Capitalism

 

and why we need to get over it

 

Tam Cuss

 

 

 

First published in 2010 by Springback Books.

 

This revised version posted 27 April 2017.

 

 

 

1   Introduction

 

2   Social production

 

3   Before capitalism

 

4   How capitalism began

 

5   How capitalism works

 

6   Arguments for capitalism

 

7   Social class

 

8   Inequality

 

9   Family

 

10   State

 

11   Nation

 

12   Imperialism and resistance

 

13   Democracy

 

14   Education

 

15   Environment

 

16   Ideology

 

17   Reform

 

18   Conclusion

 

 

 

1   Introduction

 

Many of us question the way our societies work. Some of us are comfortable, but we all know there’s poverty, pollution, war and waste. And they seem inevitable.

 

The system we live under – one that produces great wealth for some, but under which poverty, pollution, war and waste persist – is capitalism. And we’re supposed to believe that, for all its faults, capitalism is the fairest and most efficient economic system.

 

The story goes: whatever is good for business is good for all of us. Capitalists are benevolent wealth-creators, selflessly risking their money to provide us with jobs. Inequality is regrettable, but inevitable and justifiable – the price worth paying for the benefits of economic growth.

 

The purpose of capitalist ideology is to justify the system by disguising its injustice with lies dressed up to look like common sense. And as the man said: when one lies, one should lie big and stick to it. My aim is to show why they are lies.

 

Of course, capitalism is not responsible for all our social problems. And some of them were around long before the system developed. But we need to overcome them, and capitalism prevents us from doing so.

 

We must know what’s wrong with something before we can change it for the better. So we need to understand how capitalism works, and why it harms us. Then we can work out how to improve things.

 

However, my purpose here is not to propose an alternative to capitalism, but only to show why we need one.

 

The case against capitalism is both economic and moral: because it creates and relies on economic inequality, capitalism is not the most socially efficient productive system; and this inherent inequality is why it is an immoral system.

 

This argument is not original. Criticism of capitalism is as old as the system itself. My aim is just to simplify and clarify the issues.

 

If what I’ve written only makes you think and argue, then that’s a start. And here’s something to get you going: Capitalism is organised crime. Together, we’ll crack it.

 

 

 

2   Social production

 

Capitalism is one way of organising production. But every system has to deal with the same economic facts. So it helps to understand the facts if we want to understand how capitalism works, and why it can’t work equally well for all of us.

 

Production

 

To survive we must produce food, clothes and shelter. We need these basics before we can produce anything else.

 

But to make progress we need other good things, such as healthcare, education, a clean environment, entertainment, holidays and opportunities in life. The more of the basics and better things we have, or the better their quality, the better we live.

 

For most of human history we’ve struggled to produce even the basics. We simply weren’t productive enough. Only our rulers could enjoy the few better things that were available. And for many people in the world, the struggle even to survive goes on today, needlessly.

 

We must work to produce the goods and services we need and want. And because we consume what we produce, we must keep producing. So production is the foundation of society, how it begins and how it progresses. Everything else we do rests on how we produce what we need and want.

 

Factors of production

 

These factors are the three things needed for production. To start, we need nature’s raw materials. And because the land is the source of most of them, economists used to call raw materials land.

 

The second factor is means of production: tools, machines, buildings, power, transport, and so on – things we need in order to produce things. Economists call them capital.

 

The more raw materials and capital we have, or the better their quality, the more productive we are. But to produce things we have to work.

 

The third factor of production is labour. But we must work to gather raw materials and produce capital. So raw materials (in effect) and capital are products. And on their own they don’t produce anything.

 

Labour is the only truly productive factor. Workers produce all the economic wealth in society, and we always have. The question is: who owns that wealth?

 

Specialisation

 

If we all specialise on what we’re good at or enjoy doing, we can produce more and better things. So some of us farm, bake, make clothes, build, heal, teach, and so on. Specialists have the time, experience and knowledge to improve tools and skills.

 

But specialisation means we must co-operate to survive and progress. We have to share what each of us produces, and we all benefit as a consequence.

 

Specialisation emerges naturally from social need and individual abilities, and it makes us collectively much more productive. Nowadays, huge amounts of specialisation go into many of even the simplest products and services.

 

But for specialisation to be efficient, we must all have the same freedom and opportunity to find and develop our talents. We must all have the same advantages in life. Relative poverty and lack of opportunity can waste individual talents and creativity. And we all suffer as a consequence.

