Capitalism 101, Part 2

Capitalism 101, Part 2

C. Here are some more general definitions of Capitalism using additional critical notions such as:
‘system’, ‘domination’, ‘class’, ‘market society’, ‘power’, ‘structural violence’, ‘external costs’, ‘political system’, ‘overshoot’ and ‘ecological carrying capacity’.

(a) Capitalism is a social system defined at its core by the economy of Capital

What is a SYSTEM?

Systems are hard to see. Our everyday experience tends to focus on particulars and specifics, not underlying patterns or systems. A system is more than a mere composite or aggregate of parts. A system is a functional whole with its own (systemic) characteristics different from that of its parts. A forest ecosystem has different laws and characteristics to those of individual trees. Individual trees would probably find it hard to grasp the forest system of which they are a part.

Systems self-order themselves and are conservative of maintaining the oscillations of their core equilibria within certain limits. A system can only be tinkered with within its own limiting parameters and assumptions if it is to continue functioning as itself. A system cannot be perceived or questioned within its own parameters but only from the outside, i.e. from the viewpoint of another system based on different assumptions and parameters. (This is a more general, systemic version of Gödel’s theorem in mathematics).

Capitalism as a total system can only be seen, questioned and fundamentally changed from a pre- or post-capitalist perspective based on different moral assumptions, for example on the assumption that people should not be obliged to sell themselves to others in order to live, that all people have a right to meaningful work and dignity, or that all have a right to participate in economic and political decisions that affect their own and others’ lives. From this perspective, capitalism is seen or felt as something profoundly ‘unnatural’.

(b) What is CAPITAL?

At one, economic, level, Capital is a thing, a unique version of money. As such, the most general formula for Capital is: M – M1, where M = Money and M1 = an increment of M. Capital is different to money. Money can be stored in a piggy bank or under a bed. Capital, however, is money that must ‘work’, i.e. accumulate, or else cease to exist as capital. Capital is thus a potentially endless, self-replicating, positive feedback loop (or vicious circle) and inherently self-expansionary. There is nothing else like it in nature with the possible exception of some viruses.

(c) At another, social, level, Capital is a social relationship of DOMINATION

Capital accumulates by investing or speculating, i.e. buying something by means of which a gain or profit is made. In mercantile capitalism, cloth, spices, slaves can be bought cheaply and sold dearly. In industrial capitalist production this means investing in the means of production and in labour. Industrial Capital must buy the wage labour of workers and then control and direct it during production in order to produce a profit and thus accumulate. This relationship is the hierarchical one of order-givers and utterly dependent order-takers (wage slaves), i.e. of domination. ‘Freedom’ for most wage slaves is to ‘work for the man’ or starve.

(d) In capitalism, CLASS is defined by the relationship to the means of production

Modern workers are those without their own means of production (land, machines, offices). In the early phases of industrialisation, peasants and craftsmen were, despite often fierce resistance, violently and/or economically expropriated of their land, their commons and their tools and forced or starved into factories. Capital, the ruling class, now owns the main means of production (as well as means of distribution and communication).

(e) Capitalism is the first total MARKET SOCIETY in history

While exchange relationships, trade and, later, markets are probably as old as humans, capitalism is the first society in history in which society and cultural values no longer control the economy but, vice versa, the (market) economy now controls everything else. ‘Things are in the saddle and ride mankind’ (Ralph Waldo Emerson). This process of alienation (Marx) or ‘great transformation’ (Karl Polanyi) occurred mainly in what is known as the industrial revolution. The economic tail is now attempting to wag the social and ecological dog.

(f) Capitalism is the first social system in history in which the great majority of people are obliged to SELL THEIR OWN LABOUR POWER to survive

Humans have become part of a ‘labour market’, i.e. they have become commodities like everything else to be bought and sold. No longer having land or other means of production, they have lost their independence and are totally dependent on Capital providing them with a market on which to sell themselves. They are wage slaves or ‘proletarians’.

