Conflating Capitalism

The word capitalism is used by everyone and understood by almost no one. Its defenders and its critics both employ it as though it referred to something definite, but they are describing different phenomena and drawing opposite conclusions from the same confusion. The confusion is not an accident. It is the most reliable product of the system it claims to describe.

The defender of capitalism describes a system of voluntary exchange between free individuals, where competition rewards skill and punishes laziness, where innovation displaces the obsolete, and where the sum of individual pursuits produces collective prosperity. The critic of capitalism describes a system where the owners of property extract wealth from those who own nothing, where competition is a polite fiction maintained by those who have already won, and where the sum of individual pursuits produces ecological catastrophe and human misery. Both are describing real features of the world. Neither is describing capitalism as a mode of production. They are describing, respectively, its ideological self-portrait and its material consequences, while the mechanism that connects the two remains unexamined. This is convenient for those who benefit from the existing arrangement. If capitalism means freedom, then any critique of exploitation is an attack on freedom. If capitalism means exploitation, then any defence of exchange is a defence of exploitation. Both formulations prevent the same thing: a clear analysis of who owns what, who works for whom, and who captures the surplus.

Consider what is ordinarily called fraud. Bernard Madoff ran a Ponzi scheme for decades. On paper his returns resembled those of Warren Buffett. In reality he produced nothing. He redistributed money from later investors to earlier ones and kept a large share for himself. When the scheme collapsed, the money was gone. Everyone agrees this is not capitalism. It is theft dressed in the language of finance. But the distinction between Madoff and the ordinary operation of capital is less clean than his prosecutors suggested. When a chemical firm dumps waste into a river, it externalises the cost of production onto everyone who drinks the water. The firm's profit is real. The cancer is also real. The difference between this and a Ponzi scheme is structural, not moral: in both cases, value is extracted from one party and captured by another without informed consent. The distinction is that one is illegal and the other is not, which tells you only who writes the laws.

The libertarian will argue that the state is the problem. Without government, or with government reduced to its supposed minimum of military, police, and courts, firms could not capture regulatory agencies, could not secure subsidies, could not erect barriers to entry. The market, left to itself, would punish the fraudulent and reward the productive. This is an idealist position in the precise sense that Engels used the term: it derives its conclusions from an abstraction rather than from material conditions. Markets do not exist in a vacuum. They exist within specific relations of property, enforced by specific institutions, serving specific class interests. The state did not descend upon the market from outside and corrupt it. The state is the instrument through which the owners of property organise and enforce their ownership — or as Marx put it with characteristic bluntness, the executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie. To ask this committee to stop serving the interests of capital is to ask the hammer to stop serving the interests of the carpenter. Engels observed in 1884 that the state arose at the point where class antagonisms became irreconcilable, and that its function was not to mediate between classes but to maintain the conditions under which the dominant class could continue its domination. Nothing in the intervening century and a half has altered this basic mechanism.

The American telecommunications firm that lobbies against net neutrality, the German automobile manufacturer that lobbies against emissions standards, the French taxi cartel that lobbies against ride-sharing — these are not corruptions of capitalism. They are capitalism in its monopoly phase, which is to say its ordinary phase of development. The firm that has won the competitive struggle uses its accumulated power to prevent further competition. This is what every firm does when it can, because that is what its material interest demands. Alexis de Tocqueville, writing about the old elites of France before the Revolution, observed that they mistook privilege for liberty — they sought protections from state power that applied to them alone and not generally to all citizens. The American capitalist class reproduces this error with impressive fidelity. It speaks the language of freedom and settles for privilege. The subsidy that protects the incumbent coal producer is invisible because it is normal. The subsidy that enables the competing solar manufacturer is denounced because it is a threat. The principle invoked is not opposition to subsidies. It is opposition to competition.

The reflexive invocation of Stalin as a conversation-ender whenever one questions the existing order reveals more about the poverty of Western political discourse than about Soviet history. The standard narrative — that Stalin was simply evil, that the Soviet experiment produced nothing but suffering, that central planning was merely theft on a national scale — does not survive contact with the documentary record. Between 1928 and 1940, the Soviet Union transformed from a semi-feudal agrarian society, where the vast majority of the population were illiterate peasants living under conditions not materially different from the seventeenth century, into the world's second industrial power. Literacy rose from roughly 28 percent to near-universal within a single generation. Life expectancy, which under the Tsarist regime stood below forty years, would reach the mid-sixties by the 1960s. Electrification reached villages that had never seen a light bulb. Healthcare, housing, and education were extended to a population of some two hundred million people who had previously had access to none of them. The Soviet Union accomplished in two decades an industrialisation that Britain had required a century and a half to achieve, and did so while under permanent economic embargo and military threat from the capitalist powers. The Russian archives opened after 1991, which Western commentators expected to reveal only horrors, confirmed both the scale of the material transformation and the scale of its human costs. The two are not mutually exclusive, which is precisely the point that ideological discourse cannot accommodate. To dismiss the largest and most rapid peacetime industrialisation in recorded history with the word "evil" is to substitute a moral category for a material one, and to make the honest study of political economy impossible. The question is not whether the methods were brutal. The question is what forces drove the transformation, what class interests it served, at what cost, and what it demonstrates about the relationship between state power and economic development. These are empirical questions. They have answers. The answers are more complicated than a slogan.

