Originally published in 2019 commenting on Senator Warren failing to understand capitalism, here updated very slight to address the broader and continuing failure of mainstream economists to think clearly about capitalism.
Prominent mainstream economists, right-wingers and centrists, and many US-based socialists, have a strange gap in their knowledge of capitalism. They have no idea what it is. Neoliberals like Warren cheerlead for capitalism, and when they’re asked about capitalism they start rambling about something else entirely, usually markets, as in the three examples here. Here’s Warren (0:20:00). Here’s Katherine Mangu-Ward (0:28:00), editor-in-chief of Reason magazine, who literally says “capitalism is markets and I am going to die on that hill”. Here’s Krugman (0:00:30) being even less coherent on the subject, as if there’s an impenetrable ambiguity about what exactly capitalism is.
There is no ambiguity. The distinguishing feature of capitalism isn’t a mystery, as we’ll see below, but it definitely isn’t markets.
Markets existed for millennia before capitalism came along. There were vegetable, pottery, and cloth markets in ancient Mesopotamia. There were slave markets in ancient Athens. There were insurance markets across the ancient world. There were spice markets and fish markets and markets for military equipment under feudalism. Markets are not unique to capitalism.
Markets are tools for pricing and distributing scarce commodities. They can be used for pricing things that aren’t scarce commodities, but they’re not a good tool for that application – used that way, markets crash. Markets are arguably reasonable tools for pricing and distributing Playstations, beanie babies, and other commodities. Markets are a terrible tools for pricing and distribution of water and healthcare, because while they may be scarce, they’re not commodities. A commodity is something you could have, but isn’t necessary for your survival; it’s something that accommodates a desire, but doesn’t serve a necessity.
Capitalism is a system for managing production. Not pricing or distribution.
Every production system has a management system that organizes producers to perform the right tasks at the right times with the right resources (wood and nails, milling machines and blocks of aluminum, computers and data, and so on).
Institutionalized slavery is a production management system. The masters and overseers are the managers and the slaves are the producers. The masters make all the decisions about where the slaves live, under what conditions, when they’re allowed to rest, eat, and so on – slavery. The masters also make all the decisions about what to produce, where to produce it, how to produce it, and what to do with the proceeds. The slaves are coerced into carrying out the masters’ decisions by social-cultural norms, and the threat of pain, violence, and death.
Feudalism is a production management system. The serfs work for three days of the week on their allotted piece of land, and three days on the lord’s land. The lord makes all the important decisions, about where the serfs live, how much time they must spend working the lord’s land, producing what, where, how, and what to do with the products of the serfs’ labor on the lord’s land. The lords enforce their decisions with social-cultural norms, and the threat of pain, violence, and death.
Capitalism is a production management system. The boss tells the producers how to dress, when to show up, what to do, when to eat, when to go to the bathroom, how to behave while on the job, what to produce, where to produce, how to produce, and decides what to do with the proceeds. The boss enforces those decisions with the same type of coercion as slavery and feudalism – social-cultural norms, and the threat of starvation, homelessness, withholding healthcare (if they provide it) – all the many consequences of having no income. The coercion may be less directly damaging to individuals, but it is no less coercive. You can look for another boss, but every boss controls when you show up to work where, how you dress, your behavior on the job, when you can eat and go to the bathroom, and much more. Some bosses demand more of that control, some less. Every boss demands control over what, where, and how you produce, and what to do with the proceeds. Any new boss presents you with the same problem as any old boss – obey, or starve. Capitalism is a production management system that controls you by controlling your income. Your access to water, food, clothing, housing, healthcare – the necessities of life.
The distinguishing feature of capitalism is the distribution of power among the people who produce goods and services. It is distinct from slavery and feudalism, because the producers are (relatively) free from the demands of the boss when they’re not scheduled to work. It is identical with slavery and feudalism in that the key decisions about production – what to produce, where to produce, how to produce, and what to do with the proceeds – are decisions made exclusively by the boss. Under slavery these decisions are made by the masters, under feudalism by the lords, and under capitalism by the bosses. In none of these three management systems are the producers included in these decisions.
Capitalism, feudalism, and slavery are all coercive systems of production management. These production management systems can all exist in the same market at the same time, and often have. For example, prior to the Civil War, slavery, feudalism, and capitalism produced goods and services for the very same market. Cotton was produced in the southern US managed by slavery, woven into cloth in English factories managed by capitalism, and colored with dye from India produced under feudalism (sometimes slavery).