(g) Capitalism is thus a class system defined by those with capital having great POWER over those without

This basic polar class division remains despite the process of extreme differentiation and complexification that has occurred in modern societies. Professionals and managerial ‘coordinator classes’ (Michael Albert) may enjoy large amounts of financial independence and share varying degrees of social power. However, tertiary education no longer guarantees high wages and a non-proletarian existence. The modern ‘academic proletariat’ tends to be as much a ‘precariat’ as the non-academic. Ultimate social (and political) power still rests with those making the economic investment decisions and owning the key means of production, distribution and communication. Together with their political and military executive, these make up the core ruling class.

(h) As a form of economic STRUCTURAL VIOLENCE (Johan Galtung), capitalist class power tends to be more invisible than obvious personal social power

Capitalist class power is, in contrast to previous forms of class power (slavery, feudalism), more structural and systemic than personal. For people socialised into a capitalist system from birth, this structural violence has often become ‘natural’. Although they may complain about ‘the rat race’, lousy bosses and work stress, they can often no longer see the problem as being wage labour itself or imagine a social alternative beyond a personal one (dropping out, ‘downsizing’, gambling, speculating in shares or real estate, petty crime etc).

(i) The structural violence of capitalism is economically conceded in the phenomenon of so-called ‘EXTERNAL COSTS’

All of the disastrous effects of the capitalist economy on people and planet are seen as ‘external’ to the system, i.e. paid for by someone or something else (the domestic poor and marginalised, workers, poor countries, ecosystems, future generations). In theory, these costs should be borne by those who cause and benefit from them, i.e. in economic jargon, they should be ‘internalised’. However to fully ‘internalise’ the gigantic real costs of capitalism would mean a huge power struggle with Capital and would bring down the whole system.

(j) Capital runs the ‘democratic’ POLITICAL SYSTEM in its own interests

Crises sometimes allow reality to suddenly emerge through all the ideological obfuscations. One of these widespread obfuscations concerns the purported power and relevance of politicians, parliaments and elections in ‘democracies.’ During the beginnings of the global financial crisis in late 2008, a political commentary by Washington correspondent Anne Davies in the Sydney Morning Herald entitled ‘Outsiders may wonder who is really in charge of the US’ (SMH 26/9/2008, p. 10) contained the following:

Watching television in the past two weeks, a visitor to the US would have been excused for thinking Henry Paulson, the bald former banker, not George Bush, was leader of the country.

It has been the Treasury secretary’s face that has appeared nightly on TV, warning of the dire consequences if Congress fails to give him $US 700 billion ($835 billion) to spend on a plan for which there is only the vaguest outline of how it will work. […]

Standing alone in a big hall that lent his words a slight echo, Bush gave Americans an economics lesson on how things had gone so awry. It sounded as if he had just learnt the lesson himself.

The speechwriters had tried hard to skirt around the obvious conclusion that the man delivering the speech had been deeply asleep at the wheel.

(k) Inherently incapable of self-limitation because it must grow to survive, capitalism threatens the SURVIVAL of humane civilisation on a habitable planet.

The global economy has already LONG OVERSHOT GLOBAL ECOLOGICAL CARRYING CAPACITY. (Some theorists maintain this happened around the 1980s). Another way of saying this is that the ecological limits of growth have long been reached. In terms of natural resources and life support systems we are thus now in a situation of ‘Peak Everything’ (oil, soil, water, forests, fisheries, species decline, climate stability etc.). The logical consequence: either we change the capitalist system or we face total ecological, and thus civilizational, collapse. It’s up to us.

