Learn more about the inner workings of the system that encompasses every aspect of our life: capitalism. From what it means to work to how capitalists acquire profit, Hadas Thier's book 'A People's Guide to Capitalism' covers it all.
“... we see that capitalism could only break through as a world system on the basis of conquering both humankind and the planet and subjugating both to its profit motive.” (p. 31)
Chapter one begins with Thier’s explanation of common preconceptions about the history and origins of capitalism. Often, she states, we believe that capitalism is a natural thing that is integral to our humanness—survival of the fittest, for instance. She goes on to state that capitalism is just the opposite of this:
“An exploitative system of commodity production and exchange arose over time, neither inevitably nor smoothly, appearing on the scene only recently in human history.” (p. 17)
Modern industrial capitalism only emerged a few hundred years ago, less than 0.25% of human history, and most of human history consisted of hunter-gatherers who organized based on their needs and saw little-to-no excess or surplus in their lifetimes (p. 17). However, the emergence of agriculture did eventually provide a surplus, and while people could now settle down and choose a profession other than hunting or gathering, there also became a need for control over the surplus. While this may have originally been intended to provide stability, it also brought on social stratification, where those who supervised became a separate social class above the rest of the majority.
The next step taken towards capitalism throughout history is that of feudalism, which divided monarchic lands among the local lords. Serfs, or unfree peasants, were put to work on the land, but they still had enough tools and resources to work the land and thus were not economically dependent on the lords. This meant that lords had to find other ways through force to incentivize serfs to work.
Over the course of three centuries, from the 14th century to the Industrial Revolution, feudalism began its shift towards capitalism. Under capitalism, workers were no longer incentivized by threats of violence to work, but rather by the economic necessity of producing a surplus in order to survive.
However, the transition from self-sufficiency to economic dependency was not a smooth or peaceful one. The Enclosure Movement took place over the course of centuries when common lands were violently confiscated and turned into privately-owned plots all across England, where capitalism got its foothold. Land became enclosed in fences, and since it was privatized, many commoners were forced to either work the land or move into towns to become manufacturing workers.
A new system of manufacturing in the cities emerged in the 16th and 18th centuries, where workers would congregate under one roof, were supervised in order to prevent theft, and were paid wages to complete this work. Those who bankrolled the operations of manufacturing and who reaped the rewards were nascent capitalists. Nascent capitalists, or the first capitalists, made up the bourgeoisie (capitalist) class, who own the means of production, such as factories, land, machinery, and tools, and employ laborers to do the work of production.
Under feudalism, workers were forced to pay rent and taxes in order to bind them to the feudal lords economically, but under capitalism, as Karl Marx so plainly stated it:
“Under the guise of freedom and democracy, the new landless wage laborers were ‘free’ to sell their labor-power to whomever they chose … or face starvation.” (p. 23)
It is important to note that the domination of capitalism could not have successfully adhered without the Trans-Atlantic Slave Trade, where as many as twenty million African people were enslaved (p. 26). In Britain, the wealth of trading enslaved people and the reaping of the benefits of their labor brought on England’s Industrial Revolution, and it was the basis for Britain’s banking system, propelling Britain’s capitalist systems far ahead of the rest.
Industries such as iron (supplied chains and padlocks to owners of enslaved people), firearms (traded for enslaved people), and metal (used in enslavement ship production) all experienced growth due to the trade of enslaved people, and nearly all growing towns and cities flourished due to slavery.
America’s part in this was interconnected with capitalism, as well. In America, innovations in weaving and spinning generated mass surpluses of cotton, which was cultivated through the labor of enslaved people. Additionally, the work of enslaved people was performed on stolen land of Indigenous people. In fact, plantations and colonial settlements were built on over one and a half billion acres of land that were previously inhabited by Native American tribes.
So, rather than capitalism being built up “penny by penny,” as suggested by many mainstream economists, capitalism was the result of robbery, pillaging, conquests, piracy, colonialism, and the enslavement of African people (p. 28). Western Europe also did not simply develop capital and industrial growth quicker than the rest of the world. According to Walter Rodney, “Western Europe developed economically by actively underdeveloping Africa and other parts of the world” (p. 28).
