Sunday, February 28, 2010

What is Capitalism? – Part 5

Capitalism: A Definition

Historically, the definition of capitalism depended on what source one used. According to the Brooklyn College Core web site, “the term capitalism was first used to describe the system of private investment and industry with little governmental control which emerged, without an ideological basis, in the Netherlands and Britain in the 17th and 18th centuries.” Most Marxists define capitalism as the, “socio-economic system where social relations are based on commodities for exchange, in particular private ownership of the means of production and on the exploitation of wage labour.” David Schweickart defines capitalism as consisting of three components: the bulk of the means of production are privately owned, the products are exchanged in a market, and that most of the people work for those that own the means of production. David Ellerman reduces capitalism to being defined by one primary feature, which is “the legal relation for the voluntary renting or hiring of human beings.” When one combines all of the previous installments of this series one can see that, in my opinion, Schweickart’s definition is the closest of them all in providing a complete and accurate definition of capitalism, which is that capitalism is a socio-economic system that has essentially three co-dependent elements: Capital, a Two-tiered Class System, and Market Domination.

One element is private investment known as “capital” from which capitalism gets its name. Capital is, by its very nature, always striving to expand and reproduce itself. When reproduction isn't possible, such as an economic downturn, it then strives to at least survive until the day when it can again begin to reproduce. It’s an essential nature of capital to attempt to grow.

A second element is that capitalism is a class system in which there are two primary socio-economic classes. There is an upper class (“capitalists”) whose members control the capital and who maintains power in society due to their ownership of the majority of the marketable assets (i.e. wealth). In addition, there is a lower class that has limited power and survives largely through wages acquired from employment by the upper class along with the self-employed, entrepreneurs and sole proprietors. (The homeless make up a hidden underclass who have little productive role in capitalist society and is essentially powerless.)

The third element is the absolute domination by the markets, which molds the culture to service the capitalist system; using the force of the State if necessary. This domination by the markets provides a vital means by which the capitalists appropriate the fruits of the labor of the lower class so that they can increase their own wealth and the market provides a mechanism by which capital is able to reproduce itself. Ultimately the domination of the market provides the means by which the capitalist class is able to obtain its wealth and hence to maintain its position of power.

Sunday, February 14, 2010

What is Capitalism? – Part 4

The Dominance of Markets

At this point we’ve established that capitalism is a two-tiered class system based on capital (i.e. private investment), which provides wealth and hence power to an upper class (‘capitalist’). Now we need to look at a vital feature of capitalism, which is the domination of the market. Much of what I’ll cover here I’ve addressed before. But the because of the unique role of the market in the capitalist system one cannot define capitalism without discussing the role of the market.

Ever since humanity left the tribal system (what Marx erroneously called “primitive communism”) markets have existed in some fashion. But, as has been shown by Karl Polanyi, the market in the prior modes was “embedded” within the social relations of their societies. Capitalism changed this in that in a capitalist system the economic and market relations define social relations. Polanyi was able to show that prior to capitalism the relations of reciprocity, redistribution, and communal obligations dominated while market relations were secondary. Capitalism, according to Polanyi, irreversibly destroyed the first three relations resulting in an “ascendency” of market relations to be the position of being considered the sole relationship. He called this ascension the “great transformation.”

In capitalism there are essentially three major types of markets: the exchange of goods and services; a labor market; and financial markets that include stocks, bonds, along with money markets as well as a variety of other investments. These three markets either directly or indirectly touch nearly every aspect of life in a capitalist system.

The market for goods and services was the world’s first market, appearing shortly after humanity left the tribal system. It is through the market for goods that today we acquire everything from food to cars to yachts. It is nearly impossible to survive in capitalist society without buying goods or services from the market. One simply cannot avoid this market and retain contact with civilization. It’s through this retail market that the upper class appropriates the residual resulting from the production process as wealth is distributed from the lower class to the upper.

The upper class (i.e. capitalists) needs the labor of the lower class to create goods for sale or to provide services in the before mentioned retail market. Therefore, there also exists a labor market by which people of the lower class are rented, using Ellerman’s term, by those in the upper class. To a limited degree this practice of renting people for their labor was found in the ancient world as well. But nowhere in the ancient world did labor markets play the dominant role that they do in capitalist society.

