#001 What Is Capitalism?(Part One of Four)

And How Does It Work?

To make any sense of post-capitalism, a loose description of a radically new system with which to organise human society socially and economically, we first must objectively identify what capitalism really means, now, in 21st century Britain and across the world.

In this article, the first part of a quadrilogy, I aim to examine the basics of capitalism, and its macro consequences on the people who exist within it. I will explore whether and to what extent capitalism, as it actually exists today, is built around general principles of right & wrong, and to what extent it reinforces or undermines universal human virtues, such as honesty, fairness, equality, creativity, innovation, co-operation, productivity and kindness.

To do this I will focus on the following questions;

What is contemporary capitalism in the 21st century? (Part One)
How does capitalism function & what are its tendencies? (Part Two)
Can capitalism be justified morally? (Part Three)
Is capitalism in need of a radical overhaul going forward? (Part Three)

Consequentially, if it can be concluded that capitalism is inadequate for human societal organisation;

What distinguishing features must a new system (identified crudely as post-capitalism) exhibit and why? (Part Four)

In a nutshell, I plan to investigate whether it is worth trying to establish a significantly different and fundamentally-improved social and economic system, or alternatively, whether we should stick with the status quo, and try to use the representative democracy in place to help bring about a “responsible capitalism” (popular with supporters of the British Labour party and trade union members at this time) or an “ethical…more balanced capitalism” (popular with the supporters of the British Liberal Democrats).

Twenty-first century (mixed-market) capitalism, in fully industrially developed countries such as the United Kingdom, is the predominant social and economic system, which all people must exist within.

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So capitalism works through three predominant groups of people and the dynamics between them. In reality individuals can play one or more group roles, but it is true, when looking at the complete picture, that there are three basic groups or classes central to capitalism.

The first group is the small minority of people who “own” (or lay claim to) capital. Capital is the means of production, distribution, exchange and the means of life itself (e.g. water, energy & residential buildings), which is the physical ‘property’, used for business, trade and commerce. Equally capital can be expressed as money, which physically expresses value, that can be exchanged for physical ‘things’ in a market.

The motivation of this group, the ‘capitalists’, is to turn a set amount of money, invested into a project of some type, into more money. The idea behind this is everyone playing a capitalist role will work for their individual self interest (to obtain more for themselves to live and prosper) and so invest into projects, bringing them into fruition, and in return benefit themselves first and foremost, alongside others. A basic example could be a record company investing in a band through a record deal, because they believe the band has potential to make money, or more specifically, to make their company money, all things considered. The company puts money in, e.g. to finance studio time, CD pressings etc. and in return hopes to sell lots of records and obtain more money back in the future from the process.

The second group under capitalism, is the large majority of people who do not own capital and therefore must sell their work in return for a wage, which allows them to survive and live a life beyond absolute poverty and relative deprivation. This second group, which can be called ‘workers’, is free enough to choose where they try to obtain work, who for and what they spend their wages on, but they must sell their labour to some person or entity. The first group, the ‘capitalists’ [or managers/bosses acting on their behalf], decide who is employed in their businesses (because they “own” the business and property within it) and the wage remuneration the second group receive — on an individual basis (depending on a variety of factors including job role, industry type, state of capitalism as a whole etc.).

The third group, the ‘state’, act as an overseer of the capitalist system as a whole. People in this group are individually also part of one or both of the other two groups, workers or capitalists, but choose to pursue a state role aswell, acting as politicians, civil servants, counsellors and similar. The state creates laws and regulations to control the system, and the people within it (to a degree). Their most important function is to legally protect private possession and property rights for individuals and companies and to ‘defend’ the nation from a variety of potential threats, both internal and external.

The state also taxes many different parts of capitalism, such as worker’s wages, business profits and products made and sold to collect revenue, which is then spent where it sees fit. Examples of this are welfare spending, so when members of the second group cannot become employed for a wage, a small, financial safety net is allocated to support them until they do, preventing extreme poverty and deprivation. Similarly when workers are too old to be expected to work they receive a state pension, again supporting people with a relatively small amount of money, weekly, until they die. Government funded healthcare, in the form of a national health service, is another example, where anyone, regardless of how much money they have, receives the same standard of free healthcare.

It is important to note that state spending is at the exclusive command of this third group so if capitalism is going through a particularly bad patch, such as 2008–2014 Britain, it may well make changes to save money, for instance the state may decide some of the people receiving out of work social welfare payments must work for private companies for free, in order to continue to receive this state support. This practice, known as workfare, helps ‘capitalists’ and capitalism by providing the company with free (effectively forced) labour and may also help the worker through allowing him or her to obtain further work experience (aiding him or her getting a wage paying job in the future) but will also hinder the worker as he or she will have to work for free in a company he or she wouldn’t necessarily choose to work for.

The state can also employ people directly, where tax revenue is used as capital. For instance, the state may decide the country requires a police force of a certain size and standard to enforce certain laws, so it uses a certain amount of tax money to invest in the physical means of production, distribution & exchange, to produce and maintain a police force, e.g., on police cars, radios etc. It then pays people through wages to work as police officers for an organisation similar to a private company but publically owned and controlled by the state.

Whereas the first group, private capitalists, invest money, or their means of production, distribution and exchange to ultimately make more money, the state invests tax money publicly as capital (and as the managers of capitalism) to provide the people with services and keep the system afloat and functioning in, what they collectively deem, an acceptable manner.

Now the goal for the first group of people, the capitalists, is to minimise outgoings and maximise incomings in their respective businesses and so maximise profit for themselves as “owners”, which they then spend as they see fit. Some of this goes on their personal goods & services, otherwise known as capitalist consumption, some of this goes as tax to the state and some goes toward re-investment into the business in order to remain competitive with the other capitalist companies through upgrading technology, making production more efficient, expanding production and other factors. They buy the ‘means of production’ AKA ‘fixed capital’, along with ‘labour power’ AKA ‘variable capital’, and reach out to clients or customers to buy their goods or use their services, in doing so they facilitate the productive process.

The goal for the second group of people, the workers, is simply to work and earn enough money to live a comfortable life as possible and also often to gain as much fulfilment as possible in work (through challenge, mastery, making a difference etc.). The goal to gain fulfilment is only held by some in this group, however some of these people will even work for the first group (the capitalist) for sub wages (e.g., expenses only) or even for free, if they can survive by doing so, with a view to gain experience in an industry or sector they enjoy or wish to pursue and later seek a wage from. Some people in the second group also aspire to become part of the ‘elite’ first group and may start their own businesses by borrowing money or saving part of the wages over a long period of time to then invest and hopefully play the role of the capitalist. The second group of people are also bound by competition as they compete with each other for jobs and wages.

The third group seek to hold on to power individually above all else (to keep their jobs, get re-elected if they are elected etc.), but also to effectively manage the social system of capitalism effectively enough to keep the people they stand up for happy and satisfied on some levels. This may mean satisfy and capitulate to particularly important, or friendly, capitalists in their constituency or it may be, for a health minister for instance, satisfying everyone involved in and who benefits from national health services.

(Continued in Part Two)