Thier also notes that capitalism has a profound impact on the land. Marx observed that under capitalism, the land became simply “an object for humankind, purely a matter of utility,” which “ceases to be recognized as a power for itself,” but is rather viewed for its capacity as “an object of consumption or as a means of production” (p. 30).
In the conclusion of this chapter, Thier reiterates that capitalism is not a set force of nature in our society—it had a beginning and therefore can also have an end. She asserts that capitalism is not simply an economic or political system, but rather a social system based on the expropriation (or state-sanctioned taking of property) of masses of people from their land.
“If there is a dollar to be made, capitalism will find a way to package it up and sell it.” (p. 50)
Chapter two begins with Thier’s examination of the fundamental components of capitalism, the first of which is the commodity. Commodities are defined by Marx as goods for sale on the market. Commodities are goods produced through human labor that are made to be exchanged. For instance, a loaf of bread made to be eaten by the baker is a good, but a loaf of bread made to be sold by the baker is a commodity. Human beings have always labored to make things, but the commodification of these things is somewhat new and only emerged in feudal and capitalist societies. Commodities’ values are determined based on their uses to other people.
Thier also notes the two attributes that Marx attributed to goods, which have important distinctions in the world of capitalism: use-values and exchange-values.
A good’s use-value is determined by how useful it is to the person who produced it. Use-values still have value even if one does not exchange them. For instance, bread’s use-value is the fact that someone can eat it. A good’s exchange-value is determined by the quantity with which one commodity exchanges for another commodity. Items with an exchange-value must satisfy a human want and must be able to be exchanged.
According to Thier, between the two of these values, one is clearly more important to the capitalist:
“While you or I are primarily concerned with the use-value of items, whether we can sit on a chair or on a loaf of bread, a capitalist does not care what an item’s use is, so long as it will make him money.” (p. 36)
This is the reason why big companies continue unsustainable methods of production, despite its catastrophic environmental effects: capitalists are only concerned with what will make a profit, not what is useful or will be good for people.
Thier goes on to speak about an important concept that was created by Marx, the Labor Theory of Value. The Labor Theory of Value states that commodities can be exchanged based on the relative amount of labor-time it took to produce them. Thier also discusses the inverse theory which mainstream economists use to argue against the Labor Theory of Value: Marginalism. Marginalism assumes that a commodity’s worth is defined by the laws of supply and demand, and this neoclassical theory is the reigning explanation of value in mainstream economics.
Marginalism, according to Thier, is a theory rife with faults and inconsistencies. The most important of these inconsistencies is the assumption that values are not determined by labor-time, but rather by subjective desires and individual choices. It reduces capitalism down to the desires and choices of the individual which supposedly determine supply and demand, and it infers that labor is the sole source of wealth. This equation does not account for the robbery and exploitation that takes place under capitalism, and it reduces consumers to binary supply/demand charts, thus making it, as Thier refers to it, “A Marginally Useless Theory” (p. 38).
According to Marx’s view, labor is the common denominator among all goods and commodities. He asserts that we do not labor to attain wealth (the things we need to live, survive, and thrive), but rather to attain value (a societal construct present in the market that was created by humans). Our labor’s value is not determined by what kind of work we are doing, but rather by how much. We perform, as Marx termed it, Human Labor in the Abstract, meaning that we perform generalized abstract labor on an hour-by-hour basis. In simple terms, Marx’s theory about Human Labor in the Abstract states that we are not paid by the worth of our labor, only by how long we perform that labor. This generalized abstract labor does not take into account the intricacies or different processes of different types of labor and reduces our labor solely to the hours that went into our work.
This theory is proven by the fact that doctors and engineers are paid more than people doing “unskilled” labor. According to Marx, those who perform “skilled” labor are paid more because of the labor-time it took to train them (the hours that teachers spent educating them, the time they spent learning a trade, etc.).
Modern mainstream economists avoid this theory (and are therefore called neoclassical economists) because it makes laborers the producers of wealth and does not shift all of the credit to the bosses.
Marx, however, as a more classical economist, continued to develop his Labor Theory of Value and developed the theory of Socially Necessary Labor-Time, which is the average time taken to produce a commodity under the normal production conditions as determined historically and societally. In other words, it is the value of one’s labor-time as determined by the society in which one lives, what the society says their work is worth, and what that society’s historical context says that work is worth.
