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1. An Introduction to Actually Existing Capitalism

In the chapters that follow, you will find what I hope is an engaging and reasonably detailed explanation of contemporary capitalism. It is not an exhaustive or neutral explanation. While it tries to unfold and explain some of the fundamental claims of modern economics, including a few “technical” details, it is not an “objective” description of capitalist economies. In that sense, it is different from titles like “An Introduction to Capitalism” or “Economics for Beginners” currently lining bookstore shelves. Those books can be helpful, in a limited way. At best, they can lay out the “how it works” of capitalism as clearly as any Lego instruction manual. But they almost always substitute an account of how capital says the economy works, or ought to work, for an account of how it actually works. They introduce a whole set of mainstream, “business pages” concepts as if they are unquestionable, the only way to understand capitalism. Those of us driven by a sense that what capitalism offers is nowhere near good enough, and that we can and must create something better, will find little if anything to work with.

This book provides lots of facts and explains important concepts and events, but it also provides ideas, challenges, and critique to chew on. It is not another shrill denunciation of capitalism. Those books often leave one feeling that capitalism is simply a massive class conspiracy, a monolithic force of evil for which only really nasty, cruel people could be responsible. It is as if capitalism happens to us, imposed by external trickery. But that is not true. Most of us actively participate in keeping capitalism going every day, and not always unwillingly. Indeed, some of those it seems to serve so poorly—much of the working class, for example—are among its most energetic defenders.

This book is written with the conviction that much of the way we organize the “economic” aspects of modern life is ethically and politically indefensible, and ecologically suicidal. It is also written with the conviction that merely pointing that out, and then waiting for everyone to agree, is a mostly futile exercise. It simply reproduces slumped-shouldered pessimism or smug radicalism, a chorus of self-proclaimed rebels repeating conspiracy stories and sweeping generalizations with which their listeners already agree: “Banks rule the world!” “Capitalism = greed.”

Not that all the conspiracies and sweeping generalizations are baseless—but some are definitely hollow, and those that are true are often only symptoms of other, more powerful dynamics. Take the two placard slogans above. Both seem to state the obvious. Modern governments are beholden to the banks and bond markets, and it does sometimes seem that capitalism is driven by “greed,” but in neither case is the problem as straightforward, nor the solution as clear, as the indictment makes it seem. Capitalism is much more complex and compelling than that.

This is a fatal flaw in much radical critique of contemporary capitalism. One of my goals is to expose this flaw, and suggest a way that critique and politics can move past it. It is not enough to point fingers, to expose puppet-masters. Doing so may satisfy a sense of fairness, while indulging in the comfort of a black-and-white politics that identifies “the” enemy. But it almost always degenerates into moralizing. High-horse politics, which rely on the claim that “we” are better or more honest or more caring than “them,” the bad guys, crudely oversimplify the difficult choices most people make in real life—assuming they have a choice at all. (Not to mention that such moralizing is what conservatives do best).

Perhaps the CEOs of Shell Oil or Citibank are indeed cruel profiteers and super-rich megalomaniacs. Perhaps they really are bad guys. That is not, and cannot be, the basis of a critique of capitalism. Capitalism is neither made nor defended by profiteers and super-rich megalomaniacs alone, nor did they produce the system that requires the structural position they fill. In reality, capitalism is produced and reproduced by elaborate, historically embedded, and powerful social and material relationships in which most us participate. In fact, many of us struggle to maintain those relationships, sometimes with all our might, because we feel like we have little choice. Are immigrant workers who cross a picket line because they need to cover the rent the “bad guys”? What if they are hoping to one day be a boss or factory-owner? Are they merely duped? Are the poor “really” anticapitalists at heart, but just don’t know it yet? Would they choose something other than capitalism if given the chance? On what basis could we make that claim?

“We’re good, you’re evil” strategies can easily undermine mass solidarity, precisely because of those tricky everyday decisions people have to make. Barring a “clean slate” political solution, such as the revolutionary elimination of the “bad guys” (which history suggests is a risky route), I am convinced that the only basis for solidaristic anticapitalist politics is an analysis that makes sense of “complicity.” We need an approach that comprehends the various positions and political dilemmas in which people find themselves, and helps them see that these dilemmas are neither inevitable nor necessary—that they can find what they need in different, better ways, through other ways of living and thinking.