In some areas of the world, these three production management systems supply goods and services sold on the same market to this day. Often different goods and services, but supplied to the same market, further emphasizing that capitalism is distinct and separate from markets. For example, the producers of the prostitution industry are often managed by slavery or feudalism, in some places capitalism, depending on which particular prostitution enterprise they produce for. Those producers and their bosses, lords, and masters buy and sell food, clothing, makeup, housing, and more on the same market as everyone else, transact business with the same currency as everyone else, use the same banks as everyone else. They’re in the same global market as everyone else, and the same local markets as their neighbors. Capitalism is one production management system among many providing products to the same market. The market is bigger than capitalism. Capitalism isn’t markets.
When anyone claims to promote or defend capitalism, if they start talking about markets, they don’t know what they’re talking about. They’re telling you a fairy tale that has little or no connection to reality.
A market is a system for exchanging goods and services for other goods and services or for currency. The market doesn’t care how the production of the goods and services are managed. The market doesn’t care who makes the decisions – in any enterprise – about what to produce, where to produce, how to produce, and what to do with the proceeds. The market sets prices and organizes distribution. Markets organize distribution by transaction chains – when I buy a banana, I distribute my currency to the seller and the seller distributes the banana to me; earlier, the seller distributed a bigger chunk of currency to the wholesaler, who distributed a truckload of bananas to the seller, and so on back to the banana plantation. The market doesn’t care if the banana plantation is managed by slavery, feudalism, capitalism, or socialism.
Socialism is distinct from capitalism, feudalism, and slavery because it manages production systems by solidarity, not coercion. Under socialism, the producers themselves decide what to produce, where to produce, how to produce, and what to do with the proceeds. To include everyone equally in decision making, they have no option but to make decisions democratically. Democracy is the only way for a group of people to include everyone equally in decision making. The unique distinguishing feature of socialism is democratic decision making among the producers, about what to produce, where to produce, how to produce, and what to do with the proceeds.
Socialist enterprises exist in the same markets with slavery, feudalism, and capitalism. There are socialist organizations all over the world that happily and very effectively participate (compete) in markets – they’re called worker cooperatives. There’s a coffee shop down the street from me that’s a worker co-op. They’re competing just fine in the coffee and snacks market against major capitalist corporations like Starbucks. There’s a worker co-op called Mondragon in Spain with 75,000+ employees. Mondragon is the fourth largest industrial and the tenth largest finance corporation in Spain, with 2015 revenue over 12 billion Euro. It’s not just coffee shops. There’s a whole region of Italy, Emilia-Romagna, where “Italian cooperative enterprises are market leaders in the retail trade, where they cover more than 1/3 of the market, in the agro-industrial business with again about 1/3 of the market, while in personal services, social cooperatives account for more than 50% of the market. They boast substantial companies in credit, insurance (including the second largest Italian insurance company), the construction industry, manufacturing, catering, logistics, transportation, facility management, housing, and the media” (emphasis added).
Socialists, capitalists, feudalists, and slaveholders share the same markets at the same time. The market is a system of exchange shared by all producers in each local area, across regions, and around the world – regardless of their particular production management system. When Warren responds to questions about capitalism with talk about markets, or when Katherine Mangu-Ward says “capitalism is markets”, or when Krugman talks about capitalism as having something to do with markets, they’re demonstrating complete ignorance of the subject. Markets are entirely independent of the production management systems that deliver goods and services to the markets.
Capitalism tries to sell itself as a major social-cultural shift away from slavery and feudalism. The French Revolution was a revolution against feudalism that promised liberty, equality, and brotherhood; the revolutionary war in the US added democracy to those promises. The dominant system that arose from those and similar revolutions across the world is capitalism. Capitalism isn’t a shift away from feudalism and slavery. Capitalism is the distillation of these coercive systems down to their essential elements.
If you show up to work when you’re told, do what you’re told, eat when your told, go to the bathroom when you’re told, go home when you’re told, and don’t complain about having no say over what, where, or how you produce, or what to do with the proceeds, the production management system doesn’t need to control you like a serf or slave, dictating where you live, what you eat, who you sleep with, or anything else when you’re not at work. Taking control over those aspects of your life just increases the cost of production management. Capitalism is a system of coercive production management distilled down to just what it must control in order to survive – everything else is negotiable.
Capitalism can be distilled down one final step. Shareholders often have no idea what the enterprises they own pieces of make, where they make it, or how they make it. The only thing all shareholders care about is how the managers of the enterprise distribute the proceeds. Capitalism distilled to it essence is simply this: people who do no work at all (shareholders) get paid for doing nothing.
The essence of capitalism is the wealthy, the bosses, freeloading off everyone else, the same way masters freeload off slaves, and lords freeload off serfs.
There is no ambiguity about what capitalism is.
Capitalism is the final evolutionary form of slavery, controlling only what is essential for a slave society to continue being a slave society, and taking as much cost out of managing slaves as possible. This is accomplished by owning the machines workers need to produce good and services, rather than owning the workers themselves.