The value of an item is not solely determined by the amount of labor time that went into it, however. According to Thier, every component of production, including both living and dead labor, is measured by socially necessary labor-time. Living labor is human labor that goes into the production of a commodity in the present, but dead labor is just as important in the production process. Dead labor, or the labor of previous generations that carries past value into production in the present, consists of things such as raw materials, machinery, factories, and more.
Every component of production is measured by socially necessary labor time, including the rent of the factory it’s produced in, the cost of equipment used to produce it, and the cost of components that help build it. Our understanding of past generations of labor is important because it helps us to remember that the workers create value, “...not—as mainstream economics asserts—a combination of capitalist ingenuity, technology, and (perhaps) a nod to the workers manning that technology” (p. 47).
“Money is so woven into the fabric of our daily lives that we rarely stop to wonder how it got to be that these pieces of paper have come to dominate our lives.” (p. 53)
In chapter three, Hadas Thier delves into the inner workings of money: where it comes from, what it represents, and how it has changed forms over the years. She begins with the following statement:
“Pieces of paper (or computerized electronic bits in our bank accounts) representing currency seem to have limitless control over our lives. Whether you have it, and how much of it you have, determines whether you eat or go hungry; whether you’re entitled to the finest health care money can buy, or are left bleeding to death at the hospital’s door; whether your children will be treated to an elite educational facility, or patted down routinely by the cops for living in a ‘high-crime neighborhood’; whether you are politically connected and taken care of in the halls of Washington, or whether you have to fight to even have your vote be counted.” (p. 53)
Money, according to Thier, is a universal measure of value vital for any society based on trade and exchange, and her above words demonstrate how far capitalism has taken that statement. While most agree with the definition of money as a universal measure of value, there are differing views among economists regarding how that value is determined.
Mainstream economists assume that money determines the value of commodities and that it generates an exchange of its own power and volition, but Marx believed that this relationship was in reverse. He believed that the existence of money was determined by the value of commodities and that all commodities were objectified representations of human labor.
Marx referred to money as a “universal equivalent” against which to measure all other goods and commodities. The same was true when money did not serve as our universal equivalent; in earlier trade economies, it was still easier to carry around metal coins that carried value rather than an entire cow for trading, and they carried all of the common characteristics that are important in a currency: transportability, durability, divisibility, and recognizability.
The move from gold as a currency to money as a currency is also an important theme in this chapter. Gold’s value was apparent early on in human civilization because of the socially necessary labor-time it took to mine it, but it was difficult to carry around. In the 17th century, however, the Bank of England began issuing banknotes as receipts for gold deposits, and these became accepted—even encouraged—as payments. Linking banknotes to a bank’s gold reserves became standard in the 19th century, and by the end of the late 19th century, most countries had this Gold Standard. The Gold Standard would eventually crumble, though, after the Great Depression, and it was replaced after World War II, when the International Monetary Fund (IMF) required that all currencies be tied to the U.S. dollar at fixed exchange rates, with each dollar linked to gold. This solidified the U.S.’s position as having the world’s premier currency, and the U.S. finally discarded the Gold Standard for good in 1971.
All of these advances were important because they increased the fluidity of money and revolutionized the way in which we trade. Unlike bartering, where one has to give something away in order to receive something else, money allows us to hold onto our earnings until we are ready to spend them, which means that money also makes it possible for capitalists to hold onto their profits rather than invest in something that is not profitable.
Thier concludes by reminding us that, while mainstream economists focus on fluctuations in currencies and its impact on prices, the deeper question is that of the value of commodities, which prices only reflect but are not always completely synonymous with. The only way to change the actual innate value of an item is to adjust the amount of socially necessary labor-time put into producing the item.
We do not always think about or question the authority of money in our own lives, and it is easy to miss the social relationships that determine the underlying values of money and commodities. For instance, inflation plays a social role in how we make money. Employers often do not pay their workers wages in keeping with inflation rates, meaning that they can get away with paying lower wages without doing so outrightly. In addition, we often forget that an item’s price does not necessarily dictate the value of an item; the living labor and dead labor that went into producing that item is a complex social network that determines the item’s value. According to Thier, money, labor, and social relationships are far more interconnected than one would think upon first glance.
