What is Capitalism?

What is capitalism?

Part 1:

Part 2:

In many videos I’ve argued that exploitation is central to capitalism.
In my recent video on money I explained how the contradictions within money itself can only be resolved by a process which circulates money solely for the purpose of circulating money while at the same time measuring and representing real value. In this video I will tie both of these themes together by explaining how exploitation allows capitalism to attempt a resolution of the contradictions within money.

Barter is a simple system of commodity exchange in which people trade one commodity or another. We can represent this with the diagram: C-C

As trading grows and there are more and more commodities to be traded societies began to develop money. Money can be any universally desired commodity with a stable value: silver, gold, axes, cattle, etc. What makes money different from other commodities is the fact that it can be exchanged for any commodity. For instance- at one point in history the gold commodity could buy anything, but donkey commodities or potatoes commodities couldn’t. Thus money became a way of expressing the value of any commodity- a property unique to one commodity which is singled out from all other commodities and given the name “money”.

So now, instead of C-C we have C-M-C. Both types of exchange existed side by side for a long time before C-M-C began to dominate.

The establishment of money as a universal equivalent (a commodity which can buy anything) gives money status as the ultimate form of social power. People then, can be tempted to hoard money, not for the sake of buying commodities, but just for the sake of having more money.

Not only does money create this temptation, but it also requires some process where money is hoarded sometimes and then injected back into circulation at others. This is because we need to have just the right amount of money in circulation to represent the values of all the commodities that are being traded (C-M-C) at a given time. Commodity production is erratic. If we don’t have the right amount of money in circulation commodities either can’t circulate or circulate at erratic prices. The only way to solve this problem is to take money out of circulation when it’s not needed and then to inject it back in when it is.

So with money there is both the possibility and the need for M-C-M…. that is, some process which circulates money just for the sake of circulating money. But why would someone want to trade money for money? This only makes sense if they are making more money from the trade!

In C-M-C people are trading (with money) one commodity for another, because they have a use for the other commodity. In simple commodity production, people are exchanging these “uses” or “use values”.

But the purpose of M-C-M isn’t to trade use values at all but to get a greater quantity of the same thing- money. Instead of being qualitative it’s a quantitative process.

Now how do you get more money? With C-M-C exchange only happens if people agree to trade things for equal value. People measure the value of commodities with money and exchange them for money. If I sell something I’ve made for $10 and then go spend that $10 on stuff I am essentially trading $10 of my labor for $10 of other people’s labor. An equal exchange has taken place with the aid of money as a measuring of value. The value that is being measured corresponds to the amount of labor that has gone into making the commodity.

But if we are going to do M-C-M we need an unequal exchange. We need to end up with more money than we started with. How is this possible?

Well, I could sell a commodity for more than its worth- that is, more than its labor value. What happens when I do that? This can only work if I have a monopoly on selling this commodity, because if I’m selling for more than something’s worth other people can just undersell me. If I do have a monopoly I can count on the fact that I won’t have a monopoly forever. When one person profits from an unequal exchange it attracts other people into that industry. Soon there are competitors all trying to undersell each other, eating away at the profit margin until the product trades at its value again.

So if there is a tendency for exchange to gravitate toward equal exchange, where do we get the profit we need for M-C-M? Exchange equalizes within a closed economic system where buyers and sellers are aware of what the money price is of all commodities. But what if there are were other people- somewhere else in a different economic community who valued commodities differently than us- maybe it was easier or harder for them to make some commodities and so we could benefit from unequal exchange with them. Or maybe commodity exchanged hadn’t even become generalized in their culture yet and so they didn’t have a good sense of the value of something.

This is exactly what the early merchant class was all about. Savvy traders traversed the globe looking for “bargains”: trying to find cultures willing to part with their pelts, spices, jewels and gold for less so they could return home with commodities and sell them for more. And when they couldn’t find unequal exchanges they made them in the form of theft. The early merchant class was rife with pirates who made a living from stealing commodities in order to sell them.

The other class that mastered M-C-M early on was the money lending class. By lending money to people and then charging them interest on the loan, the money lending class could turn a profit. This was called usury and it was frowned upon at many times in history, even outlawed at times.

It should be pointed out that neither merchant capital or usury actually created more value. They merely took commodities from one place and moved them to another. But this moving of commodities was such a source of wealth that it pushed traders and loans to the farthest corners of the universe in search of profit.

And so the world was slowly brought together by merchants exploring the world looking for unequal exchanges to get rich off of. But when ever merchants pushed to the borders of the economic universe they found that the economic integration they had spawned had gone and created their worst nightmare: equal exchange. As cultures were brought into closer contact, as people began to find out how much things exchanged for in different places, as more and more merchants began traveling the same silk roads- it was harder and harder to find people to rip off.

And so those who lived by unequal exchange had to find new ways to make profit. They began to ask, “what if there was a magic commodity?… a commodity which could produce more value than it cost to buy?”

They found such a commodity- it was human labor.

When I sell the products of my own labor on the market I get all the money myself. But what if I am selling my labor to someone else? If I sell my labor to a capitalist for a wage the capitalist can pay less for my wage than he sells the commodity for. Thus he transfers the inequality of profit in exchange into the production process.

Let’s take a closer look. When I sell something I’ve made myself on the open market I am selling a commodity. When I sell my labor to someone else I am selling my labor power- that is, my capacity to do labor. How much I produce is subject to how hard I work, the quality of the tools and materials I use and the organization of the workplace. I’m paid by the hour, so the harder I work the more I can produce per hour. Thus the amount of money I’m paid doesn’t necessarily correspond to the amount of value I produce. If it did the capitalist wouldn’t be making a profit.

This is what capitalists do. They profit from inequality in the sphere of production instead of exchange. They are modern day pirates.

Why are workers willing to work for less than the value of what they produce? Wages, instead of being related to the value of the commodities workers produce, are related to the amount of money necessary to “reproduce the worker.” This is a fancy term for “what it takes to get the worker to show up for work the next day.” This usually means paying a worker enough for rent, food, entertainment and whatever else the general standard of living in a society requires. This cost of “reproducing the worker” varies from place to place over time as the standard of living adjusts to the whims of capitalist development. For instance, the standard of living for most Americans has fallen in the last 30 years making labor power cheaper for capitalists to buy.

But still this doesn’t explain why workers consent to this. After all, they choose to work for a wage rather than simply produce goods themselves. Well many people do choose to work for themselves if they can. In fact, as real wages have fallen in the American economy the percentage of self-employed people has risen. But in order to produce commodities yourself you have to have access to tools, materials, a work area… We call all of these things “means of production.”

In a capitalist society a small amount of people (capitalists) own the vast majority of the means of production. Thus workers have no choice but to sell their labor power for a wage to a capitalist. This has caused some people to refer to wage labor as “wage slavery”.

This didn’t just happen by accident one day. The process by which simple commodity producers- farmers, craftsmen, etc.- were deprived of their means of production so that they had to work as wage laborers was a long and violent one. It demolished communities, destroyed cultures, eroded feudalism, etc. This process, accomplished by dispossessions, outright theft and usury, is often referred to as “primitive accumulation” to differentiate it from the “capitalist accumulation it made possible.

Along with the profits of merchant capital, primitive accumulation provided the money and capital needed to deprive most of the world of their means to produce and concentrate these means of production, as private property, in the hands of a relatively small class of people: the capitalist class.

About kapitalism101

This entry was posted in Econ 202- money credit capital and tagged , , , , , , , , , , , , , , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s