 

Exchange

 

The more we specialise and depend on each other, the more important exchange becomes. To start with, we share out what we produce by barter. How much we give in exchange depends roughly on how much work goes into each product: the raw materials, capital, training, and so on.

 

But for an exchange to be fair, it must be free on both sides. We must be free to exchange our products as we wish. And that can happen only if we own or have control over our products. If we don’t, we don’t have the power to exchange them as we wish.

 

Money

 

As production and trade develop, it becomes easier to exchange all products for one particular product. Usually it’s precious metals such as gold and silver. But whatever product we use, money emerges as the measure of value.

 

Most kinds of money don’t have another practical use. For example, we can’t eat, wear or live in it. And it isn’t a means of production: we can’t use it to make other things. Money is just a means to exchange products. The price of any product just shows how much of another product we can exchange it for.

 

But money creates powerful illusions. It takes on a life of its own. When we use money, we no longer feel we’re exchanging our products with each other. Money makes us forget the social, co-operative nature of production. And money makes it easier for employers to pay us less than our products are worth.

 

Supply and demand

 

We produce what other people will exchange for what they produce, so supply tends to rise to meet demand. Things can go wrong when we over-produce or there’s a shortage, perhaps because of war or natural disaster. And this will affect production and prices for a while. But demand usually brings supply back into balance, regulating production and prices in everyone’s interest.

 

However, demand and need are not the same. We may need or want a product, but we only demand it when we can and do pay for it. So for supply and demand to work fairly, by regulating production and prices in everyone’s interest equally, we must all have the same power to demand – the same wealth. Economic inequality means the mechanism of supply and demand can’t work equally well for all of us.

 

Surplus

 

If we make enough of a product for our own needs, or to exchange for the other things we need, we break even. Then any more of the product we make will be a surplus.

 

With the surplus, we can demand more products, which means others will produce more, better or different things for us. Or we may choose to exchange the surplus for more raw material or capital, and produce more ourselves. Either way, production expands when we produce a surplus, the population (including the labour force) grows, and civilisation can emerge.

 

But whoever owns what we produce also owns the surplus. And they can decide who consumes it or how to invest it in more production. Controlling what we produce, and therefore the surplus, is the key to wealth and power in any society.

 

And environmental decisions about reducing or redirecting production and consumption are in the hands of those who control what we produce.

 

Self-interest

 

If we produce more of what other people want, or things of better quality, we can then exchange them for more things, or things of better quality, that they produce.

 

And collectively we decide what society produces by demanding more or less of a product. So in theory, individual self-interests combine to organise social production in the most efficient way to meet everyone’s needs and wants.

 

But in an unequal society, self-interest leads to selfishness and conflict. The rich can always demand more of what they want – luxuries and weapons to defend their wealth, for example – things we can’t afford or may not want. And we may have to turn against each other in the struggle to avoid or escape from poverty, or to better ourselves.

 

In fact, it’s in everyone’s interest for each of us to be as wealthy and productive as possible. If everyone’s richer, I’m richer, because they can produce more and demand more of my product. So relative poverty holds us all back. We depend on each other, but economic inequality disguises and distorts our collective interest.

 

A chain is as strong as its weakest link. If all the links are as strong as the strongest, the chain is as strong as it can be.

 

Ownership

 

Raw materials and capital don’t produce anything. But we need them because we have to produce to survive and progress. So the people who own raw materials (such as landowners) and capital have the power to make us support and enrich them with our labour. Wealth is power.

 

In an agricultural society, social power comes from owning landed estates, the source of raw materials. So the landlord class has ruled most societies until recently. (Notice the original meaning of the word landlord.)

 

But now capital has become the more important source of wealth, and capitalists have taken over social and political power – though landowners and landlords are often still wealthy and powerful people.

 

Ownership produces nothing. Only work produces economic wealth. The great divide and struggle between us and our rulers began long ago, and it’s still with us today. All that’s changed is who our rulers are and how they exploit us.

 

Private property

 

There are two kinds of private property. Personal private property is our possessions, including possibly our homes. For most of us, plentiful or good quality possessions are at least part of the good life.

 

A sensible economic system would allow us to produce goods and services as abundantly and sustainably as possible for all of us equally, here and around the world. With shared plenty, there’d be little reason for theft and the conflicts that come from inequality. If we have something, there’s little reason to steal more of that thing from someone else.

 

But the other kind of private property is land and capital, the sources of our rulers’ wealth and power. The point of this productive private property is to control the means of production, and so to own or control what we produce.

