turned the lands over to cash crops, or extractive industries, or sold them to others for such purposes.

Serfs, who had formerly been required to pay the lords tributes out of their production, but were considered entitled to use the land and otherwise do as they pleased with what remained of the fruit of their labor after paying their tribute, were suddenly forced off the land by the feudal lords. The lords transformed their feudal titles into private, alienable deeds wholly arbitrarily, because they could do so, and because, with the rise of mercantile trade, and the flush of gold and other goods from the New World ("stolen from the Indians," or produced by slave labor), it suddenly became possible to make a lot of money with which to acquire a lot of goods and services that were formerly unavailable, by converting the feudal manors over to such cash crops as cotton, or extractive industries such as coal.

This "enclosure," the fencing in of the feudal manors and their arbitrary conversion to capitalist land titles, was not understood at all by the serfs as in any way "natural" or an entitlement, and was met with fierce resistance. In fact, many of the ferocious wars and social conflicts of early modern times, such as the Thirty Years War, which are customarily ascribed to "religious strife," were in fact underlain by long simmering, bloody conflicts over feudal lands and enclosure.

The capitalist thus came into possession of the feudal lands by what Marx refers to as "primitive accumulation." "Primitive accumulation" is not, in itself, considered by Marx to be a capitalist but rather a precapitalist mode of accumulation. Also, primitive accumulation, as its name suggests, is quite messy. It involves armed force -- in Europe, the massacres of revolting peasants, in the Americas, the extermination of the Indians. Capitalism no longer relies on such messy, blunt instruments for its purposes. It has a smooth, formal, efficient legal apparatus for handling these matters. Of course, primitive accumulation is still very much with us. And, as the current adventure in Iraq suggests, even respectable modern day capitalists are not above indulging in it from time to time either.


Marx distinguishes between two different basic types of value: "exchange value," (ie, money) and "use value" (ie, commodities). "Use value" is the value that something has to the person who actually makes use of a good or service itself directly, without hoping to exchange it for some other good or service. "Exchange value" is the value something has when it is used solely for the purpose of exchanging it for another thing of value. Anything that is used in this fashion is called a "commodity." "Money" is exchange value in pure form, detached from any necessary "use value" other than its usefulness in the course of exchange. Historically, it always originates as a commodity of some sort (e.g., gold) but the existence of "fiat currencies" such as the US dollar proves that ultimately, conceptually, it can be become wholly independent of any such instantiation as a real, tangible use value.

Now we get to the heart of Marx's whole analysis. Marx also identifies two different cycles in which these forms of value interact under a commodity based economy. For commodities, Marx abbreviates with "C", and for money, "M". In a commodity economy, there can be two different cycles relating commodities or "use values" ("C") with money or "exchange values" ("M"). These two cycles he calls "CMC" and "MCM".

In a pre-capitalist marketplace, only the first cycle is found, "CMC". In this cycle, one starts with a commodity -- typically one produced by one's own labor -- and one brings it into the market place, where it is traded for -- or itself becomes -- money ("exchange value") to be used for the sake of acquiring some other commodity, which one will actually consume (Potentially, of course, one could engage in a whole cascade of such exchanges, until one arrived at exactly the commodity one was actually after. The use of money, or pure exchange value detached from any concrete use value, is merely a convenient tool for abstracting away and relieving us of the need to directly work out such a cascade of exchanges, which would naturally be quite tedious and in fact virtually impossible to do in a modern economy with any diversity of commodities at all).

It is the MCM cycle that distinguishes a fully capitalist economy from a mere "market economy" such as the ancient Greeks had, or African villagers or Chinook Indians had pre-European imperialism. In this MCM cycle, money, "exchange value", is used to acquire commodities in the market. But those commoditiess are used solely for the purpose of generating additional exchange value. Only in the MCM cycle does the notion of infinite increase arise. In the CMC cycle, the end result is always a use value that realizes its value by being used ("consumed") by an actual person. Thus, the CMC cycle terminates. Whereas, the MCM cycle always ends up as the same thing -- money. Money, as abstract exchange value, can be accrued indefinitely, never perishes, and never needs to be "used up" or lose it's inherent value. The CMC cycle looks like this: CMC, CMC, CMC, an infinite number of discrete, finite sequences, each of them terminating with an end user of the commodity. Whereas, the MCM cycle looks like this:


and on and on. The capitalist is always using his initial capital -- the M at any point in this sequence -- to acquire more production inputs that can be turned around into larger amounts of exchange value, M. How it is possible for him to do this is the subject of the topic of SURPLUS VALUE. The wealth of the capitalist can increase indefinitely, but only if he can extract "surplus value" out of the total price at which sells his commodities. SURPLUS VALUE is that part of the VALUE of a commodity beyond what the capitalist must pay in input commodities for its creation.


And here, people mistakenly say "Aha! Impossible! The capitalist must be cheating! Selling products overpriced, or defrauding people!" How can he get away with selling a commodity for more than it cost him in inputs to produce it, except trickery? But here, Marx springs to the defense of the capitalist! The capitalist does not need to cheat the consumer at all. And how could he get away with it anyway, if there are other capitalists who compete with him on price? Unless they are ALL colluding with each ALL the time to fix prices. But no, that isn't at all necessary for the capitalist to make his profit.

Remember that Labor Theory of Value I told you about. Well, it turns out, the hands of the worker themselves (or rather their activity) is ITSELF a commodity under capitalism! This can get confusing, so to keep things straight, Marx refers to the name of this commodity as "LABOR POWER", which is the activity of the worker, reified, to distinguish it from "LABOR" itself, which is the product of the workers hands, and is synonymous with the value that that end product has in the marketplace.

