There’s a lot of confusion among fans of capitalism over what exactly capitalism is. They really feel like it means “good freedom stuff that is not socialism”, and of course socialism means “bad Satan stuff”. On a more serious note, I can’t seem to find a good definition of capitalism from fans of capitalism; they do emphasize that capitalism is freedom (I’ll get back to that later).
Capital
The word “capital” pre-dates capitalism and meant something like “main, principal, chief, dominant, first in importance”. You can see this in the English languages when we talk about a “capital” letter — those are the big letters that are set at the beginning of words that represent something important. A capital ship is a big dang ship and it leads. Clearly, the original word has to do with social hierarchies with things that are capital being higher in the hierarchy than things that are not capital.
Capitalism came into existence when human technology — including both machine technology and social technology (e.g., banking) — allowed a person to own machines or buildings full of machines (factories) and then have other people work those machines. Those machines or factories are “the means of production” — otherwise known as capital.
Capitalism
A community (or a society) could own all the capital, but that would be socialism. You could also have the workers at the specific factory own the capital of that factory; that’s also a kind of socialism. Capitalism is when a small number of people own the capital; they typically are not the people doing the primary work of the enterprise. This creates a situation where everyone else must either choose to work for a capitalist or live in poverty. Since people are choosing between being dominated by allowing the capitalist to subjugate them at the workplace (all workplaces are authoritarian) or being demeaned by living in poverty, capitalism is bad for most people.
However, capitalism is great for the capitalist! By owning the capital, the capitalist becomes very wealthy and powerful; moreover, the capitalist has the option of not working. The capitalist becomes very free — freer than they would have been under a more egalitarian system (like socialism). The freedom of each capitalist comes at the cost of the subjugation of many, many people.
If the small number of people who own the capital are the government, and if the government is not democratically controlled but rather controlled by a relatively small number of people (e.g., if a single political party controls the government), then that is not socialism. Rather, that is called “state capitalism”. That single political party might call it socialism or communism, but they’re not really telling the truth. I’m talking about the Soviet Union as well as North Korea, as examples.
Are you a capitalist?
There are a lot of people out there who claim to be capitalists, but they don’t own any capital. To be more accurate, you might call them “fans of capitalism”; I usually call them bootlickers. No offense to boots intended.
The best test of whether you are a capitalist is to determine whether you own something that could potentially make money for you without you doing any actual work. Because money and banking have such a prominent role in capitalism, it might be hard to tell at first glance.
Again, here’s what we’re looking for:
- You own a thing — you must own it outright! You can’t be renting it, and you can’t be making payments to the bank. While the bank may say you own the thing you are making payments on, they have the right to take that thing from you if you don’t pay them, so you don’t really own it. (The interest you are paying the bank is them sucking up part of the value of your labor.)
- The thing creates enough money that you would not have to work if you didn’t want to. You might still choose to work, and you might get more money if you did, but you don’t have to work to live.
It would be clearer that you are a capitalist if you both controlled and owned the thing, but for simplicity, we’re going to leave out the issue of control. (Many people own stock, but they don’t own enough stock to have any say in how the attached corporation behaves — I would say they’re not really capitalists, but rather the economic equivalent of cannon fodder.)
You’ve probably heard of “investment capital” or “financial capital” and that’s a little confusing because it clearly means money given to a corporation by investors. To clear that up, here’s the definition from Higher Rock Education:
Investment capital is the money used to acquire plants, equipment, and other items needed to build products or offer services. Investment capital is also referred to as financial capital.
To reiterate: Capital is physical machines, factories, or other property that can be used to create wealth for the owner without the owner working. A capitalist is someone who owns capital. Capitalism is a social system where capitalists are placed at the head of society and are presumed to be superior to non-capitalists.
Markets
Often when a fan of capitalism is trying to define it, they will talk about free markets and even try to imply that capitalism is the same as a market, and that the freer a market is the more perfect the capitalism is. That’s not correct.
First off, all human societies have markets. A market is just people trading stuff with each other, and that always involves people deciding how much different stuff is worth. Even in societies that have a command economy (like the former Soviet Union, or today’s China), there are still free markets that operate inside that society and the society exists in a larger world, and it has to participate in that world market. Furthermore, the ability to “command” the price of an item comes from power, and that power can come from any of the usual places: economic power, political power, or even violence. In fact, all power (even economic power) can be reduced to violence.
Second, for a system to be “capitalism” it only requires that there is capital and that a relatively small number of people own the capital. There doesn’t have to be a market at all (even though markets are inevitable in practice).
Free Market
Again, fans of capitalism try to say that capitalism is a “free market”. We’ve already established that a market is just part of human behavior, so what makes a market more or less “free”? Here’s a definition from Encyclopedia Britannica:
Free market, an unregulated system of economic exchange, in which taxes, quality controls, quotas, tariffs, and other forms of centralized economic interventions by government either do not exist or are minimal. As the free market represents a benchmark that does not actually exist, modern societies can only approach or approximate this ideal of efficient resource allocation and can be described along a spectrum ranging from low to high amounts of regulation.