 

We’re told that private property is sacred. But this blurs the distinction between the two kinds of private property.

 

Most of us want the freedom to enjoy our personal private property in peace. But productive private property, used to profit from other people’s labour, is quite different. This denies our freedom to produce what we all want and exchange it as we wish.

 

We could own productive land and capital collectively and control them democratically for everyone’s benefit. But that would mean the end of economic inequality – the greater wealth of landowners and capitalists – and the social power that goes with it.

 

Summary

 

1   Production is the foundation of society, how it begins and how it progresses.

 

2   Raw materials and capital are products. They are not productive, and owning them is not productive. Labour is the only productive factor.

 

3   Specialisation increases our collective productivity, but it requires co-operation. The most efficient specialisation requires equal opportunity. And wealth means opportunity.

 

4   Fair exchange requires equality between participants – equal power to exchange our products as we wish. This can happen only if we own or control our products.

 

5   Only the equal power to demand (pay for things) can regulate supply (the production of things) in everyone’s best interest equally.

 

6   Ownership of the product means control of the surplus, which means social power.

 

7   Individual self-interest depends directly on collective interest. And a chain is as strong as its weakest link. Economic inequality holds us all back.

 

 

3   Before capitalism

 

Capitalism emerged slowly alongside other systems of production. Here are three of the most important.

 

Slavery  

 

One way to force people to work for you is to own and breed them like animals. You could enslave prisoners in a war, or buy slaves in a market. Slavery is very ancient, but as recently as three hundred years ago it provided profits that helped kick-start industrial capitalism. And slavery carries on illegally in some parts of the world today. Capitalist civilisation began with barbarism and hypocrisy, and we live with the legacy.

 

Feudalism  

 

Under feudalism, most of us were serfs, legally tied to a lord who owned the land we worked and had servants and soldiers to control us. In theory, the lord owed his power to greater lords further up the hierarchy, ending with the monarch. In fact, the lords struggled with each other and against the monarch, using us to fight their battles.

But at root the struggles were always about the wealth and power that comes from controlling the land and stealing some of our products. The lords often hated each other, but their privilege depended on a system they all agreed on. And the church supported the system, because it was a great landowner as well.

 

Peasant farming  

 

The word peasant just means country-dweller. Peasants are small farmers who produce enough to survive, but often little or no surplus. Sometimes they act collectively, but their main interest is land, their source of raw materials for production. Some peasants become richer, but poor peasants and landless labourers still form a large part of the world’s population, though capitalist farming is taking over.

 

 

4   How capitalism began

 

The significance of the details of this story, and their sequence, are disputed. But it went something like this.

 

Capitalism involves making a profit by selling products. Arguably, the first capitalists were merchants who bought and sold products, such as spices and slaves. For traders, the rule is: buy cheap and sell dear.

 

Making a profit by investing in production, rather than just exchanging products, began later. Of course, farmers have always had to hold back some grain to sow next year, or raise young stock to replace animals for slaughter. So we’ve always had to invest produce in new production.

 

But production became capitalist when owners paid us to produce for the market and made a profit by selling our products for more than the production costs.

 

The first free producers made the things needed for domestic life, agriculture and warfare, as well as finer things for the rich. As production, transport and exchange developed, more of these workers could become independent of lords.

 

Towns grew with trade and production for the market. Rich burghers (town-dwellers) emerged, and the French for burgher is bourgeois. With growing wealth, the bourgeoisie (capitalists) could challenge the landowners for political control, and again they used us to fight their battles.

 

But farming became capitalist as well, with machinery replacing workers, land bought and sold as an investment, and produce sold for profit. Wealthy landowners improved by enclosing common land and small plots, driving us into towns to work in factories, or abroad.

 

Landowners and industrialists often struggled with each other, but again their power rested on a system they all supported, the emerging capitalist system.

 

 

 

5   How capitalism works

 

Wage labour

 

Capitalists pay us wages in exchange for what we produce. But they pay us less than our products are worth, and keep the difference as profit when they sell our products. And if we notice, we’re not supposed to think of it as theft. We’re just supposed to think this is the way things have to be.

 

The homely slogan is: a fair day’s work for a fair day’s pay. But money just represents products. In any exchange, if someone forces you to give them more than their products are worth, it is theft. And that is the injustice at the heart of the system. Beneath its honest appearance, capitalism is organised crime.

 

But it doesn’t help to think of capitalists as criminals. The theft is just intrinsic to the system. A small group of people live off the rest of us. In the pseudo-scientific jargon of the past, they expropriate surplus value from our labour.