“Capitalism uses our ingenuity to further immiserate us.” p. 104
In chapter four, Thier examines how money and laborers relate to capitalism. In pre-capitalist societies, people exchanged their wealth in different forms, but labor plays a special role of exploitation under capitalism where wealth can be expanded.
Modern capitalism is characterized by the massive expansion of wealth, and any economy that is not constantly expanding is considered to be in recession. Mercantilism was cunning in the market by selling things for more than they were bought for, and while capitalists can and often do this, they also generate surplus wealth even when taking all of the “lawful” or “honest” measures through the use of a production process that generates more wealth than it began with. In this way, wealth is not generated in the realm of exchange, but in the realm of production.
To do this, according to Marx’s General Formula of Capital, one must first already have money. This differs from bartering and mercantilism, where one must first have something to sell. Under capitalism, capitalists must first have enough money to invest in two things: the means of production and labor-power. The capitalist employs both in the production process to create commodities worth more than all of the original inputs combined, and that is where the capitalist’s profit comes from. Because one must first have enough money to invest in means of production and laborers, money is not merely an intermediary under capitalism, but its driving force. Marx refers to capitalist profits as surplus value, which capitalists seek throughout the entire exchange and production process.
The secret to attaining and squeezing out the most possible surplus value lies in a special commodity under capitalism: labor-power. The ability to work, which, according to Marx, has become a commodity in and of itself, is exchanged for a wage, its exchange-value. Since most workers do not have anything else to exchange except for our labor, it is commodified. The actual value of our labor and the wage which we are paid are two very different things, though. Workers are paid one thing, but they usually generate far more value in one shift than what they are actually paid. In this way, bosses can pay you for a fraction of what your labor is worth and reap the full benefits of your labor.
For instance, let’s say that it was socially determined that someone needs $120 for the day to survive. If you work as a Starbucks barista and they pay you $120 for an 8-hour shift, you can still make that entire shift’s wage’s worth of coffee in under an hour. In this way, Starbucks is not paying you near the value of what you’ve created but rather the bare minimum of the cost of your labor-power. This labor that you perform after you have made the amount of your subsistence is called surplus labor, when you are virtually working for free. Through this system, capitalists are able to appropriate mass surpluses through disguising their exploitation under the facade of “a fair day’s wage for a fair day’s work” (p. 80).
It’s important to note that bosses also benefit from a great deal of unpaid labor from their workers, which is predominantly performed by women. This labor includes childbirth, childcare, food preparation, laundry, grocery shopping, household cleaning. This reproduces the working class with very low costs to the system:
“And so it is no coincidence that sexist ideologies that relegate women to second-class citizens emphasize women’s nurturing capacity, which make us “naturally suited” to prioritizing husbands and children over our own lives.” (p. 86)
Mainstream economists, however, have a different take on how capitalists make their profits, and it stays in keeping with the aforementioned neoclassical theory of marginalism. Mainstream economists suggest that profits are derived from the markets, rather than from production. They believe that capital has a “high marginal product” when demand for goods generates higher incomes per unit than the cost of producing those goods and that labor has a “high marginal product” when wages rise and profits are low. This model, according to Thier, clearly pits workers against bosses and, unlike the Labor Theory of Value, treats workers as parasitic drains on capitalists’ profits “when they become too expensive” (p. 80).
Mainstream economists also argue for this theory that capitalist bosses are simply shrewd buyers and sellers who invest well, pay workers minimally, and mark up prices of products bought cheaply in the early stages of production. This lens is a very convenient narrative for capitalists because it paints them as geniuses who simply know how to invest well, excusing them for paying themselves astronomical amounts at the expense of workers.
This theory, however, neglects to mention that, if capitalists buy something at a cheaper price and sell it more expensively, they are only stealing profits from someone else, such as the supplier who had to sell their product more cheaply. The neoclassical model only accounts for the transfer of wealth, but not for the expansion of it which is characteristic of capitalism. If this model were correct, when one industry flourished, another industry would always be in recession, but in actuality, when one industry begins to flourish under capitalism, it has been found that others begin to flourish as well, and we are declared to have a “miracle economy.”