So, while it is partly true, for example, that “banks rule the world” through their control of governments, if we want an end to that control, we need to know more than the fact that it exists. Recognizing the reality we face is a crucial first step, but on its own it gets us almost nowhere. What we really need to know is how banks exercise control: how bond markets work, how the state has come to depend upon them, and what we must undo or fix to alter existing structures of power. If we want to get rid of “greed” (because capitalism is held to be exceptionally greedy), we have an even bigger problem on our hands. Only by ignoring all of human history can we blame greed on capitalism, and it is not obvious that capitalist greed is necessarily worse than, say, the greed of Henry VIII or Hernán Cortez, of slave-owners or elites in the Communist Party of China.

The problem is not that capitalism is a conspiracy of greedy people. The problem is that capitalism, as a way of organizing our collective life, does its best to force us to be greedy—and if that is true, then finger-pointing at nasty CEOs and investment bankers may be morally satisfying, but fails to address the problem. We are aiming for more than a world with nicer hedge-fund managers.

Two premises follow from this. First, we need to understand capitalism in more than just a wishy-washy, general way. If we want to change it, whether by tweaking or reworking the whole economic fabric of society, we need fairly detailed knowledge of the how, why, what, who, and where. Second, while critical theories (like Marxism) have a lot to offer, it is just as important to seriously engage capitalist theories of the capitalist economy, the ideas that make up modern orthodox (“neoclassical”) economics and political economy. In other words, we have to recognize that as capitalism has developed, it has done so in tandem with ideas of human society with which it makes sense of itself.

Without some understanding of modern economic thinking, we cannot understand capitalism, because we cannot understand the logic and analysis that justifies it, that orders its institutions and gives it the legitimacy that has helped it survive and thrive for so long. Capitalism is organized the way it is because of how capital understands the world—an understanding, we must admit, shared by millions of people all over the world. Capitalism is not maintained by mere violence and deception. If it were, it would be far less robust. It is also sustained by a set of institutions, techniques, and ideas about human affairs and social goals that, for many people in the wealthy world, are unquestionable, as natural as gravity. Critics of capitalism ignore or dismiss these ideas at their peril.

This is not as dry as it sounds. The “dryness” of orthodox economics is part of what gives it its power. It seems so boring and technical, so coldly mathematical. Its subtle technicalities—interest rate dynamics, firm structure, pricing minutiae—sound like the province of arrogant experts and self-important businessmen. But behind this curtain lie key ideas and institutions, and we need to understand them. I wager that, if we put them in their broader political context, you will find a lot of it downright fascinating—troubling, certainly, but fascinating.

The book proceeds by laying out the ideas (Part I), and then putting them to critical work in the real world (Part II). In Part I, the rest of this chapter provides the necessary foundations: what exactly is this capitalism thing? Chapter 2 turns to some influential theories of capitalism, drawing from both critical and non-critical or “liberal” political economy. One theme that will emerge is that capitalism is extraordinarily dynamic and robust—arguably more so than any other way of organizing economic life yet realized. Despite a common misconception that it is rigid and unaccommodating, it has changed a lot over time, and continues to change. In reality, there is a range of actually existing capitalisms. This means that despite their persistent influence, some of the older ideas presented in Chapter 2 seem quite poor descriptions of capitalism today, especially regarding finance and credit, which were not always so central.

With this conceptual frame to help organize our thoughts, the next two chapters in Part I consider the principal features of modern capitalism’s core institutions and processes. Chapter 3 starts with the essential capitalist institution that usually gets either down-played or dismissed: the state. It also examines the form and content of money, maybe the most important way in which the state and the market are bound together in capitalism. Chapter 4 contains an analysis of markets in their varieties, and looks at what their “actual” operation can tell us about modern capitalism and the working people and profit-driven firms that play so crucial a role in its dynamics.

