Capitalism

Lindy Davies

[ GroundSwell, September-October 2009]

The following article is reprinted with permission from the Fall 2009 Georgist Journal, published by the Henry George Institute, NYC, of which Lindy Davies is director.

Is capitalism the last best hope for wordwide peace and prosperity?

Or is capitalism inherently exploitative, dehumanizing, and inimical to the preservation of our world for future generations? Here is an argument that has raged unchecked in the hearts and minds of society for centuries. Indeed, it is said that a twenty-one year old who is not a liberal has no heart, and a forty year old who is not a conservative has no mind. But is it possible to unite heart with mind, justice with freedom, equity with efficiency in a single argument - or a single economic system?

These questions will remain impenetrable until we are able to properly define our terms. The word "capitalism" is used in two distinct senses. The two senses of this very loaded word may or may not be incompatible, but they are certainly different. Is capitalism

an economy which preserves the power relationships of the status quo, reducing workers to mere automatons denied both the value and the dignity of their work, and which seeks growth, of markets and profits, above all else?

Or is it

an economy which respects the rights of workers to the fruits of their labor, and uses the natural benefits of the free market to allocate goods and services in the most efficient way?

True Believers of either the right or the left may not think so, but the difference between those two statements is more than rhetorical. They reveal different conceptions of what capital is. If capital is the rightful property of the person who produces it, then the increase that comes from that capital's use in production also belongs to the producer. How then can capital be an instrument of exploitation?

It is more important to our present discussion, though, to note that the two opposing views contain different underlying assumptions about economic behavior itself. Can we trust ourselves to cooperate? Or are human beings doomed to foul up their communities and their environment, if left to their own greedy devices?

Markets, after all, spring up spontaneously wherever people gather. None of the essential features of a market economy -- trade, specialization, entrepreneurship, monetary systems, etc. -- require any special or conscious direction; they just happen. This central fact is what Adam Smith called the "invisible hand," and Henry George dubbed the "body economic" - which exists prior to the "body politic", and out of which political systems come into being. These inexorable tendencies toward greater specialization and more intricate forms of trade, fueled by our universal impulse to satisfy our desires with the least exertion, will eventually lead to a market in which workers sell their labor power. Because of specialization, trade, and efficiencies of scale, workers will find exchanging their labor for pay to be a better deal. This will entail, of course, such things as entrepreneurship, and private ownership of capital, driven by the promise of profits. These developments are quite predictable and natural - an insight which led Marx to see an unavoidable "historical materialism" at work in human economic relations.

If the power relationships of the status quo have arisen out of the private ownership of capital, which came from the collection of surplus value by capitalists, then capitalism can't be just. Furthermore, if these evils of capitalism arise out of natural and unavoidable historical processes, then eventually the capitalist system must become intolerable!

Obviously, these two views lead us toward very different strategies for fixing our economic and social problems.

Before we can sort out what capitalism is as an "ism," we have to recognize that there is quite a lot of confusion over what capital is. There are two competing definitions, both perfectly appropriate for the uses to which they are put - but, as we will see, they don't mix.

Mainstream economic thought (as well as the daily business page) conceives of capital, generally, as assets - that is, of things subject to ownership, and expected to yield an income. This can include a whole smorgasbord of stuff, such as plant & equipment, bonds, stocks, real estate, and exclusive licences. The term "human capital" is often mentioned, in the context of "maximizing the labor input," making things even more confusing. Intangible assets like "goodwill" and "name recognition" are assigned value and counted up as capital. In mainstream parlance, capital can be seen as a catch-all term that has different shadings in different contexts, but generally means assets. As in: a business is said to be "undercapitalized" if it lacks enough savings to weather a period of slow sales. Or: the country's stock of "human capital" is weakened by poor public schools.

For the classical economists and Henry George, the definition of capital is precise. Capital is "wealth used to produce more wealth, or wealth in the course of exchange". Capital is wealth, first: that is, material things, produced by human labor, that satisfy human desires and have exchange value. This unambiguous definition allows us to understand what payments go to this factor of production.

From these different definitions come our different conceptions of what capitalism really is.

So: was Jesus a capitalist? Sure! His Father's Word forbade stealing, and coveting the good of one's neighbor. Is there anything offensive, to God or humanity, in a system that recognizes the legitimate right of the producer to the wealth produced? Henry George, for his part, would hasten to remind us that the people's right to the wealth they produce depends on the concomitant right of society to the value of natural opportunities. If not, then many will work, but not eat, while some, who do no work, will sumptuously dine.

Unfortunately, most of the world, most of the time, doesn't define capital as Henry George did. Generally, capital is a term for anything people own that makes them a profit. A "capitalist system" allows people to own anything they want - anything the world's laws allow them to own -- and "those with the gold make the laws."

So was Jesus a capitalist? No way! A big part of the Good News He brought to the poor was that salvation was not gained by enduring injustice. Nor by perpetrating it, or allowing it: whatever you do to the least of these, you do to Christ himself.

Apologists for "capitalism" assert that there is no place in either the theory or the practice of economics for "values." They proclaim that economics should be a "value-free science" and that (despite the best of intentions) no good can come from restricting the freedom of the market's "invisible hand" to create efficiencies. For example, two things that are constantly identified with capitalism are the free market and competition. Wonderful processes; they make the world go 'round - capitalists can't get enough of 'em, right?

Wrong. Why would capitalists want competition? The more competition they face, the lower their profit will be. Competition always tends to bring prices down to the lowest that the seller can get and still stay in business. While entrepreneurs praise the theory and principle of the free market, in their own businesses they strive to limit competition as much as they possibly can.

People seek to satisfy their desires with the least exertion. Entrepreneurs seek to gain the most profit from the least labor and risk. Income from other labor (such as land rent, or monopoly income generally) is the easiest of all. Thus, entrepreneurs will seek to capture rent whenever they can. In current economic parlance this is known as "rent-seeking behavior" and it is pervasive in "free-market" economies.

This is the logic that led Marx to conclude that an inevitable historical dynamic is at work. What will stop the process of big business getting bigger, securing its control over resources and workers? What can stop the juggernaut of "capitalism," save a worldwide workers' revolution, to seize the means of production and banish competition?

Here is why Henry George's ideas are so crucial to the whole discussion of liberation, and the just society. George showed that the community's just share of social wealth is not an endlessly-debatable matter of amount, but an eternally certain, clearly measurable matter of kind. The value of natural opportunities is created by the community, and belongs to it. If we collect that value for public revenue, the rent-seekers can go ahead and seek all the rent they can seek. Occasionally they might be very clever, or lucky, and find some - but not at the workers' expense. If we make sure that the community collects its rightful share of the social wealth, capitalists would be unable to capitalize on privilege. They would have to make an honest living.

(The above essay is also available at landreform.org)