D. Finally, Some Salient Statistics on Global Capitalism

(taken from various editions of the New Internationalist magazine, John Bellamy Foster of Monthly Review and economist Joseph Stiglitz)

Corporate Power:
Number of major transnational corporations in 2011: 43,000
Number of these transnational corporations that control about 40% of all wealth: 147
(the top 50 of these are dominated by financial corporations and banks)

Total world GDP 2010: $ 63 trillion (63 thousand billion)

Amount of assets in hardly regulated ‘shadow banking’ (hedge funds, money market funds, private equity groups) in 2011: $ 60 trillion, about 50% of size of all traditional banking

Total world financial debt in 2010: $ 195 trillion (in 1983: $ 84 trillion)

Taxpayer-funded bailout money for US banks to 2011: $ 7.7 trillion
US Federal Reserve Board taxpayer-funded assistance to Big Business 2007-11:
$ 16 trillion
Taxpayer-funded bailout money for UK banks to 2009: $ 1.3 trillion
Taxpayer-funded bailout money globally to 2009 : $ 15 trillion (1/4 of global GDP)

Proposed public spending cuts in US over next ten years: $ 2.4 trillion

Number of global jobs lost since 2008 financial crisis: 20 million
Number expected to be lost by end of 2012: 40 million
Youth unemployment in Spain: 49%, in Greece 33%, Italy 27%, US 18%

Disposable Wage Slaves:
Global number of workers who die on the job or of work-related injuries each year: 2,000,000 (2003 International Labour Organisation estimate)
Leading workplace killer: cancer (asbestos industry alone claims 100,000 annually)

Av. CEO income in US in relation to av. employee wages 2003 : 369 times
Av. CEO income in US in relation to av. employee wages 2007 : 521 times
Av. income of US top 1% in relation to that of bottom 20% 2007: 63 times

Percentage of national income received by top 1% in US 2011: 25%
Percentage of national income received by top 10% in US 2011: 50%
Percentage of national wealth owned by top US 1% in 2011: 40%
Number of individuals owning as much wealth as bottom 150 million (50%) in US 2011: 400

Percentage of global wealth owned by richest global 1% in 2000: 40%
Percentage of global wealth owned by richest global 10% in 2000: 85%
Percentage of global wealth owned by poorest global 50% in 2000: 1%

Shifting Tax Burden from Rich to Poor:
Conservative estimate of amount of money kept in non-regulated offshore tax havens by the mega-rich: $ 11.5 trillion

Amount annually lost by 145 countries due to tax evasion: $ 3.1 trillion
Amount annually lost by Britain due to tax evasion: $ 107 billion (= 56% of national health budget)

Daily flows of money through tax havens: $ 2 trillion

Increase in number of tax havens since financial deregulation in the 1970s: 200%

Amount of world trade that passes between corporate subsidiaries (‘transfer pricing’) or tax havens and are thus out of taxation reach of national governments: c. 60%

Exploiting the Poor Countries:
Annual revenue loss to poor countries from corporate transfer pricing and tax havens: $ 160 billion (more than 1 ½ times the combined development aid of rich countries in 2007)

Money inflow (aid, loans, foreign investment, remittances) to poor countries 2002-06: $ 857 billion
Money outflow (profits, debt service, illicit flows) from poor countries 2002-06:
$ 1,205 billion
Net outflow from poor countries to rich countries 2002-06: $ 348 billion

Total official world aid in 2004: $ 79 billion
Total world expenditure on advertising in 2005: $ 570 billion
Number (percentage) of world working people living on less than $2/day: 2.4 billion (39%)

Amount of world’s resources which global trade patterns, backed up my military imperialism, enable to flow to the rich 20% of the world’s population: c. 80%

Real military spending in US each year: $ 1 trillion

Parliaments as Corporate Executive Office:
Number of people employed in lobbying industry in Australia: 2,421
Number of paid corporate lobbyists seeking legislative influence in Brussels: 15,000
Number of people employed in lobbying industry in Great Britain: 14,000
Number of paid corporate lobbyists seeking legislative input in Washington: 12,488

Class Justice:
Average prison sentence for first-time, non-violent drug offenders in US: 64 months
Average prison sentence for corporate criminals actually caught in US: 36 months
FBI 2002 estimate of annual cost of all robbery in US: $ 3.8 billion
2002 estimate of cost of all corporate securities fraud in US: $ 15 billion
Cost of 1980s US Savings and Loan swindle alone: up to $ 500 billion

Early Corporate Brainwashing:
Average number of TV commercials seen each year by children in Australia, Britain, US: 20,000 to 40,000
More time US kids spend watching TV than at school: 60%
Average number of brand logos recognised by US three-year-olds: 100
Increase in amount spent on US advertising targeted at children 1990-2000: tenfold
Value of influence of US teens on parental spending: $ 1.8 trillion

Re lifelong corporate brainwashing, let’s close with two short quotes.