In Part II, we move to a broad-brushstroke examination of the recent history of capitalism, with particular attention to the origins and consolidation of global processes often called “neoliberalism” (Chapter 5), and then to “financialization” and the mechanisms behind the “subprime crisis” of 2007–2008 (Chapter 6). In this case, the devil is definitely in the details—but not exclusively. Chapter 7 is partly a reflection, in light of the political and economic crisis in Europe, on what the previous chapters can tell us about the material and ideological challenges facing alternatives to capitalism. It also considers the necessarily experimental and unclear ways we might demand not merely the end of capitalism, but the emergence of something better. Nothing in these conjectures is definitive or guaranteed. But the critic has a responsibility to say where his or her critique might lead. The wisdom and relevance of these propositions will only be visible in retrospect.

Overall, the goal is to understand how and why capitalism works. Only then can we identify levers of change. “How” and “why” are two different questions. The first is a descriptive problem; the second is analytical, and at least partly historical. Ultimately, it is the analytical part that matters politically, because it requires an argument: these are the reasons why capitalism operates the way it does; it is these dynamics that inevitably fail to meet the needs of many; and these are the reasons there are better, fully realizable ways of organizing our lives. The emphasis throughout is on this analytical side; but we can only get there after getting the descriptive side down as well as possible. We need empirical material to work with, an understanding of the nuts and bolts of capitalist dynamics that is not exhaustive, but nonetheless fairly detailed and subtle.

If Capitalism Is Something, What Kind of Thing Is It?

The first thing we need to agree upon is that capitalism is something we can name, with distinctive features that distinguish it in non-trivial ways both from what came before and from other contemporary systems of economic organization. Capitalism is one way of arranging human society, of organizing the social relations of production, exchange, consumption, and distribution. We can call this arrangement, as Karl Marx did, a “mode of production,” but could just as easily call it a “mode of organizing economic activity,” or even simply an “economic system.”

All three terms, one might say, get the point across. However, some precision is useful here. First, in today’s capitalist societies, “the economy” and things “economic” are depoliticized and oversimplified. For many, the “economic system” refers to specific dynamics associated with production and exchange in formal (i.e., legally recognized) markets. Rarely does it bring to mind things like women’s work in the home, the illicit drug trade, or the education system, even though these are significant components of modern capitalism. To understand modern political economic arrangements, we need language that reminds us explicitly of what they involve, and “the economy” or “economic system” do not do that work right now.

The second reason we need specific terminology is the popular association of modern capitalism with “human nature.” It is fair to say that many people believe that the capitalist “economic system” is the logical outcome of “natural” human motivations and proclivities. Capitalism is taken not as an economic system, but as the economic system. Economic questions are taken to be synonymous with questions about capitalism. Indeed, capitalist political economy has become so dominant in our way of thinking that any economic relationship that is not capitalist is assumed to be somehow “distorted” or “fettered” by the state or some other institution. The assumption is that if an economy is not capitalist, it is either backward or underdeveloped (and thus not capitalist yet), or it is being purposely prevented from being capitalist, and would immediately “go capitalist” if left to its own. There is no historical evidence this is even close to true. Markets and states and human communities “go capitalist” when organized to do so.

For these reasons, I think “mode of production” is preferable. It flags the fact that an economic system is always a way of organizing social relations. Capitalism, communism, socialism, and any other mode of production you can think of are all ways of organizing the production and reproduction of the system itself. They produce and maintain the ways we live. Thinking of capitalism as a mode of production thus allows us to include in the “economic” conversation the gendered division of labour in the household, which produces particular kinds of workers in capitalism. It allows us to recognize that the way we interact with and shape ecological systems is a key part of how we produce and reproduce our societies. It lets us look at the educational system as, in large part, a training in “economic participation.” The mode of production concept flags the fact that capitalism is not defined by factories and financial firms—there are both in non-capitalist societies—but by the societal norms and institutions in which they operate.

