What is capitalism? (2011)

From the May 2011 issue of the Socialist Standard

Some people associate capitalism just with the sort of financial wheeling and dealing that goes on in places like Wall Street and the City of London. Others – supporters as well as critics – see it as private enterprise and a so-called free market as markets free from state interference and regulation. In fact, this is probably the most widespread definition of capitalism.

The trouble with this definition is that it means that capitalism has never existed or has only existed as a policy or policy objective (ironically, to be implemented by the state). But markets have never existed without state intervention.  Capitalism finally triumphed only through state intervention and is maintained by this. Capitalism and the state go together, they are not opposites.

Capitalism is more than financial dealings, a government policy or private enterprise or legal private ownership or private enterprise. It’s a way of producing and distributing wealth which has two key, defining features.

First, that the actual production of wealth is carried out by people hired to do this for a wage or a salary. Capitalism is production by wage-labour. (Which already presupposes a division of society into those who own and control the means of production and the rest of us who don’t.) Another name for capitalism is that it’s the wages system.

Second, capitalism is not just a system of production for sale on a market. It is a system of sale on a market with a view to profit. It’s the profit system.

Capitalism is the wages-and-profits system.

It’s the pursuit of profits by separate competing enterprises that drives the capitalist economy, but this is not just to provide the owning class with a privileged lifestyle. Not even mainly. The economic forces unleashed by the competitive struggle for profits mean that, if they are to stay in the race for profits, capitalist enterprises must invest most of their profits in new, more up-to-date and modern productive equipment so as to try to keep their costs equal to or below those of their rivals.

So, most profits have to be accumulated as more capital. This is why capitalism was originally called capitalism. It’s a system of capital accumulation out of profits made by exploiting wage-labour, an impersonal economic mechanism that in the end is not controlled by anyone (not even capitalists) and is in fact uncontrollable.