@[email protected] asked “why are folks so anti-capitalist?” not long ago. It got quite a few comments. But I noticed a trend: a lot of people there didn’t agree on the definition of “capitalism”.
And the lack of common definition was hobbling the entire discussion. So I wanted to ask a precursor question. One that needs to be asked before anybody can even start talking about whether capitalism is helpful or good or necessary.
Main Question
- What is capitalism?
- Since your answer above likely included the word “capital”, what is capital?
- And either,
- A) How does capitalism empower people to own what they produce? or, (if you believe the opposite,)
- B) How does capitalism strip people of their control over what they produce?
Bonus Questions (mix and match or take them all or ignore them altogether)
- Say you are an individual who sells something you create. Are you a capitalist?
- If you are the above person, can you exist in both capitalist society and one in which private property has been abolished?
- Say you create and sell some product regularly (as above), but have more orders than you can fulfill alone. Is there any way to expand your operation and meet demand without using capitalist methods (such as hiring wage workers or selling your recipes / process to local franchisees for a cut of their proceeds, etc)?
- Is the distinction between a worker cooperative and a more traditional business important? Why is the distinction important?
I think this answer misses the mark a little bit with regards to the context of what it is about capitalism that causes so much controversy.
People who critique capitalism aren’t usually advocating for an economic system completely devoid of private ownership (though some are). They’re often raising issue with a certain type of capital ownership.
Say you’re the owner of a sprocket manufacturing corporation, and I’m a worker. You yourself don’t work, you just inherited a sprocket empire from your grandfather, who founded that sprocket empire using funds from selling his emerald mines that were worked by slaves.
I put in an honest days work 5 days a week, and in those 5 days, I produce $2000 worth of sprockets. It costs $10 per week to maintain the sprocket machines, $10 per week for electrical power to cover my sprocket making activities, $30 per week to repay the loan that was taken to build the factory, and $50 per week in other miscellaneous expenses needed to allow me to make sprockets.
That means that of the $2000 worth of sprockets I produced, $1900 of profit was generated.
You pay me a salary of $500 per week, and collect $1400 per week from my (and each other laborer’s) work.
The point of criticism is that you’re accumulating wealth, which other people had to work to produce, without doing any work yourself. You’re simply a parasitic freeloader on society because of an arbitrary concept of “ownership” over something that you don’t use personally.
Some responses to these criticisms include the following:
This is the example from classical economic theory, and there are a whole handful of reasons that it doesn’t work. The voluntary exchange between a worker and a capitalist (meaning one who owns the means of production) isn’t actually (fully) voluntary. A worker who finds his working conditions unsatisfactory can’t reasonably just choose not to work. The threat of financial ruin, homelessness, and starvation act as a metaphorical gun to the head of the laborer giving the capitalist a significant negotiating advantage.
Add to this the fact that it’s been theorized and demonstrated that capitalism tends toward regulatory capture and monopoly, and you have a situation where the means of production become more and more concentrated in the hands of a group of elites, while the workers’ bargenaining power becomes weaker and weaker due to less competition in the labor market.
If the owner of the factory is functioning as a floor manager, they should be paid a fair salary for being a floor manager. If they’re working as a director, they are entitled to a director’s salary. These critiques of capitalism aren’t saying that there should be no hierarchy in an enterprise (though some alternatives to capitalism do call for that). Just that the only people who are entitled to the wealth from something that’s produced are those who are working to produce it.
This same thing goes for other forms of capital ownership too, by the way. Landlords are a classical example. I’ve heard it claimed that landlords are entitled to their rents because many of them work so hard at repairs and managing their properties. They’re totally entitled to be compensated for any labor they engage in, but the wealth that they extract from tenants far exceeds the value of the labor that they supply. Which is kind of the whole point of rental property, if “investors” couldn’t extract a passive income (income in excess of work performed), they wouldn’t be buying homes and then renting them out.
I think you’ve written a good, neutral summary critique that increases our common ability to debate this. Thank you.
I would argue, however, that your example makes it sound especially egregious as the profit margin in your example is 95%. The advantage of capitalism, according the people who support it (like I do), is that other sprocket making companies exist and together they bring the profit margins down and down and down (due to competition), forcing continual innovation to bring it back up. Thus, not only is the profit margins typically much, much smaller (1-10%), but society collectively advances, which benefits the workers too as the produce they need to acquire increases in quality and lowers in price.