The point is that even though we often think of “economic” things as outside or different from social things, they are not. Producing, consuming, exchanging and distributing only happen because people do them—and they do them the way they do for lots of reasons that are not, in themselves, “economic.” Producing, consuming, working, and exchanging are social in the “actually existing” sense. The people doing all this are not abstract “agents.” They are real living people, vital individuals with likes and dislikes and hopes and fears. They are also members of more or less well-defined social groups and societies based in real times and places. They may be from different groups, societies, or places, of course, but no one is from nowhere. And that means that every person and group involved in economic activity participates (at least in some way) according to the norms, customs, and ideologically embedded practices in which they are immersed.1

More importantly, calling capitalism a “mode of production” highlights the fact that there are other, different ways of organizing the social relations of economic life. Feudalism, which preceded capitalism in much of Europe, was one in which economic activity was organized by coercive lord-vassal relations of tribute and protection (and varied widely in the places and times historians call “feudal”). Another mode of production existed as the authoritarian “state socialism” of the former Soviet Union, a mode that most people erroneously call “communism” (largely because those systems misidentified themselves, of course; few would willingly call themselves “authoritarian state socialists”).2

What Makes Capitalism Capitalist?

Capitalism emerged in Europe from so-called “precapitalist” modes of production (principally feudal and mercantilist) over a period of centuries. There are longstanding debates regarding precisely when, where, and why it emerged, how long it took, and who was involved, but there is a general consensus that by the late eighteenth and early nineteenth centuries, what we now call capitalism was fairly well consolidated in England, and to a lesser extent in western Europe. Capitalism has since diffused, unevenly and incompletely, across the globe. Often it has done so through coercive means, including war and colonialism. In other places and times, it has spread in a less violent manner, either by simply providing people with what they wanted, or because it was embraced by those who believed it was the key to “development.” Consequently, capitalism does not look the same everywhere you go. Societies with other modes of production have inevitably adapted to capitalism, and adapted capitalism to fit. China, for example, has developed a very complicated relationship with capitalism over time, a relationship that continues to evolve.

Identifying the essential characteristics of capitalism is not a simple task. Many of the features of modern economies that appear to be distinctively capitalist—private exchange markets, for example—are necessary features of capitalism, but are not found solely in capitalist conditions. Others, like “fiat” money (money whose value is not based on an underlying commodity like gold), are products of capitalist development, but were also commonly taken up in noncapitalist systems like Maoist China and the post-Revolutionary Soviet Union. Thus, the range of features that define capitalism as capitalism is up for discussion, but I think Geoffrey Ingham has most effectively conceptualized the essentials as: (1) private enterprise for producing commodities, (2) market exchange, (3) a monetary system based on the production of bank-credit money, and (4) a distinctive role for the state in relation to these features.3

(1) Private Enterprise for Producing Commodities

In capitalism, commodities in virtually all forms (although not all, as we will see with the state) are produced by private enterprises that are institutionally, legally, and often socially separated from the household and the state.4 These private enterprises organize production around employing labour to work on capital to produce profit. Those who operate the enterprise often do not own the physical means or the money used by the enterprise. The way profit is produced, and the nature of the relationship between the worker and the capitalist (and the management, who are often not either) is the subject of long and heated debate, as we will see in Chapter 2.

(2) Market Exchange

The exchange of these privately produced commodities is based (more or less) on market competition between buyers and sellers. In a market, buyers generate demand, and sellers generate supply. If there are many buyers relative to supply, demand is high; if there are many sellers relative to demand, supply is high. The resolution of this competition between buyers and sellers, between sellers and other sellers, and between buyers and other buyers—however temporary or instantaneous—produces what we call a price: the agreed upon amount of money for which a commodity is exchanged. In other words, prices are not natural or mechanical products of some abstraction called “the market.” Prices may be “objectively” determined, in the roughest sense, by the cost of inputs, labour, etc., but all market prices are social artifacts, the outcome of conflict and negotiation between individual buyers and sellers, and between total demand and total supply—the wage, the price of labour, is the clearest example of the social origins of prices.