 

Our contract with capitalists is supposed to be free and fair. They don’t own us as slaves, and we’re not legally tied to them as serfs. But the majority of us have to sell our labour to one capitalist or another, because they own most of the means of production. Capitalist freedom is their freedom to live off, or enrich themselves from, our labour.

 

Wages will rise if labour is short, or fall if there are too many of us for the work. But demand usually regulates the labour supply. And some unemployment is always useful for capitalists. If we have to compete for jobs, we’ll settle for lower pay.

 

Of course, the aspirational may have a go, employ a few workers, and maybe become the capitalist hero: a self-made success. But that doesn’t justify capitalism. Would slavery be justified, if any slave could become a slave-owner? Or feudalism, if any serf could have become a feudal lord? So-called social mobility doesn’t justify social injustice.

 

Capital

 

Capital is a stock of the products we need to produce other products. And capitalism progresses by expanding and improving means of production, which is a good thing.

 

Capitalism has made some of us much more productive, transforming parts of the world and improving life for many of us. The problem is that a self-interested minority owns what we produce, so we can’t decide what to produce and how to use it.

 

Because we can sell any possession and invest the money in production, sometimes any asset, such as a home or a car, is called capital. So we’re all potentially capitalists. But this is just a con to make us feel part of their system.

 

Kinds of capital?

 

There is only one kind of capital: means of production. But merchants trade products for profit, and moneylenders make profits on loans, which we used to call usury. So merchants and moneylenders are, in effect, capitalists as well.

 

Production capital, such as in factories and offices, is tied down in place and time. The investment tends to be long term. Merchant investment is more mobile: traders can buy and sell for shorter term profits. But money (which only represents products) is the most mobile part of the system.

 

Significantly, the word capital has become a synonym for money, which is convenient for capitalists. After all, if they’re just people who have more money than the rest of us, how they get the money – by exploiting us – is less noticeable.

 

The three groups of capitalists – production, merchant and finance – try to profit from each other. There’s little love lost between them. But they all rely on us to produce the wealth they carve up. So if necessary they unite to maintain their wealth and power.

 

Competition

 

The relentless competition between capitalists supposedly makes production more efficient. They have to reduce costs and improve products, or rival firms will overtake them. We benefit from more and better products at lower prices, if we can afford them. The supposedly common-sense slogan is: competition is good for the consumer.

 

But the pressure to lower costs and increase productivity means we have to compete with each other, here and around the world. Competition, or the threat of it, gives capitalists the power to divide and rule us. In truth, competition is good for capitalists, not the rest of us.

 

Long hours, speed-ups, low pay, wage cuts, redundancies, unemployment, delayed retirement, forced dislocation and even migration – a relentless and unnecessary struggle is the price we pay for their self-interested competition with each other.

 

Capitalists invest where they can be fairly sure of a profit. If a firm does go under, some may lose money, but most just move their investment elsewhere. Unless there’s a major crisis, capitalists organise their competition with each other profitably. And in a crisis, some capitalists profit from the cheap capital the losers have to sell.

 

And if necessary and possible, capitalists use state force to control foreign competition. Millions have died and, until we resist, will continue to die, in capitalist wars.

 

Accumulation

 

Capital tends to grow or accumulate because firms invest to stay competitive. For example, more or better machines can make us much more productive.

 

With relentless accumulation, capitalism has driven the amazing technological changes over the past two or three hundred years. And we benefit from cheaper, better and more plentiful products, if we can afford them.

 

But we lose when machines or competing firms take our jobs, often breaking up families and communities. The continuing price of capitalism is massive social disruption. And the environmental cost of competitive accumulation continues to be appalling.

 

Concentration

 

As well as accumulating, capital tends to concentrate as firms grow bigger. Some capitalists compete to take other capitalists’ profits. But they don’t like competition from rivals. And anyway, the point of the competition is to win.

 

They’d much rather bankrupt rivals or buy them out. As a firm grows it has more power to out-produce and undercut competitors, so concentration snowballs.

 

The biggest and most successful firms can invest abroad, becoming multi-national corporations. In economic terms, globalisation involves the international concentration of capital, and it’s nothing new.

 

The power multi-nationals have to control governments scares some anti-capitalists, as though capitalism is fine if it stays inside state borders. But the problem is capitalism itself. Multi-nationals are just big-time organised criminal syndicates.