The same substitution of moralism for material analysis appears wherever political economy is discussed. Pope Francis has placed inequality at the centre of his public theology. He denounces the love of money, calls for solidarity with the poor, and demands that the wealthy examine their consciences. He does this from the Vatican, which sits atop one of the largest accumulations of wealth, land, and art in human history, while homeless people sleep against its outer walls. This is not personal hypocrisy. Francis may well be sincere. It is structural function. The institution that tells the poor their suffering is noble has a material interest in the persistence of poverty. If the poor did not exist, the Church would have no one to minister to, and its moral authority — which is also its material authority — would dissolve. The denunciation of money by one of the world's richest institutions is not a critique of the system. It is a feature of the system's ideological apparatus. Either distributing the Vatican's wealth to the people sleeping outside its gates would materially improve their lives, in which case the Church's failure to do so is a choice, or it would not, in which case the problem is structural and no amount of preaching will solve it. In either case, the sermon is not the answer.

The actually existing system in the United States, which calls itself free-market capitalism, was described with perfect accuracy by Edward Thorp: privatised profit, socialised risk. The firm that succeeds keeps its gains. The firm that fails is rescued by the state, which is to say by the taxes of those who had no share in the profits. The bank that made reckless loans collected bonuses in the profitable years and received a public bailout in the catastrophic ones. The executive who presided over the collapse was relieved of his position with a severance package larger than most workers will earn in a lifetime. The workers themselves were relieved of their positions with nothing. The Republicans who defend this arrangement and call it capitalism are describing, whether they know it or not, a system in which gains are private and losses are public — which is, by any honest definition, socialism for the owners and market discipline for everyone else.

The same logic applies to environmental destruction. A firm that extracts fossil fuels profits individually from the sale and externalises the cost — rising seas, drought, crop failure, displacement — onto the entire population of the earth, including those who have never burned a gram of coal. The profit is private. The risk is universal. This is the structure of fraud applied at planetary scale, and it is entirely legal, because the firms that profit from it fund the campaigns of the legislators who write the laws. Those who argue they should be permitted to continue because regulation would harm their business are making the same argument as the slaveholder who insisted he could not compete without unpaid labour. No one accepts that argument in retrospect. It was not accepted because the productive forces had advanced to a point where the argument was no longer necessary to maintain accumulation. The same will eventually be true of fossil capital, if the atmosphere holds out long enough.

The pattern of regulatory capture repeats with mechanical regularity. The taxi medallion owners who lobbied European and American governments to ban ride-sharing services were not defending working drivers. They were defending rents accumulated over decades by men whose primary skill was not driving but lobbying. The consumer who might have paid less, the driver who might have earned more through a competing platform — these interests found no expression in the law, because these people lacked the resources to purchase representation. It would be as though, a century ago, the maker of horse-drawn carriages had successfully petitioned the government to ban the automobile on the grounds that it threatened his livelihood. In retrospect this sounds absurd. In practice it is exactly what we fall for on a constant basis, because the beneficiaries of the arrangement control the terms in which it is discussed.

But here the dialectic completes itself in a way the free-market apologists did not anticipate. The ride-sharing platforms that promised to liberate drivers and consumers from the taxi cartel have, within a decade, constructed a monopoly that extracts rents the old medallion owners could never have dreamed of. Uber and its imitators classified their drivers as self-employed contractors — not out of respect for entrepreneurial freedom, but to avoid the costs that employment entails: social insurance, healthcare, pensions, vehicle maintenance, fuel. The driver bears every cost of production — the car, the petrol, the depreciation, the insurance — and receives in return a fare set by an algorithm over which he has no influence, from which the platform takes a commission it can raise at will. The taxi cartel at least operated within a regulated fare structure. The platform monopoly operates within no structure at all except its own. The old rent-seeker needed the state to enforce his privilege. The new rent-seeker has made himself the state. The driver who was promised liberation from the medallion system now works longer hours, for less money, with no security, no benefits, and no recourse, while the platform's shareholders capture the difference. This is not the correction of a market distortion. It is the replacement of one form of extraction with another, more efficient one — more efficient precisely because it has dispensed with the obligations that regulation once imposed.

