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What is Capitalism?

At the dawn of humanity people lived in small communal groups and shared the produce of the day’s gathering and hunting amongst themselves to ensure their collective survival. With the advent of agriculture, many thousands of years later, came private property. With private property came social classes and the state. Property, in the form of land and cattle to begin with, has to be defended from those who do not own it. The state develops as institutions are created to help preserve private property.

Early agricultural society eventually develops into feudalism. At the top of the feudal system is an all-powerful monarch; below him, barons and knights; and below them, peasants and serfs. The monarch grants the barons land in return for support in times of war. At the bottom of the pyramid are the peasants and serfs who work the land. Serfs are tied to the land and have to give a certain amount of work a year to support the barons.

Eventually, as the result of a process that begins in the seventeenth century, increasing numbers of peasants are driven from the land and become wage-labourers. The era of Capital is born.

Capitalism is a system of society in which the purpose of economic activity is to both reproduce and enlarge capital.

What is capital?

‘Capital’ is wealth, but a very specific type of wealth, which merely through ownership allows one to create more wealth. In capitalism wealth takes the form of commodities.  A commodity is any useful product of human labour that is produced to be exchanged. Money acts as the universal equivalent of all commodities.

Since all goods have been turned into commodities, and access to non-commodified materials is restricted, those without the means of producing anything to exchange must sell the only thing they have: their capacity to work and bring themselves back to work the next day –their labour-power.

As an economic system, capitalism involves just two classes. On one hand, the capitalists, those who use their monopoly on the productive wealth (factories, raw materials etc.) to create more wealth, and on the other, non-owners of capital, the workers.

In feudal society, as the peasants have their own means of production, surplus must be extracted via ‘extra-economic’ methods through the real or ultimate threat of force. In capitalism surplus wealth is extracted through economic means; it is because of the market-dependency of the wage-labourer that labour-power is sold and the owner of capital profits from it.

Production in a capitalist society is not production for use but production for exchange with a view to a profit. The producer does not produce to directly satisfy a need but produces in order to exchange one commodity for another. In order to produce, the capitalist must purchase means of production (factories, land, equipment etc.) and labour-power. Once the production cycle is complete the capitalist hopes to recoup these costs plus an extra amount on top (the profits).

To survive in the competitive marketplace each enterprise attempts to increase the amount of profit coming to it; the capitalists must strive to increase the productivity of labour-power. But paradoxically this increased productivity has the effect of lowering the value of commodities since less labour-time is required per unit to produce them.

If an enterprise adopts a new production technique that allows it to produce commodities at a rate below the socially necessary average labour time it will have a competitive advantage: it can sell the commodity cheaper than its competitors and yet still make a profit or sell at the same price as its competitors and make ‘super profits’.

To compete and remain profitable, the competitors have to adopt this new technique also. The socially necessary average labour time is now reduced across the board; instead of being a means of gaining a competitive edge, the new technique is now a necessity for remaining in business.

It is this never-ending need to improve production techniques that creates the dynamic of capitalism. To simply stand still capitalists must re-invest the majority of their surplus value. Without keeping pace of developments in machinery and technological advances the capitalist would go out of business and cease to be a capitalist.

In this sense then, capitalism is not a system for the enrichment of individuals but a system for the never ending accumulation of capital for its own sake.

At odds with itself

In primitive societies where production is not yet market dependent crises take the form of disease, pestilence, famine and natural disasters. In capitalist societies crises tend not to be caused by nature. For the most part we can store enough surplus to protect us from the ravages of the elements. Capitalist crises occur when the market mechanisms that regulate the distribution of labour break down. This is not because of some external influence that disrupts an otherwise balanced system but because of the internal contradictions of capital which periodically present and resolve themselves through crisis.

Capitalists throw their money into circulation in order to have it returned plus a profit. When there are no profitable avenues of investment to be found the production cycle freezes up, commodities pile up in warehouses, debts cannot be repaid and economic activity comes to grinding halt.

Crises can only be overcome by the devaluing of capital. This is done by selling off commodities cheaply, laying off workers, shutting down factories and dropping property prices. Though some capitalists will not survive the purge some will and those that do will be able to buy the assets of their former competitors at knock down prices, thus fuelling the next round of accumulation.

The capitalist system is the most productive mode of production in the history of humankind. In the space of a few centuries the world has been transformed beyond all recognition. Average life expectancies have more than doubled. Technological developments occur at a rate that would have been previously unimaginable. More food, clothing and shelter can be produced using less labour than ever before. It would seem that the material problems of survival have finally been solved.

Yet capitalism is a system at odds with itself. The need for constant accumulation is the driving force of society, determining where and in what way human energies will be used. Instead of being a system through which humankind controls the fulfilment of its own development, humanity is controlled by a system which it has itself created. It is the conflict between the need to accumulate capital and the need to fulfil human want that is at the heart of all social problems today.

Capitalism creates vast wealth but it also creates vast poverty and inequality. If you image the world were shrunk to a global village of 100 people with all ratios remaining the same, 20 people would own 75 per cent of the wealth, 21 would live on $1.25 a day or less, 18 would live without clean water and 14 would go hungry or malnourished.

Society has passed through many stages and it would seem unlikely that this current one is the final. A further period of social change is possible, where humanity as a whole takes control of the productive powers and where human need becomes the guiding force for a new age of technological and scientific progress.