The Marxist understanding of capitalism, on the other hand, shows that a surplus value still comes about when capitalists buy and sell commodities for their true value and that the surplus value of profits is rooted in the process of production and the differences between paid and unpaid labor.
This discussion leads Thier to answer a crucial question: what exactly is capital?
We must first understand that there are, according to Marx, two different kinds of capital: constant capital and variable capital. Constant capital is money that was previously invested in equipment and facilities, which carries on its value into the newly created goods without any change in its worth, but rather which appears in a new form. Using our Starbucks analogy, espresso grinders would be an example of constant capital.
Variable capital, on the other hand, is defined by Marx as the capital invested in labor-power because labor has a use-value that expands throughout its use, so how much extra value can be created is variable. This would include laborers like baristas.
Capital itself is defined as money invested in variable and constant capital in order to produce commodities whose sales yield greater amounts of money than the investment.
By investing in both variable and constant capital, capitalists set up a productive process where, by the end of the process, both values will have replicated and exceeded their values. In this way, they are generating what Marx calls a rate of surplus value, also known as a rate of exploitation. The rate of surplus value measures the rate at which we are exploited, which is the ratio between the part of the day that creates your wages and the part of the day in which your labor is unpaid.
Capitalists care most about their rate of profit, which is the ratio of surplus value (exploitation) to variable and constant capital (the total amount of capital that was invested). This tells the capitalist how much profit they have generated in comparison to the amount of capital they have invested.
The working class’ lack of control over the means of production leaves them dependent on this capital, and they are coerced by the threat of poverty to sell their only commodity: labor-power. The things that modern economists associate with capital, such as money, machinery, and labor, only take the material into account and thus do not account for the social process of the exploitation of labor that is essential in generating capital.
There are two primary kinds of exploitation used under capitalism, according to Marx. The first consists of raising the Absolute Surplus Value, or how much total surplus is created in a day, by lengthening the workday without providing any extra wages. This is not as commonly done in the modern-day because capitalists are concerned with workers being physically able to work. The more commonly used method, called increasing the Relative Surplus Value, or altering the ratio of value produced so that less goes towards wages and more goes towards capitalists in the form of surplus value, is done by increasing the intensity of the work being done by laborers. This way, capitalists don’t have to add time to the workday, but laborers are making the value of their paycheck in far less time.
This exploitation diverges even further under capitalism, though, and costs of labor reflect this perfectly. In 2019, women were paid 79 cents to a man’s dollar, Black men were paid 60 cents to the white man’s dollar, Black women were paid 61 cents to the white woman’s dollar, Latinx women earned 53 cents to the white man’s dollar, and increased education does little to nothing to increase these numbers (p. 88). Black people, Latinx people, and women all earn less than white men regardless of education level, and American capitalism relies on these groups to occupy permanent low wage sectors of the workforce, showing that those “socially determined” costs of subsistence and reproduction of the workforce are based upon historic and institutional systems of injustice and oppression. People of color also face workforce discrimination in the hiring process and the lay-off/firing process, which leads to higher unemployment rates and desperation within the workforce. This paves the way for bosses to lower wages for people of color when they are performing an equal amount of work.
Capitalism also depends on the exploitation of immigrants, specifically undocumented immigrants, who are often disenfranchised and face the risk of deportation. This leads to employers allowing egregious working conditions and paying their workers poverty wages.
Inequality has long been baked into the American economic system and has been used to pit marginalized workers against one another, reducing the wages for both and benefitting bosses. This discussion of discrimination and exploitation does not even take into account the experiences of gay, trans, disabled, Native, and elderly people and how they are discriminated against under U.S. capitalism.
“The satisfaction of even the most extravagant of needs can only go so far. But the boundless goal of acquiring money through its circulation is an inexhaustible endeavor.” -p. 75
Chapter five of A People’s Guide to Capitalism examines how competition, the heartbeat of capitalism, drives production forward and fuels the system. Even capitalists who have monopolized the market are not immune to the need to compete and accumulate. The reduction of socially necessary labor-time required to complete work makes sure of this; it cheapens labor and allows competitive profits to be made by capitalists. Capitalists cannot exist without constantly changing the production process.