Another important feature of capitalist market exchange is that all forms of property, labour, goods, and services, including the enterprise itself and/or its potential revenue, are exchangeable commodities. This means that capitalism, as a mode of production, is characterized by a historically unprecedented breadth of distinct and relatively exclusive markets: money and capital markets, labour markets, intermediate goods markets, consumption goods markets, and financial asset markets.5

(3) Monetary System Based on Bank-Credit Money

None of the above would work, especially on a large scale, without a means of exchange and payment, or money. The money that circulates in money and capital markets—money used for investment or financial speculation—is produced by banks (loaned) for profit (which takes the form of the interest charged on the loan). Financing production and investment with money created via bank loans is unique to capitalism. While enterprises, wage work, and market exchange of the type we just described all existed in limited form before capitalism, their growth—to the point where they now define how things are done across much of the world—was only possible with the emergence of a state-sanctioned private banking system that could provide the necessary capital.

(4) The State

Finally, the state plays a key role—as both help and hindrance—in capitalism. That role is specific to different nation states at different times, but is also generalizable in important ways. The most obvious is sometimes referred to as the state’s “police” or “night-watchman” function: the guarantee of the sanctity of private property rights, the fundamental precondition of all market exchange. But there are other roles that will come up often in what lies ahead, if in complex ways, since the state is always a site of extraordinary contradiction. It simultaneously appears as one of the most powerful obstacles to a world beyond capitalism and one of the most immediately useful tools for building that world.

Before we turn to a more detailed critique of these fundamental aspects of capitalism, however, we need to consider the concepts that enable us to even think about capitalism, and the theories that have explained, defended, and criticized it over time. For much of the power of capitalism, and the challenges facing the effort to displace it, are caught up in how it has become “common sense,” how easily the profit imperative has been confused with “human nature.”

1 It would be a mistake, for example, to think there is something inside most of us that rejects slavery (as a way of organizing production) as categorically wrong, that “human nature” is genetically coded to prioritize freedom for all. We refuse to sanction slavery for a variety of reasons today, but “natural” opposition is not one of them. The historical record might as easily suggest the opposite: that we are “naturally” prone to slavery-like relations. There is no basis for either position. History and social life, not human DNA, determine the status of slavery and every other mode of social organization. We are against slavery today because it is socially condemned, and we have learned, through much struggle and suffering, not to condone it. Slavery, and opposition to slavery, are social relations.

2 The mode of production “box” in which the Soviet Union or today’s China should be put is the subject of considerable debate. Some say that both are in fact forms of “state capitalism.” I disagree. This is (perhaps fortunately) not the place to enter into this debate in any detail. Let me just briefly say that given the definition of capitalism laid out above, the political-economic system of the USSR clearly cannot be capitalist. Moreover, the state apparatus in the USSR was not dedicated to surplus value maximization, even in its last stages, but to more “political” goals, the first of which was authoritarian control via the aggrandizement of its productive apparatus. “State socialism” would seem to capture this for me. I think even the idea that after Stalin the USSR was capitalist is a red herring meant to lump its failings in with capitalism’s and, for some Marxists, to deflect the critique that its failings were not due to its “capitalism,” but in no small part to its incompetent socialism. In many ways, it was socialist, really socialist, and that might very well have been the problem. Suggestions that the USSR’s failings are capitalist mischaracterize history: the Soviet Union was not a different spin on capitalism. It was a totally different beast, in which the capitalist imperative was not necessarily primary. This book shows that the term “capitalist” cannot describe it adequately. The closest thing to state capitalism of which I have any detailed knowledge is Mussolini’s Italy, and even that is arguably not very close.

3 Geoffrey Ingham, Capitalism (London: Polity, 2008).

4 Sometimes specific sets of commodities are produced by institutions other than private enterprise—the state or community organizations, for example—but rarely, if ever, does this situation preclude private business from supplying those same markets. For instance, the state may produce and sell oil (as it does in Canada via the crown corporation Petro-Canada), but this does not mean it monopolizes oil production and supply. For more on this, see Chapter 3.

5 Money and capital markets coordinate the supply and demand for finance capital; labour markets partly determine wages; “intermediate” goods markets involve the things used in production, as opposed to “final” consumption; consumption goods markets are for the things consumers buy; and financial asset markets are markets in the titles to ownership of any form of property which can potentially produce a return: e.g., stocks or bonds.