Capitalism is not the "free market"

I've seen a couple of recent treatments of "socialism" in somewhat mainstream outlets, from Bill Moyer's interview of Mike Davis to a recent NY public-radio interview with historian and Reconstuction-expert Eric Foner (who's parents were involved in the US Socialist Party of Debs and Thomas). Generalizing beyond these relatively thoughtful and intelligent treatments of the question of "socialism" today, I'm sure you can imagine millions of cases on Cable television and radio where some inept bantering moron has evoked "socialism" recently.

What many of these invocations of socialism share, particularly the demagogic-Right-wing permutations, is the idea that socialism is the opposite of a series of allegedly synonymous phrases: free-enterprise, a market economy, capitalism, free-market, etc. In other words, many of these treatments of "socialism" function by declaring what it is not, i.e. the "free market", etc.

But if we leave aside the difficult (but nonetheless answerable) question of what socialism is or ought to be for a moment, why should we assume that defining capitalism is so effortless? What is capitalism?

Well, it's certainly not the just the existence of a market. If we understand by 'market', some sort of exchange or trade between individuals on the basis of self-interest, then this would be a very unhelpful definition of capitalism indeed, for this sort of 'market' has existed for many centuries in many different places. Whatever capitalism is, it has got to have more to it than simply the presence of certain forms of exchange. Capitalism must have something to do with production: how production is organized in every relevant sense, what relationships the various actors involved in it stand with respect to each other, what relation the given mode of producing has to the State, how power and authority are diffused throughout this particular way of organizing production, etc.

But this isn't what you would hear if you asked a libertarian what capitalism is. They would tell you that capitalism is roughly synonymous with the "free market", the often-invoked ideal which prescribes the systematic application of the logic of neo-classical economic theory to all facets of life. The "free market", they will tell you, is the opposite of socialism since the former means minimal 'government intervention' and the latter means 'maximal government intervention' in the economy. This is how they get off saying that corporate welfare is 'socialist', or that any governmental regulation or economic policy is 'socialist' for wrongfully sticking its nose in the proper business of the 'free market'. But, if we want to understand what capitalism actually consists of, this business about 'more or less government intervention' isn't really very helpful. What is left over if the government recedes completely? Would we be left with a totally "free", self-regulating society in which all of the marvelous things free-marketeers promise us would be realized?

If the state were to completely recede, its unclear that there would be anything other than complete chaos. If there were no State to enforce and guarantee contract, to protect private property (because private property is not naturally-given, but only made possible by the existence of a certain set of institutions), to prevent unlawful coercion, etc. then there would be no capitalist society. Whatever capitalism is, it is not to be understood apart from a some form of State 'intervention' (enforcing contract and preventing theft are State interventions); some or other form of 'intervention' is essential to capitalism (another way to put this is to say that the libertarian's 'private/public' distinction is contingent on their being a State). So we should conclude here that the explanatory axis of 'more or less intervention' is untenable as a basis for understanding what capitalism is.

The "free market" is merely a name for a set of political prescriptions (deregulation, tax cuts, privatization, etc.), rather than an analytic category for understanding concrete states of affairs in the world. But still the question remains: what, then, is capitalism?

Returning to the thought that capitalism has to do with a certain way of organizing production, we can say that capitalism is a social system based on the private (rather than, say, democratic) ownership and operation of the major means of producing. The means of production are those factors necessary for production: they include capital, resources, relevant technology and machinery, labor and so on. Labor is "owned" here in the sense that the individuals (capitalists) who own firms purchase the labor of workers for a price (i.e. a wage), thus establishing a certain relationship between purchaser (capitalist) and seller (worker). Other things being equal, we should expect that the purchaser of wage labor would want the price to be as low as possible (just as with other raw materials and costs associated with running a for-profit business), just as we would expect that the seller would want as high a price as possible. (Incidentally, this fundamental divergence of basic interests is what Marx called a 'contradiction', and indeed this particular contradiction is partly constitutive of capitalism). This is why capitalists are fighting so hard against the EFCA: because it would mean workers could more easily unionize and thus gain more bargaining power in establishing (among other things) a higher price for their labor, that is, higher wages and more of other forms of compensation such as benefits. Employing workers is fundamentally a cost for the capitalist that is necessary for their business (and if it were unnecessary (i.e. if a robot could do it) they wouldn't employ people at all). So, other things being equal, we should expect employers to have no interest whatsoever in the welfare of the workers as human beings; purchasing the labor of workers is only a means to an end, that end being the accumulation of profit. Contrary to straw-man accounts of the socialist Left, the problem is not that capitalists are 'evil' as individuals... but rather that, in capitalist societies, their fundamental interests as a class are such that all concerns about human development and social solidarity are cast aside in favor of the primary goal of profit maximization.

Of course, in a capitalist society, everyone need not fall into either the class of capitalist or worker. On the contrary, many (if not most) people will fall somewhere in between or into other circumstances which require other means of classification (contractors, the self-employed, professionals, petty-bourgeois small-business owners who do wage-earning sorts of work in their own business because purchasing laborers would be too expensive, etc.). What makes capitalism distinctive from other forms of organizing society throughout history, however, is that the major decisions about what gets produced, how to produce it, where money will be invested, etc. are made by a relatively small (relative to the size of the population) class of business owners (rather than democratically, or as in older forms of society, by ecclesiastical bodies, monarchs etc.).

So if we generalize a bit, we could say that capitalism is a kind of social/economic system in which major productive activities are run by capitalists (in order that they can profit), and the major means of employment is wage-labor (or something similar), that is, most people are employed by capitalists who purchase their labor at a price and utilize this labor to run their business for a profit that directly enriches its ownership. Of course, we could say a lot more here (e.g. how the profit motive fits into the picture), but capitalism seems to require at least the generalized characteristics listed above.

What should be clear at this point is that the issue of 'more or less government intervention' has almost nothing to do with whether a particular society is capitalist. The mere fact of government 'intervention' does not itself render a society 'less capitalist'; in contrast, everything depends on what sort of intervention is in question and how it impacts social relations (i.e. classes) and the balance of power in an economy founded on capitalist-owned production. Action by the State to ensure the continued-existence of a capitalist enterprise seems pretty 'capitalist' to me, although libertarians would simply regurgitate their dogma here about the 'free market' and claim that the presence of the State is antithetical to capitalism. But as we've seen, the 'free market' and capitalism are not the same thing. Far from it. So we should not be surprised that the regulative ideal invoked by libertarians and others on the Right does not correspond to a historically-emergent form of society.

Now if capitalism has to do with certain ways of organizing production and the social relations that result from this mode of organization, then we can begin to sketch the location of disagreements between socialists on the one hand, and defenders of capitalism on the other.

Historically, socialists of various stripes have positioned themselves against both the day-to-day functioning (the organizing premises of) and effects (e.g. inequality, poverty, unmet human needs) of capitalism. Their political convictions have never derived primarily from concerns about "more (rather than less) government intervention" in itself; how a State should be involved in combating capitalism is a separate issue. The worries about 'whether to intervene' are products of libertarian ideology and therefore totally orthogonal to the sources of socialist conviction. Rather, socialist demands have derived from outrage over the way that production is organized (i.e. top-down and undemocratically, with capitalists commanding what workers must do), the exploitation of workers (poor conditions, low pay, unstable employment), indulgent extravagance at the top of society while others go without basic needs, the ruthless and morally indifferent logic of profit maximization, and so on. If socialism has any meaning today, it must be understood in terms of a certain critique of the actual society we live in, understood as positioning itself against the features of capitalism canvassed above.