This is partially due to the fact that capitalists do not get to keep all of their profits—they must make returns on the investments that other companies made during the production process. For instance, a capitalist needs a factory or warehouse space to produce his commodities, so he will owe another capitalist rent after his production cycle has completed. These landlords and other capitalists that invest in the production process are referred to as hangers-on or unproductive capitalists, who, unlike the productive capitalists they lend to, are not producing anything actively but rather giving others the means to do so.
Since capitalists must either “grow or die” in order to survive in the competitive market, generated surplus value must continue to be reinvested so that capitalists may continue to accumulate (p. 112).
While capitalists do spend an astronomical amount of money on themselves, due to the constant need to accumulate and reinvest, they are still ultimately “gold-studded cogs in the wheels of the system,” according to Thier (p. 114). Whether extravagant or “caring” capitalist companies like Ben and Jerry’s, they still participate in this same system.
According to Marx, there are two ways that capitalists can continuously increase and grow their enterprises, which are the concentration of capital and the centralization of capital.
The concentration of capital, referred to by mainstream economists as “organic growth,” is the process of an enterprise growing over time through accumulation and reinvestment, where capitalists can afford to invest more money in each following cycle of production.
The centralization of capital occurs when industries become dominated by fewer and larger corporations through consolidation, which results in further concentration of capital. Unlike concentration, however, centralization occurs with already-existing capital. Smaller companies often become defunct and go bankrupt when centralization occurs, and credit aids this process by allowing corporations to borrow astronomical amounts of money to buy out smaller companies. Centralization, according to Marx, can occur in the ‘twinkling of an eye’ because these company groupings must not wait on accumulation over time as concentration does, and they can buy out their competitors or bring smaller firms into the fold.
Concentration and centralization also incentivize competition because they encourage companies to grow bigger in order to keep up. Bigger companies carry certain advantages over smaller ones because of factors like having a larger workforce, having upfront investments already taken care of, being able to enforce/supervise constant intensive labor that is more efficient, being able to buy in bulk, and being able to access lower interest rates. This efficiency is irresistible to capitalists and therefore encourages them to compete to achieve it.
Monopolization is another product of this competition and accumulation. While we do not see many monopolies very often due to the fact that there are almost always some disruptive smaller companies entering the market, monopolization practices can be found everywhere. From airlines to Big Pharma (pharmaceutical conglomerate), monopolization has a distorting impact on the supposedly “free market” principles touted by mainstream economists. Through price gouging and limiting consumer choices, those with economic power have twisted the market to meet their needs. Additionally, the state can (and often does, as we will see in chapter seven) also shield monopolies from failure by providing bailouts if the economy encounters a recession due to the fact that they pose too great of an economic risk if they were to go bankrupt. Due to their financial, industrial, and social interconnectedness, it would be disastrous if monopolized companies suddenly went defunct.
Monopolization, however, is not the highest stage of capitalism; imperialism holds that title. When the concentration and centralization of capital advance to such a point that large monopolies wield astronomical amounts of economic or political control, the interests of capital and of the state can often become fused.
The line between economic and military tensions can be thin since corporations depend on the state to beat down barriers to foreign markets and depend on governments to keep a corporate-friendly environment at home. Under capitalism, national competition morphs into international competition, and the “melded interests with the state” combined with “need for international production and markets” lead to military rivalries for power and territory (p. 139).
After all, according to Thomas Friedman, “The hidden hand of the market will never work without a hidden fist.” (p. 138).
So, what is the alternative? Does socialism offer a model for societal growth? While Marx and Engels did celebrate the productive capacity brought forth and displayed through capitalism, this celebration was more geared towards the groundwork it laid for other possibilities in the future, not its destructive current practices.