The first thing that is interesting about this idea is that the fan of capitalism wants “the market” to be determined purely by social interactions, but in a democracy, “the government” is also determined by social interactions — and really, everything people do is a social interaction. Furthermore, fans of capitalism want capitalists to be free to purchase services from politicians (because freedom of spending is perhaps their most important kind of freedom) but still don’t identify the government itself — which is made of purchased politicians — as part of the market.
Someone might counter by saying that because the politicians have been purchased, the government is no longer “free” but rather controlled by economic elites — and the left would agree! This argument doesn’t help the argument in favor of capitalism at all — the whole reason we have economic elites in the first place is because we are doing capitalism. Those elites are elites because they control capital — including things like media capital.
The second issue with the argument in favor of free markets is that it assumes that economic power is not power. That’s odd. Clearly, if a person has a lot of money, they have power over people who have less money. Clearly, a person who has property is allowed — by law — to use violence to protect that property and maintain control of it. Economic power is power, and like all power, it can be reduced to violence.
This brings up a third issue: That the government itself is what allows capitalism to exist. The government creates and enforces (via violence) laws that protect the ownership of capital; without the government, a person cannot legally own anything, and you can’t have capitalism. The government literally has the records saying who owns what. So, it is government regulation itself that allows for capitalism to exist.
Imagine that there’s no government, and a person says he owns a factory and the machines inside the factory. How does he maintain ownership of the factory? He can’t call the government-funded police to enforce his ownership. The workers can simply claim he doesn’t own it — and that’s socialism. OK, perhaps he hires a bunch of thugs to enforce his ownership of the factory; now his workers are forced to work at the point of a gun directly. A nice side-effect is that he can pay them whatever he wants or nothing at all because the government isn’t regulating wages. That’s not capitalism — that’s slavery. A government — and the regulation that comes with government — is necessary for capitalism to exist.
Interestingly, most conservatives are in favor of a free market only when it benefits them; when it hurts them, they are opposed to a free market. For example, Missourians consistently vote in favor of laws supporting the existence of labor unions — when that law is a ballot issue. But when voting for a politicians, they vote for whoever convinces them that they are most in favor of a free market. They are also opposed to media capitalists like YouTube, Facebook, and Netflix because those corporations do not support conservative ideals, yet to force them to support conservative ideals would require those corporations to be regulated by the government (and violate their First Amendment rights). In this case, the Bill of Rights prevents the government from regulating media capitalists, but in other cases, it obliges the government to regulate. In fact, the Bill of Rights are government regulations, and they apply to the market; the Bill of Rights is government regulation of the market.
If we were to have a “truly free market” where the only thing the government did was to enforce property rights, we would have capitalist authoritarianism. At first, it would be diverse authoritarianism with each worker having rights given to them by the particular capitalist that they work for — and none of those rights would threaten the power of the capitalist. However, unregulated capitalism leads to monopolies — a competition eventually results in a winner, and under capitalism, the winner becomes freer and the loser has to start over. As the number of employers dwindled, our few freedoms would also dwindle.
Another issue is that losing your job under these conditions would likely be a death sentence. The labor market of capitalism requires a pool of surplus workers — unemployment is required for it to work properly — but without a government to provide unemployment benefits, those surplus workers would starve.
I mentioned that capitalists have more control over the market than non-capitalists. This can come in the form of the capitalists controlling the government and the government regulating the market to fit the desires of the capitalist, but even without a government being involved, the capitalists can manipulate the market directly. They can fix prices, they can control the flow of products and resources onto the market, and the can collude to manipulate the market. More capitalism is not equal to a freer market.
Jacobin has a much longer article about how the free market is a fantasy, and if you’re interested in this subject you should really read it.
Conclusion
Capital is machinery or buildings that a person owns, and that can be used to create products from resources (or extract resources) without that person working. The person who owns capital is the capitalist. Owning capital is what gives the capitalist power, but that economic power is ultimately enforced with violence (usually, government violence). That power also gives the capitalist more power over the market.
For people to have fairness within a market, they must have roughly equal power, and that would require a non-hierarchical society. Capitalism creates a hierarchy based on economic power (enforced with violence), and thus free-market capitalism isn’t really possible; it’s just one of many combinations of words that we can make up, but that can’t manifest into a real thing. A market based on capitalism will always be constrained by the actions of capitalists, whether they do that directly or through an agent like a purchased politician or purchased mercenary. In contrast, what we usually imagine as a “truly free market” would require a non-hierarchical society, which would mean adopting one of the social systems advocated by the left.
If you haven’t yet read anything I’ve written about America’s culture of narcissism, let me recommend this post to you.