The third type of market is the securities market, which is the primary realm of capital. The stock market deals exclusively with the public buying and selling of shares of ownership of the means of production. Originally this market was simply to provide capital investments for businesses (“primary market”) though increasingly today the stock market serves the purpose of doing nothing more than making profit through the trading of already issued shares among the capitalists (“secondary market”). In addition to the securities market there are markets for commodities, futures, and money. There are many types of investments and not all of them involve tradable securities. Recently there has been a rise in “private equity firms” in which stocks are not listed on the various security exchanges and are not overseen by government regulators as publically traded stock companies are.

Simply identifying these markets and who reaps their profits does not by itself establish their dominance. Polanyi was able to show that in capitalism, unlike prior socio-economic systems, it is the culture that is expected to be subservient to the market. If the culture does not naturally mold itself to the market then capitalism forces it to change through the power of the State. By the market dominating culture and forcing it to bend to its will the capitalists can increase their wealth and hence increase their power.

In the next, and last, installment of this series I’ll pull all of these components together to present a definition of capitalism.

Monday, February 1, 2010

What is Capitalism? - Part 3

Class Structure of Capitalism

The class system in America is a largely two-tiered structure that is based on a socio-economic power relationship in which, as we saw in the previous posting, the ownership and control of wealth plays a defining role. There are several distinguishing features of the American class system.

First, the two classes, while roughly correlating to income, are not based necessarily on income. Instead each class is largely based on the type of property owned and the degree of power welded by that ownership. Second, while there are, of course, circumstances where there’s been movement of individuals from one class to another the two classes are, for the most part, stable over the generations.

There’s an upper class that holds the reins of economic and political power through the ownership of marketable wealth (i.e. stocks, bonds, non-occupied real estate) and which therefore has a dominating power over society. This class can be sub-divided between the heavily propertied families that call the shots and the wealthy elite that manage those operations and implement the propertied family’s wishes. The upper class acquires its wealth largely through a combination of inheritance and the claim to the residual of production and management of the production process. This upper class largely segregates itself socially from the lower class by often sending their children to exclusive private schools, participating in exclusive social clubs, and appearing on social registers.

The other American socio-economic class is a lower class that lacks substantial ownership of marketable assets and survives largely on the upper class for wages. This lower class also can be sub-divided. There are three essential sub-groups to the lower class, though it is possible to sub-divide it even finer.

One major division of the lower class is the famed “middle class” that often owns some personal-use property, such as a house or a car. Most of the members of the middle class don’t own controlling marketable assets and, as a result, most do not have access to any substantial amount of the profits of the various firms or to the governance of those firms. The majority of their children attend public schools though some do attend private schools. Few middle class children attend the exclusive schools that the elite upper class sends their children to. Members of the middle class are likely to have some college, tend to work in white collar occupations, and often achieve mid to low level management jobs. The power of the middle class, while praised by pundits and politicians, is relatively limited in comparison to the power of the upper class.

Another division of the lower class is the “working poor.” This sub-group rarely owns property beyond possibly a car and usually rents their housing. The working poor rarely attends, much less completes, college and usually works until death in blue collar fields as low-level workers in which they occasionally rise to become managers. Needless to say the working poor have little power in the American system.

Finally, there’s the poorest of the poor, the “underclass’, who are often homeless and impoverished. Members of the underclass tend to work day jobs and are highly dependent upon charity and public assistance for their survival. The existence of this sub-class is nearly invisible to most of society and is certainly powerless in nearly all aspects.

This is the reality of the American capitalist class system. Some, especially conservatives, deny this reality. Others will acknowledge most aspects of it but complain that we’re instigating class warfare by bringing it up. To the former they’re simply hiding their heads in the sand. Those who accept it but refuse to address it are doing nothing more than telling us to ignore the man behind the curtain.

While it’s important that we understand the role of class there’s one last important piece of the puzzle to understanding capitalism, which is the unique role of the market in the capitalist socio-economic system.