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.