Socialism, on the other hand, would advance society’s productive capacity, but in a way that focused on use-values rather than on how worthy something was for exchange; things would be made to be used, not for profit. Human need would drive decision-making, compelling technological advancements and research for better, more sustainable production, and socialized production would not be cheaply built for a quick buck as is often done under capitalism, where items are made to last for the short-term, but rather to be durable and ecologically sustainable. We could also cut the necessary labor power by doing this and spend that free time unleashing the creative potential of human beings since we’d not have the burden of a workweek. Many things would stop being produced (military arms and advertisements) and others slowed (cars and plastics). Capitalism forces us into accumulation for the sake of accumulation, but under socialism, we would reorganize the satisfaction of human needs without destroying our planet.
“The volatility and destruction brought upon by endemic, periodic crises make capitalism a fundamentally precarious system, and at the same time open the way toward class struggle and the potential for revolution.” (p. 149)
Chapter six delves deep into the structures present in capitalism that self-sabotage and cause crises. It also discusses how those crises also reboot the system, benefitting capitalists and coming at the expense of the working class.
Since profits are the heartbeat of capitalism, when they begin to cease, we see the system start to crash. Crashes like the Great Recession of 2007-09 lead to great devastation for many except for those bailed out by the government or by their accumulated wealth. Mainstream economists analyze crises at the surface level of price fluctuations and monetary policy, but Marxists take a deeper look at the bedrock of the system of capitalism, where the crises originate.
In order to function, a capitalist economy thrives upon exploitation, poverty, oppression, and environmental and even this “healthy” system eventually encounters issues and enters a crisis. Accumulation, which capitalism is predicated on, is a contradiction because it is also the thing that brings on crises within the system of capitalism.
Bourgeois economics denies that crises are intrinsic to the system, despite the number of crises that have occurred under capitalism. They assert that the market self-corrects while crises are simply anomalies that occur every once in a while.
Economists use a model where profits are made by capitalists and then redispersed when capitalists spend that money, thus balancing out the market again. This theory is often referred to as Say’s Law. This theory neglects to mention the fact that capitalists often sit on the money they’ve made or pay back debts if investment doesn’t look profitable. Even economists like John Maynard Keynes, who saw that crises were linked back to the system, still posited that regulation of capitalist systems could prevent crashes, neglecting to acknowledge the role that growth and profit played in the system.
Since capitalism is about profits and maximization rather than consumption and distribution, Say’s Law and Keynes neglect to remember that capitalists will often choose crashes and recessions if they are deemed to be more profitable than other options, so this surface view of economic data leads to a surface level view of crises and recessions.
As previously mentioned, this chapter heavily references the most recent devastating economic crises in the U.S., the Great Recession, where the housing market grew and then suddenly tanked. Corporations often don’t take stock of the need for or their ability to pay for goods they produce rather, they are usually concerned with ever-expanding their individual share of the market, regardless of what is needed. This causes capitalists to focus on mass production with no regard to the needs or limits of the market. The outcome is that, while production is ever-increasing, our wages are not, meaning that our ability to buy these products becomes increasingly limited. This will not immediately cause a crisis in the system because capitalists also produce luxury goods for the rich and raw materials for other capitalists, so the market will continue to move along as long as money is made and investment continues. Crises under capitalism do not occur due to a shortage of goods, but rather due to a shortage of profits.
Theories of underconsumption put forth that, since the working class is paid too low of wages, their demand cannot meet the ever-expanding production under capitalism, and this causes economic crises. When taken in an isolated way, many of Marx’s teachings are seen as supporting this theory. Capitalists, however, do not fully depend on the working class’s consumption for profits, especially knowing that they pay exploitative wages to workers. If this were the case, underpaid workers not being able to buy products would put the system in permanent crisis, and it would motivate capitalists to reduce unemployment and pay higher wages. Instead, capitalists continue to produce for the sake of accumulating surplus value, which can then be placed back into the production process to accumulate even more capital. Capitalists do not solely create for the working or middle class, but rather for the means of production. Rather, the prevailing theory among Marxists is that of overaccumulation. This theory posits that, while too large of a supply of goods can be handled, when production is slowed until inventory sells off, the machinery and other means of production used will lie dormant and deteriorate. This unused capacity is a financial drain, and whether it be through physical destruction from war or other destruction through leaving factories to lie unused, this destroys capital and brings on a crisis.
