Thursday, January 17, 2013

What makes capitalism capitalism?

So I had a debate (the sort of debate you can have with 140 characters) in Twitter a few days ago with Unlearning Economics and Jonathan Finegold, among others (links are to blogs not to the twitt feeds). The main question was the definition of capitalism. It is a peculiar feature of modern economics that very few mainstream authors would actually discuss the issue directly, even if there has been a revival of some related issues associated to the relevance of institutions (vis-à-vis geography and culture) in the rise of the West. Robert Heilbronner used to say that the best kept secret in economics is that it was is about the study of capitalism.

I'm not going to get too much into the topic here, but it is worth a brief summary. As discussed before (here) in the blog, the surplus approach suggests that economics is the study of the material reproduction of societies. The existence of a surplus allows for specialization and progress, and the ways in which the surplus is produced and distributed is central for the understanding of reproduction. Broadly speaking, what Marx referred to as a mode of production is comprised of two elements, the material conditions of production or the forces of production, which include the means of production that incorporate a certain technology, and the social relations of production, which include the organization of production and the customs, laws and rules that guarantee the property of the means of production.

For Marx the manifestation of the capitalistic character of the manufacturing process is that the workers do not own the means of production and must sell their labor power. The reason being that an essential condition for capitalists to be able to buy labor power is that workers do not own means of production and are forced to sell in the market their labor force (see Capital, Volume I, Part II, chapter 6). The essence of the capitalist system is that workers sell their labor force, and are in this particular way exploited. That's the specific way in which capitalists obtain a surplus beyond what is necessary for social reproduction.

On the notion of the mode of production Marx perceptively tells us (Vol. I, Book I, Part I, ch. 1) that:
"The mode of production in which the product takes the form of a commodity, or is produced directly for exchange, is the most general and most embryonic form of bourgeois production. It therefore makes its appearance at an early date in history, though not in the same predominating and characteristic manner as now-a-days. 
Even Adam Smith and Ricardo, the best representatives of the school, ... treat this mode of production as one eternally fixed by Nature for every state of society ..."
That's exactly what Max Weber (and many modern authors too, by the way) does. He often refers to capitalism when discussing the middle ages in Western Europe, or ancient China, or the Roman Empire (see for example his General Economic History). This naturalization of capitalism is also typical of mainstream authors, that tend to confuse the existence of markets, or the profit motive, with capitalism.

Production for exchange in the market existed for sure before modern times, and so did exploitation. But the difference with previous modes of production is not simply the more developed material conditions of production associated with the factory system and machinery. It is the specific social arrangement that allows capitalists to control the means of production and extract a surplus from workers that must sell labor power in the market, and are liable of being exploited (more or less according to their bargaining power) that sets capitalism apart. So it is the way in which labor is exploited, one in which workers sell labor power in the market, that makes capitalism capitalism, so to speak [this has interesting implications in the Dobb and Sweezy debates on the transition from feudalism to capitalism, for example, that I'll leave for another post].

Note that while this definition of capitalism is clearly Marxist it builds up on the surplus approach, and is one of (not the only one either) the main contributions of Marx to the surplus tradition (he was critical of the bourgeois elements of classical economics, but built on the analytical structure of the school). In fact, Turgot and Smith both describe the evolution of societies in terms of stages related to the mode of production. It is the economic character of production that governs other aspects of social relations. The four stages were hunting, pasturage, agriculture and commerce. Bill McColloch suggests (see here) quite convincingly that Marx builds on the work of Steaurt.

Also, note that the notion that the profit motive is the differentia specifica of capitalism is tied to the typical methodological individualistic stance of the mainstream. It is hard to say, however, that individuals (merchants, for example) in previous modes of production (say in the ancient mode of production, which was based on slavery) had no desire for profits. If they did, however, what's different about capitalism? That's also why all the alternative theories of history (to the surplus approach) tend to fetichize the role of the entrepreneur (see Landes's last book for the epitome of that approach, which was also displayed in the History Channel's The Men Who Built America). It's the return of Carlyle's hero-worship and the Great Men theory of history.


  1. You might find this BBC Radio broadcast (The Industrial Revolution: Part I. Wed, 22 Dec 10. interesting.

    It doesn't deal directly with Marxist categories, but it certainly illustrates a debate between a historically materialist conception of history (represented by Prof. Pat Hudson and William Ashworth), versus an idealist conception of history (represented by Bragg himself and Prof. Jeremy Black).

    Bragg and Black defend the notion that the Industrial Revolution started in Britain because of the particular British genius creating industrial machinery. This ties in with the entrepreneur-worship mentioned above.

    Hudson and Ashworth argue against that view.

    You be the judge about the quality of the arguments.

    1. Thanks Magpie. Yes there are a few authors that without strictly speaking using the same Marxist categories are close enough. I would put prominently in that group Braudel and the Annales School, and Wallerstein and the World Systems school.

  2. Also, to add to the discussion, as Weber emphasized, the strategic calculation of costs of production and net surplus value (profits) extracted, as a residual, cannot be set in motion without a readily available monetary standard of value (money of account). Following Schumpeter, what makes capitalism capitalism, in addition to the forcing of the selling of labour power, is the financing of production with money-capital in the form of endogenously created bank money. The institutions of enterprise, profit, wage-labour, market exchange all existed, to some degree, prior to capitalism becoming the dominant mode of production, yet it is the rise of the banking system, by which capital became that 'means of payment [credit] made available at any moment for transference to entrepreneurs' (Schumpeter, 1911), signified capitalism as that all-embracing, self-perpetuating, globally encompassing, systemic process of usury on all scales.

  3. Very good post. I would recommend Althusser´s "Reading the Capital", especially the contribution of Etienne Balibar, as a good epistemology exposition of the concepts of historical materialism and mode of production.

  4. The linked McCulloch article on James Steuart is really interesting. I was surprised both by the tracing of historical materialism to Montesquieu (usually mentioned as on influence on the landowners and slaveowners who wrote the US constitution), and by how much Steuart anticipated Veblen's institutionalism. His argument about settled agriculture being the foundation of both progress and inequality mirrors the conjectural history of Rousseau, which Engels acknowledges as a forerunner of Marx's theory in Anti-Duhring. Thanks for linking this again.

  5. Also, for a famous debate on the 'laws of motion' of capitalism, see here

  6. Actually, Marx built on Proudhon's work -- while lying about Proudhon's actual ideas:

    Proudhon indicated first how capitalism was based on wage-labour and was just the latest in a series of economic systems, due to be replaced by associated labour -- and how economists consider this system as eternal rather than transitory as well as being defenders of the few.


IMF Programs: Past and Present

A roundtable with Daniela Gabor, Roberto Lampa and Pablo Bortz, on the IMF and its Programs this Thursday in Buenos Aires, organized by ...