An Introduction to Capitalism

This blog post is a written version of our Socialist Night School session held by LVDSA’s Education Committee entitled “An Introduction to Capitalism.” We encourage anyone reading to attend the night schools for great presentations and discussions.

For most people on the planet, capitalism is the only economic system they know. Its reach into all of our institutions and relationships has given us a singular lens with which to see the world around us. One result of such a powerful system is that its ideology stops us from questioning it on a fundamental level. For example, how often do we consider why people should work for wages? Or why an individual should privately own a factory which took the collective effort of society to create? The socialist movement, in its struggle to realize a new society, has put great effort into understanding capitalism and answering these questions by going to the root of the system. The purpose of this piece is to show how capitalism works and to give the reader a different lens with which to see the world.

Before we take a closer look, let’s define capitalism.

Capitalism is a political and economic system characterized by the following:

1. The means of production are privately owned and controlled by capitalists.
2. A majority of the population must exchange their labor for wages.

III. Capitalist production produces goods and services for exchange, not direct use (commodities).

1. Commodities are exchanged in a market for money to realize profit.
2. Production is primarily motivated by profit.

Production, Capital, & Exchange

A radical analysis of capitalism is centered around a radical analysis of production. We all have a general sense of how things are produced mechanically, using available tools in a workspace to produce goods. This is how everything has been produced since the dawn of time, from the wagon wheels of Mesopotamia to the modern cell phone. But, if we take a deeper look, we see that while all goods are produced this way on a very broad level, the way they are produced on a social level is vastly different.

One way that capitalism is distinct from other systems is that goods are generally produced for the purpose of exchange, not for direct use. When you go to a supermarket, you are presented with a vast array of goods you can exchange for money. You are not free to take any of these goods for your own use. Goods produced for the purpose of exchange are commodities, and capitalism is a system of generalized commodity production.

While exchanges have existed for along time and many human societies have produced commodities on a large scale,, the primary goal in these original commodity exchanges was to use the commodity you got in the exchange. We’ll call this dynamic C-M-C, where a commodity (C) is traded for money (M) to get another commodity. For example, you trade a couple of dollars for a soda, which you enjoy after buying. Under capitalism, production is organized around a different dynamic described by M-C-M’, where money is used to produce commodities which are exchanged for more money than you started with. M’ is equal to your original M plus some additional amount of money, normally called profit. This process of using money to create more money is called capital, and it’s constantly in motion. Under capitalism, there is a constant drive to keep capital in motion and to increase its scale, known as capital accumulation. Capitalist production is organized around making as much money as possible through the production and sale of commodities and using that money to generate increasing profits.. This cycle goes on without end. Profit is king.

Labor & Class

Beyond this realm of commodities lie real people organized in specific ways. In the workplace, production is carried by workers who work for a capitalist. The capitalist is the owner of the workplace and tools, elegantly known as the means of production, used by the worker to produce commodities. The capitalist, on top of owning the means of production, also owns the commodities produced by the worker. The worker has no ownership in this arrangement and is only entitled to the wage he earns for selling his labor to the capitalist. Here we see the two main social classes under capitalism socialists should know: the workers and the capitalists.

These social classes are defined by their relation to production. They are not defined by their members’ taste in wine or the price of their homes. By defining class in terms of production, events like strikes and revolutions are made clear because we see that exploitation, which exists to increase profits, is built into capitalism. Conflict between classes will exist as long as class society exists.

Private Property

How does a factory, which took the collective effort of society to build, fall into the hands of a private owner? In short, the answer is violence. It wasn’t always the case that individuals could privately own land and hire out labor on a large scale. For most of human history, there is no such setup. There is nothing natural about a system of private property where certain members of society own the means of production and land to the exclusion of others. This system was built using state force, which grants legal ownership of the means of production or land to the capitalist.

In the transition from feudalism to capitalism in England, the peasant class, which previously used common land freely, were violently dispossessed of that land so it could be enclosed into private property for capitalists. The dispossessed peasants had no choice but to work for capitalists, since they had been deprived of their livelihoods. This separation of laborers from their means of production to create private property is called primitive accumulation and was necessary for capitalism to form and still happens to this day. Thousands of peasants revolted against enclosure (e.g. Midland Revolt), but were crushed by the force of the state.

Capitalism, which rests upon the private control of production, is historically rooted in state violence, dispossession, and coercion. Because of private ownership and the control of production, the vast majority of the population in a capitalist society are at the command of the capitalist class for employment and have little say in the production process. As a result, the capitalist class have immense political power which they use to keep workers in their place.

Only capitalist ideology could have you believe this system is truly free or democratic.