Additionally, capitalists often invest far more in the means of production and innovative technologies than they do in growing their workforce. While this increases their productivity and raises their profits in the short term, they still lose money in the long term. When they begin to invest more in this constant capital than in labor-power because of the limits of exploitation, they will lose out on profits. While these all are occurring at the same time, they do not occur at the same rate, and the short-term profits disguise the fact that it is happening at all.
The restoration of profitability occurs when the destruction of capital makes room for recovery; with a looser, less occupied market due to failed corporations, remaining corporations have the chance to emerge with less competition. The means of production will have also lowered in price, meaning remaining companies can purchase them cheaply, and surviving capitalists can purchase raw materials and more from bankrupted corporations. Additionally, the weaker working class will be forced to accept lower wages, and capitalists will again induce labor-saving technology (such as intensifying labor), thus repeating the accumulation cycle. Here, the capitalist benefits from the crisis.
While it seems that capitalist systems would’ve shut down due to this a long time ago, it’s important to remember that, as long as the rate (relative to how much has been invested) of profits stays above zero percent, the mass (if capitalists can still grow the mass of products and thus mass of profits to make up for it) of profits doesn’t have to fall.
Capitalists can alleviate this tendency through different measures, including raising the rate of exploitation or moving overseas or to right-to-work states (which break the power of labor unions) to find cheaper labor and postpone the need to invest in more technology. Additionally, technology that needs to be purchased by corporations grows cheaper over time because the capitalists in those industries are constantly investing in labor-saving technology, as well.
These tendencies ensure that lower profits are a tendency and not law, and the downward pressure on profits occurs slowly over long periods of time in a nonlinear way. As long as the rate of profits stays positive, capitalists will invest, and capital will continue to circulate.
In these ways, the drive to increase the rate of profit is undermined by its own process of overaccumulation. While it is disputed among Marxists what the causes of individual capitalist crises may be (falling profitability, overproduction, disproportionality among branches) due to the fact that Marx’s theories were scattered and incomplete among his works, it is agreed that contradictions within the capitalist system lead to crises in the system. Additionally, crises are an integral part of the capitalist system, where profits are wiped by all except the extremely wealthy, and this “solution” and the rebuilding of the system falls upon the backs of the working class.
Before engaging in a critical analysis of capitalism as outlined by Thier, we must first make sure we understand what she is saying. Take the following questions and answer them in your own words. When doing so, try to limit the number of sentences you use and aim to explain these concepts succinctly. To double-check your work, or if you are truly stuck, you may visit the summary sections that address the question.
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The Enclosure Movement took place over the course of centuries when common lands were violently confiscated and turned into privately-owned plots all across England. How did this movement spark the beginnings of capitalism in England?
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In what ways were slavery, genocide, and capitalism all interconnected? What different roles did America and England play in the Trans-Atlantic Slave Trade?
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What is a commodity? What is the difference between an item’s use-value and exchange-value?
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Marginalism is a theory in opposition to Marx’s Labor Theory of Value, and it suggests that a commodity’s worth is determined solely by supply and demand. How is this neoclassical theory flawed?
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What are the two ways that capitalists can increase the rate of exploitation?
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How does exploitation in the workplace disproportionately affect marginalized groups?
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How did credit and financialization contribute to the Great Recession? What were its root causes?
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What was the Community Reinvestment Act (CRA) of 1977 and why was it so highly criticized?
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What is redlining? Have you or anyone you know ever experienced housing discrimination
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Thier states that the abolishment of capitalist structures is a collective effort. What are some ways, big or small, that you can organize for collective action against capitalist structures in your own community?
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Have there been times in your life where you found yourself blaming fellow working-class people for oppressive capitalist structures such as exploitation, rather than your shared oppressor? What kinds of rhetoric have you seen and heard in your own life and in the media that perpetuates these ideas?
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What organizations in your community are taking anti-capitalist action? Are you able to volunteer at or donate to these organizations?
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How have you observed exploitation under capitalism in your own life, whether against yourself or someone else? How have your different identities impacted your experience under capitalism?
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What messaging have you internalized about other countries from the capitalist lens? Do you see other countries as “underdeveloped” compared to the more “developed” countries or “underdeveloped” by those more “developed” countries? How do you see these different perceptions and stereotypes displayed in media, news, and other areas of your life?
Additional Readings