of bank-credit money, and (4) a distinctive role for the state in relation to these features.3
(1) Private Enterprise for Producing Commodities
In capitalism, commodities in virtually all forms (although not all, as we will see with the state) are produced by private enterprises that are institutionally, legally, and often socially separated from the household and the state.4 These private enterprises organize production around employing labour to work on capital to produce profit. Those who operate the enterprise often do not own the physical means or the money used by the enterprise. The way profit is produced, and the nature of the relationship between the worker and the capitalist (and the management, who are often not either) is the subject of long and heated debate, as we will see in Chapter 2.
(2) Market Exchange
The exchange of these privately produced commodities is based (more or less) on market competition between buyers and sellers. In a market, buyers generate demand, and sellers generate supply. If there are many buyers relative to supply, demand is high; if there are many sellers relative to demand, supply is high. The resolution of this competition between buyers and sellers, between sellers and other sellers, and between buyers and other buyers—however temporary or instantaneous—produces what we call a price: the agreed upon amount of money for which a commodity is exchanged. In other words, prices are not natural or mechanical products of some abstraction called “the market.” Prices may be “objectively” determined, in the roughest sense, by the cost of inputs, labour, etc., but all market prices are social artifacts, the outcome of conflict and negotiation between individual buyers and sellers, and between total demand and total supply—the wage, the price of labour, is the clearest example of the social origins of prices.
Another important feature of capitalist market exchange is that all forms of property, labour, goods, and services, including the enterprise itself and/or its potential revenue, are exchangeable commodities. This means that capitalism, as a mode of production, is characterized by a historically unprecedented breadth of distinct and relatively exclusive markets: money and capital markets, labour markets, intermediate goods markets, consumption goods markets, and financial asset markets.5
(3) Monetary System Based on Bank-Credit Money
None of the above would work, especially on a large scale, without a means of exchange and payment, or money. The money that circulates in money and capital markets—money used for investment or financial speculation—is produced by banks (loaned) for profit (which takes the form of the interest charged on the loan). Financing production and investment with money created via bank loans is unique to capitalism. While enterprises, wage work, and market exchange of the type we just described all existed in limited form before capitalism, their growth—to the point where they now define how things are done across much of the world—was only possible with the emergence of a state-sanctioned private banking system that could provide the necessary capital.
(4) The State
Finally, the state plays a key role—as both help and hindrance—in capitalism. That role is specific to different nation states at different times, but is also generalizable in important ways. The most obvious is sometimes referred to as the state’s “police” or “night-watchman” function: the guarantee of the sanctity of private property rights, the fundamental precondition of all market exchange. But there are other roles that will come up often in what lies ahead, if in complex ways, since the state is always a site of extraordinary contradiction. It simultaneously appears as one of the most powerful obstacles to a world beyond capitalism and one of the most immediately useful tools for building that world.
Before we turn to a more detailed critique of these fundamental aspects of capitalism, however, we need to consider the concepts that enable us to even think about capitalism, and the theories that have explained, defended, and criticized it over time. For much of the power of capitalism, and the challenges facing the effort to displace it, are caught up in how it has become “common sense,” how easily the profit imperative has been confused with “human nature.”
1 It would be a mistake, for example, to think there is something inside most of us that rejects slavery (as a way of organizing production) as categorically wrong, that “human nature” is genetically coded to prioritize freedom for all. We refuse to sanction slavery for a variety of reasons today, but “natural” opposition is not one of them. The historical record might as easily suggest the opposite: that we are “naturally” prone to slavery-like relations. There is no basis for either position. History and social life, not human DNA, determine the status of slavery and every other mode of social organization. We are against slavery today because it is socially condemned, and we have learned, through much struggle and suffering, not to condone it. Slavery, and opposition to slavery, are social relations.
2 The mode of production “box” in which the Soviet Union or today’s China should be put is the subject of considerable debate. Some say that both are in fact forms of “state capitalism.” I disagree. This is (perhaps fortunately) not the place to enter into this debate in any detail. Let me just briefly say that given the definition of capitalism laid out above, the political-economic system of the USSR clearly cannot be capitalist. Moreover, the state apparatus in the USSR was not dedicated to surplus value maximization, even in its last stages, but to more “political” goals, the first of which was authoritarian control via the aggrandizement of its productive apparatus. “State socialism” would seem to capture this for me. I think even the idea that after Stalin the USSR was capitalist is a red herring meant to lump its failings in with capitalism’s and, for some Marxists, to deflect the critique that its failings were not due to its “capitalism,” but in no small part to its incompetent socialism. In many ways, it was socialist, really socialist, and that might very well have been the problem. Suggestions that the USSR’s failings are capitalist mischaracterize history: the Soviet Union was not a different spin on capitalism. It was a totally different beast, in which the capitalist imperative was not necessarily primary. This book shows that the term “capitalist” cannot describe it adequately. The closest thing to state capitalism of which I have any detailed knowledge is Mussolini’s Italy, and even that is arguably not very close.
3 Geoffrey Ingham, Capitalism (London: Polity, 2008).
4 Sometimes specific sets of commodities are produced by institutions other than private enterprise—the state or community organizations, for example—but rarely, if ever, does this situation preclude private business from supplying those same markets. For instance, the state may produce and sell oil (as it does in Canada via the crown corporation Petro-Canada), but this does not mean it monopolizes oil production and supply. For more on this, see Chapter 3.
5 Money and capital markets coordinate the supply and demand for finance capital; labour markets partly determine wages; “intermediate” goods markets involve the things used in production, as opposed to “final” consumption; consumption goods markets are for the things consumers buy; and financial asset markets are markets in the titles to ownership of any form of property which can potentially produce a return: e.g., stocks or bonds.
2. Capitalist Political Economy: Smith to Marx to Keynes and Beyond
The most powerful theories developed to understand capitalist political economy have always played a significant role in shaping it as well.