An 11 year-old girl:

‘I love brands. Brands are my life. Brands not only tell me who I am, but also protect me from problems with the others in my class.’

And a short note on propaganda from a renowned expert, Joseph Goebbels:

‘This is the secret of propaganda: those who are to be persuaded by it should be completely immersed in the ideas of the propaganda, without ever noticing that they are being immersed in it.’

~ by Peter Lach-Newinsky on May 13, 2012.

2 Responses to “Capitalism 101, Part 2”

  1. Hi Peter,

    This is a really great series of articles, thanks! I very much enjoyed reading it – I think you’ve taken everything vital and useful from the more Marxist, systems-oriented analysis of capitalism and condensed it into these two articles. I had a few thoughts as I was reading through, so here goes…

    “In the early phases of industrialisation, peasants and craftsmen were, despite often fierce resistance, violently and/or economically expropriated of their land, their commons and their tools and forced or starved into factories.”

    I’m really interested in learning more about this period of history. Do you know any good references I could check out? Thanks.

    “This process of alienation (Marx) or ‘great transformation’ (Michael Polanyi)”

    I think ‘great transformation’ should be attributed to Karl Polanyi, Michael’s brother. They were both interested in economics, but Karl wrote the book “The Great Transformation”, which I happen to be reading right now! I’d like to write a review when I finish it 🙂

    “However, tertiary education no longer guarantees high wages and a non-proletarian existence.”

    That’s an interesting one. A lot of people my age (I’m 26) feel like some sort of contract has been violated. “We did everything right” they say. “We worked hard, got a good education. Where are our good careers? That’s what our teacher’s told us we’d have as a reward.” I’m intereseted in how it will play out, because capitalism has traditionally relied on this ‘buffer class’ of well educated ‘co-ordinators’ (who orthodox Marxists have tended to ignore) for the stability of the capitalist system. With this class increasingly disenfranchised, for various reasons, what will happen next?

    “The structural violence of capitalism is economically conceded in the phenomenon of so-called ‘EXTERNAL COSTS’ ”

    Sure, but there is even structural violence inherent to the INTERNAL COSTS, right? Michael Albert’s book ‘Parecon: Life After Capitalism’ helped raise my consciousness to this. Prices are set internally between pairs of market actors according to relative bargaining power. But in most market exchanges one actor has way more bargaining power than the other (e.g. ‘work or starve’, like you say). That’s an INTERNAL dynamic every bit as structurally violent, no? Even if you somehow could internalise all cost (pollution, childcare, whatever) that dynamic of exploitation would remain central to capitalism.

    “The logical consequence: either we change the capitalist system or we face total ecological, and thus civilizational, collapse. It’s up to us.”

    Some capitalists are saying something like this too. e.g. there is a book out called “Natural Capitalism” I’ve been meaning to read, claiming that if we only take into account ‘natural capital’ / ‘eco-system services’ or some-such, then capitalism can be sustained. That sort of idea is gaining traction with politicians and apologists for capitalism. What do you think? I’m immediately skeptical about the viability of that approach, to say the least (it smacks of extreme ‘greenwash’) hence my desire to read the book.

    One final thing. The statistics you include are horrifying enough already, but how about this one (I don’t think you included it?):

    Global Derivatives Market: $1200Tn

    Yeah, that isn’t a typo: $1200Tn, about 20 times world GDP (of ~$60Tn), Meaning money tied up in various incomprehensible bets about future production is twenty times the quantity tied up in present production. It’s insane – a completely upside down economy. If/when the derivatives bubble bursts, will money even mean anything?

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