The structural defect is sharpened by the insulation of legislators from the consequences of their own policies. If every member of Congress received the same healthcare available to the poorest citizen in their district, the problem of healthcare in America would be solved within a single legislative session. If every legislator's children were required to take on the same student debt as the average graduate, tuition would fall within a year. These are not utopian proposals. They are descriptions of what happens when the people who make decisions bear the costs of those decisions. The policies remain unsolved not because they are insoluble but because the people who write them do not experience the problems. They are insulated from consequence by the same class position whose preservation they were elected to ensure. The legislator who argues against the minimum wage while paying his own interns less than it, and who explains that paying more would mean hiring fewer interns, has in that moment demonstrated the exact mechanism he denies exists in the broader economy. When a person confronts the material conditions directly, common sense reasserts itself. When the problem is abstract and the consequences fall on someone else, ideology fills the vacuum.

The libertarian solution — less government — does not resolve this contradiction. It merely transfers the exercise of power from the state, where it is at least nominally subject to democratic accountability, to the private firm, where it is accountable to no one but the shareholder. The historical periods of greatest deregulation have produced not freedom but concentration: monopolies, trusts, cartels, and the conversion of market power into political power without the intermediary of an election. The East India Company governed a subcontinent. The antebellum plantation was a sovereign entity in all but name. The company town of the nineteenth century issued its own currency and enforced its own laws. The digital platform of the twenty-first century determines what billions of users may see, say, and sell, by rules written in corporate offices and subject to no democratic review whatever. Every attempt to build a capitalism without a state has resulted in the construction of a private state, with its own enforcement apparatus and its own beneficiaries. The demand to abolish the public state in the name of freedom has always, in material practice, been a demand to replace it with a private one answerable to fewer people. Freedom for the wolves, as Isaiah Berlin observed, has often meant death to the sheep.

The defender of capitalism will point to the material conditions of a working-class family in Vienna or London today — clean water, electric light, refrigeration, a device in the pocket containing most of recorded human knowledge — and attribute these gains to the system that produced them. The washing machine gave back a day of labour each week. The telephone collapsed weeks of communication into seconds. These are real gains. But the question that is never asked is where the surplus came from that made them possible. Walter Rodney answered it. The industrial revolution in Britain was not financed by the thrift and ingenuity of British capitalists. It was financed by the Atlantic slave trade, by the extraction of African labour, African copper, African gold, African land, and by the systematic destruction of African productive capacity so that the continent could serve as a source of raw materials and a captive market for European manufactures. The cotton that fed the mills of Manchester was picked by enslaved hands. The capital that built the railways was accumulated in the sugar plantations of the Caribbean. The copper that wired the telegraph was mined in conditions that killed the miners. Every material comfort enjoyed by the European working class was underwritten by the immiseration of people who never saw a penny of the wealth they produced.

This is not a footnote to the history of capitalism. It is the history of capitalism. The clean water in Vienna, the electric light in London, the public parks in Paris — these were possible because colonial extraction generated such an enormous surplus that the European ruling classes could afford to distribute a fraction of it downward, buying the compliance of their own working populations. The domestic reforms of the nineteenth and twentieth centuries — public education, sanitation, factory legislation — were not concessions wrung from a reluctant bourgeoisie by moral argument alone. They were affordable because the costs were borne elsewhere, by people who had no representation in any European parliament and no share in any European prosperity. The European capitalist needed more skilled workers to operate increasingly complex machinery, and being a racist, as the European ruling class was and remains, he preferred to educate a European rather than an African. The result was a domestic working class literate enough to operate the technology and comfortable enough not to revolt, paid for by the wealth extracted from those who were given neither literacy nor comfort.

Contrast this with the Soviet industrialisation already discussed, or with the German Democratic Republic, which transformed the war-ravaged eastern territories — stripped of industrial equipment by reparations, cut off from Marshall Plan capital, starting from a lower base than the west — into an industrial economy that provided universal employment, housing, healthcare, and education to its entire population, without a single colonial possession, without slave labour, without the plunder of another continent's resources. Whatever one thinks of the political system, the material fact stands: an industrial society was built from its own labour and its own resources, distributed among its own people. Capitalism has never accomplished this. Every period of rapid capitalist accumulation, from the British industrial revolution to the American gilded age to the postwar European miracle, rested on the expropriation of labour or resources from populations excluded from the benefits. The slave, the colonial subject, the undocumented worker, the debtor nation — someone is always paying for the prosperity that the beneficiaries attribute to their own merit. The systemic need for an exterior to exploit is not an accidental feature of capitalism. It is a structural requirement. When the exterior runs out, the system turns inward, and the domestic population discovers what the colonies always knew.

The word capitalism has become useless precisely because it obscures the material relations it was supposed to describe. What its defenders celebrate has never existed in the form they imagine. What its critics attack is the only form it has ever taken. The actually existing system is neither the free exchange of the liberal imagination nor the pure exploitation of the radical caricature. It is a specific, historically determined set of property relations in which the owners of capital use the state to protect their position, socialise their risks, privatise their gains, and describe the result as freedom. The task is not to find a better word but to see past the word to the relations underneath. Who owns the means of production. Who performs the labour. Who captures the surplus. Who writes the rules that determine all three. These are material questions. They have material answers. And the answers tell you more about how a society actually functions than any amount of theorising about free markets or social justice ever will.