Essentially, what Marx calls "LABOR POWER" is the commodity whose value is what it costs to rent a worker to do work for you. The cost of renting a worker can vary greatly, of course, depending on the type of work. But to keep things simple, Marx deals with basic work. Basic work is work that anyone can do without specialized training. The same analysis applies to any worker, though. A worker with specialized training will earn more, but only because of the costs associated with endowing him with that specialized training. Any other increments to the costs of different kinds of workers -- such as customary ones, or due to the better organizing and collective bargaining success of certain workers in certain places -- are incidental to this particular discussion.

The cost of the commodity Marx calls labor power is just the cost of keeping the worker alive and in a condition fit to do the work demanded of him on an ongoing basis, as well as to reproduce himself so as to produce offspring who will constitute the future generations of workers.

Now, the capitalist can earn his profits through no trickery of any sort at all in a capitalist economy. He can buy all his inputs at fair prices, the going prices for them as set by the market, and as conditioned by their real value, which they acquire from human labor (Labor Theory of Value). He sells them at a profit, but he can make that profit even though he sells his product, again, at exactly the price the market determines, and this price again can be largely or wholly defined by the true value (labor value) of the product. So where does he come off making a profit? How can he extract from this process more exchange value ("M") than he started with?

If he acquired all the inputs honestly, and charged a fair price for his products that reflected their real value, then his profits, that increment to the money M he started with ("SURPLUS VALUE") can only derive from the difference between the value of the product, after the cost of other input commodities have been subtracted from it, and the amount he had to pay to the workers for the value of their labor power.

Thus, Marx explains that ALL capitalism and capitalist accumulation ultimately originates entirely from the existence of labor power that can be bought and sold. The capitalist economy is distinguished from economies of the past by this peculiar institution of "wage labor." Under the institution of wage labor, when a worker sells his labor power, he also legally and customarily surrenders ANY claim to the value that his labor power creates. Obviously, this labor power sold by the worker to the capitalist can create a great deal more than the worker earns in salary. But the privilege and the power to allocate this value rests entirely with the capitalist. (So much for the bombastic rhetorical flourishes (see, for instance, www.capitalism.com) eulogizing capitalism as being the system where "you own the fruits of your labor." In fact, the case is exactly the opposite, of course!)

When you read Marx, you see that he does not set out to lambaste the capitalist or capitalism. He merely believes that, as a system of social relations, it is transitional, and no more abiding or "natural" than were slavery or feudalism. Indeed, he explains capitalism as a necessary step in the evolution of a modern industrial economy, which has many potential virtues for human wellbeing, even if is grotesquely misapplied and misallocated in the present scheme of things.

The capitalist class, while necessary initially to overthrow feudalism and organize the kinds of rationalized production systems that are indispensable for an industrial economy, eventually becomes a vestigial, parasitic class wholly dispensable for purposes of the functioning of the larger industrial system itself. Indeed, it becomes pure dead weight, but worse, dead weight that forever obstructs any rational allocation of the social benefits of the massive increase in human productivity made possible by industrialization. The whim of a handful people is allowed to misdirect the fabulous engines of human creativity into irrational, insane, and destructive channels, like nuclear weapons, or pollution that causes birth defects. (In this sense, capitalism becomes despotic. Albeit, it is not the only form of despotism, nor the only one capable of producing such evils.) Any change in social relations in which the working class were to fundamentally alter or abolish the terms of this "peculiar institution" of wage labor would not be capitalism, by definition, but a new system of economic and social relations -- a reform or revolution devoutly to be wished for.

useful reference: The Laws of Commodity Production for Dummies 10.Jul.2005 13:09

Ben Seattle

The Laws of Commodity Production for Dummies


A concise description of the laws of economic development that have created civilization as we know it. (A thousand times less comprehensive and reliable than Marx's Capital -- but also a thousand times quicker and easier to read.)

The world in which we live is a world of imperialist wars, racism, unemployment, poverty, repression, ecosystem destruction on a vast scale and a culture of escapism, ignorance and spam. This world has been created and shaped by the laws of commodity production.

Millions of people want to see the emergence of a "better world" of peace and abundance for all. In order to create such a "better world" we must understand the economic laws of our existing world -- which we will need to overcome in order to create an economy which is not based on commodity production -- and in which, instead, all goods and services are given away for free.

Origin... 10.Jul.2005 19:53


Recommend: "The Origin of Capitalism" by Ellen Meiksins Wood

It isn't long (138 p). The author makes a compelling case against the notion held by many, including Marxists, that capitalism is a natural part of human development.

Adam Smith 10.Jul.2005 23:01


No, I mean actually pick a copy of whole book, 'An inquiry into the nature and causes of the wealth of nations', by Adam Smith, and read it. All.

While you are there, look for those little snippets, out of context, that people spout like pablum. (hint : they don't all exist) For those you find, read most carefully Smith's qualifications, limitations, and warnings.

You, if you understand the big words, will be surprised.

If you happen to be a wild-eyed vodka-breathing commie, you will learn to reply with reasoned and successful arguments to the pronouncements which heretofore drove you into paroxisms of ignorant rage.

I you happen to be a wild-eyed whiskey-swilling cappie, you will learn to gage how gullible are your listeners before lying.

When you have figured out how easy it is, try Nussbaum, 'Poetic Justice'. Trust me on this : it is not fluff. You will thank me maybe. You will be wiser.

Then, look for Amartya Sen; not the arid technical reports, the more accessible stuff, like 'Development as Freedom'.

Definition 17.Jul.2005 06:03

Wotan mit uns!

Capitalism - The most eficient way to make money, no matter what the cost.