The truth is probably somewhere in the middle.
So I agree with you when arguing against monopolies.
This is a really good point, and I’m glad that someone who’s got a decent understanding of basic economics is replying to me.
The 95% profit margin was definitely to make a point, as you pointed out. And as you said, according to conventional thinking on capitalism, market forces should push that down to a fair equilibrium.
I think that the issue I was hinting at is that there is a fair amount of contemporary thinking that provides pretty convincing arguments that the nature of capitalism necessarily tends towards consolidation and monopoly over time. The classical model of a baker charging too much on an island, so someone else opens a bakery, doesn’t really work too well when we’re talking about telecom companies and media conglomerates. Once a high-tech segment has consolidated enough, it becomes impossible for anyone other than large companies to enter the market. And when those large companies are actually owned by a larger parent company, we start to see the failures of the classical market forces to produce a ‘fair’ equilibrium due to monopolization.
We definitely aren’t at the point of total failure yet, but in my opinion the trend line isn’t hard to spot. And I think the bigger issue is that due to regulatory capture, there’s not much we can do to patch the sinking ship.
Oh, I agree there’s plenty of pros and cons to talk about regarding a capitalist economy. There’s also plenty to talk about regarding the form capitalism has taken in our global and local economies. However, that’s for the other discussion OP mentioned. This one is only about defining what capitalism is.
To that end, and in regards to your critique about parasitic owners living off the labor of workers, I’d like to pose another question: Does a capitalist system require workers and employers?
I would say no. It’s entirely feasible for everyone in a capitalist society to produce and trade their own sprockets. It would be up to each individual to either inherit a given trade from someone who’s retiring, or else find something society needs that they can fulfil. Our current use of capitalism may largely contain organized businesses built on employer/worker relationships, but that’s not a defining trait of the system.
The cost and price of sprockets is also not a defining trait of capitalism. You’re free to set your own price on any sprocket you own. You could ask for a handful of dirt as payment, or you could ask for the literal moon. Is the moon a fair price for your sprocket? That’s debatable, and largely decided by your consumers
Of course the market forces that are naturally present in a purely capitalist economy require there to be workers and employers.
In the scenario that you described, are you suggesting that instead of 10,000 people working at TSMC, we’d have 10,000 semiconductor factories that are built, operated, maintained, cleaned, and supplied by 10,000 individual people?
We can use an even simpler scenario. I believe that you’re suggesting that instead of the way that the food service sector currently works, it would instead be possible under capitalism for all food-service workers to individually sell served food to customers, presumably from their own kitchens.
In that scenario, what happens when Bob McDonald offers 10 of his friends to come work in his kitchen for an hourly wage, and they’re able to produce better food (due to specialization) for a lower price (due to lower overhead per worker)? Bob (and the countless other people who will undoubtedly copy his success) will outcompete the slower, more expensive kitchens. Individually owned and operated kitchens will be driven out of business. Then small, 10-person kitchens will start to struggle against larger kitchens and chain kitchens that have been able to spread the costs over multiple locations.
Before long, it will be impossible for a Sally Jones to open and run her own kitchen alone. In order to just break even, Sally’s prices would be significantly higher than the food sold at Bob McDonald’s chain. The cost of her premises will be higher relative to the amount of food she can produce on her own, the cost of the ingredients themselves will be higher because of bulk purchase prices vs retail, the cost of preparing the food will be higher because she doesn’t have access to an industrial onion chopper that can peel and chop a 50lb bag of onions in 30 seconds.
Market forces make it impossible for an individual to compete, due to the economies of scale. This is the same reason that over time, corporations under capitalism merge and restructure as they tend toward a monopoly.
I might be totally misunderstanding what you’re suggesting. If what you meant was that instead of the 10,000 TSMC workers each having their own chip foundries, that they’d all still work at the same factory, but that they’d have collectively funded and built the factory, and that they each individually work for themselves at the factory and share in the money they get from selling chips, then I’d agree that that’s an awesome system. It’s still not really possible under capitalism, because if that’s what you’re describing, it is actually called socialism.