 

Crises

 

Crises occur when capitalists rush to invest where they can make the most money. As they invest in a profitable industry, the competition increases and profits fall. If supply rises above demand there’s a crisis of over-production. Then they sack us until demand and the normal profits return.

 

We may still need the products, but if capitalists can’t make a profit selling them, they won’t let us make them. Capitalist self-interest causes this roller-coaster of boom and bust.

 

If the crisis becomes general in many parts of the economy, it becomes a slump, a recession, or even a depression. These can be devastating for us, with poverty and broken families and communities. We’re told this is a natural part of the trade cycle.

 

Profit and risk

 

Profit is the surplus left over when capitalists have paid our wages and the other costs of production. But they don’t make the profit until they sell the product, so there’s a delay between investment and profit. This is the supposed risk in capitalism, and the profit is supposedly their reward.

 

But usually there isn’t much risk. Investors expect to make a tidy profit, which is called the normal return on capital. How else could banks offer guaranteed interest on savings? And big moneylenders move their money around the world to chase the biggest profits.

 

The idea that capitalists are all daring risk-takers is absurd. They’ve even invented the name venture capitalist for the riskier among them.

 

Capitalists prefer to call profit a return, or a margin. Perhaps, to profit from other people’s labour, relative poverty, or even misery, doesn’t sound too good. In this context, profit is a dirty word, for a reason.

 

Under capitalism, production is for private profit, not to meet everyone’s needs directly and equally. That’s why it doesn’t.

 

Stocks and shares

 

Our products are commodities capitalists can trade with each other to make more profits. They buy and sell stocks of our products with no need to consider the consequences for us. They buy shares in companies to benefit from the profits we produce. And in the futures market, they gamble on future price changes.

 

As a final insult, they invest our pension funds in stocks and shares, using our own products, in the form of savings, to exploit us all over again.

 

An enormous finance industry has grown up on the back of our labour. Money swills around the world in the money markets. It’s hard to grasp that the whole circus exists to exploit us and steal what we produce.

 

Factor rewards: price components       

 

The price of a commodity supposedly consists of a payment or reward for the three factors of production: rent for land, interest for capital and wages for labour.

 

But the rewards to land and capital have nothing to do with their productivity, because they aren’t productive. They exist only because some people own land and capital, and so can force the rest of us to work for them. The factor rewards idea is designed to disguise this.

 

The market

 

The market is the homely idea at the heart of the capitalist fairy tale we’re brought up to believe in. Here’s how it goes.

 

Each of us plays two parts: the producer and the consumer. We bring our products to market and exchange them fairly with each other. We are free to sell and buy, exchanging products as we choose. When we buy, we create the demand that regulates supply and prices, collectively organising social production in the most efficient way.

 

This fairy tale, like all myths, is simple and powerful. But it’s a lie. Most of us are not free to produce what we want. We don’t own or control what we produce. And we don’t all come to the market with the same power to buy what we want, and so regulate supply and prices in everyone’s interest equally.

 

Of course, there are – and always will be – independent producers who sell their own products in the market. But under capitalism, most production is dominated by firms that can always out-produce and undercut them with economies of scale.

 

In truth, the market is where we buy back what we can afford of some of the products capitalists have made us produce, and where they make their profit from our labour. The fairy tale disguises the exploitation and theft that occur before we even get to the market.

 

Homeliness is one aspect of the market myth. But it can also be scary. We’re told there are market forces none of us can resist. The very word forces suggests they’re like forces of nature: impersonal, often unpredictable, and sometimes destructive.

 

We’re supposed to believe that production and the economy can never be under social control. But this is not true. It’s the greed and fear of competing capitalists that causes booms and busts. There’s nothing natural or inevitable about it.

 

Adam Smith

 

The patron saint of capitalism, Adam Smith, put together the details of the capitalist fairy tale in The Wealth of Nations (1776). Since then economists have elaborated more or less fruitlessly on how capitalism works and how to improve it.

 

The phrase hidden hand neatly sums up Smith’s central idea: capitalism is providential. Without knowing it, pursuing our own little self-interests, we create wealth for everyone in the most efficient way.

 

He was aware of the dark side – for example, the ruthlessness of capitalists – but he believed the light would triumph. He was a man of his time and social class.

 

 

 

This revision is still underway and will be completed soon.

 

 

 

About the author

 

T A Cuss was born in 1968 in Prague, but the family had to leave. Tam grew up in London and became politically active, beginning a lifetime’s campaigning against injustice. In 1998, Tam became a ‘Philo’ of the Académie Républicaine.