What is Capitalism?

Anarchy is opposed to capitalism. As an anarchist, I oppose capitalism. I think it's evil and degrading for everyone involved in the affair. Most anarchists feel the same way. As a Mormon, I believe the scriptures and the writings of modern prophets all oppose capitalism as well.

But statements like these tend to confuse people — especially people in the United States, where the word "capitalism" has come to mean something different from its original meaning. So I thought it would be useful to define the word "capitalism" as it's used in this blog (and, so far as I have read, in the writings of most anarchists).

First let me say clearly that capitalism does not mean 'free market'. That's probably the biggest single source of misunderstanding between people who claim to believe in capitalism and people who oppose it. Most people who claim to advocate capitalism are actually proponents of free markets. So am I. In fact, very many anarchists are. In fact, that's one of the reasons why anarchists tend to oppose capitalism — capitalism makes markets less free.

Capitalism is the economic system wherein the means of production are owned by relatively few people who exploit the bulk of society (laborers) for profit. That's put pretty dense, though, and it deserves some unpacking.

In a capitalistic economy, the means of production are owned by relatively few people. These people are the capitalists. The means of production they own could be any of a number of things. They could own land, factories, transports, warehouses, and so forth. The means of production owned is called capital.

Now, for it to be capital in the truest sense, it has to be a source of passive income for the owner. That is, the owner can't be the one producing everything the capital produces. A capitalist's major source of income is profit (which I'll define a bit later), not his own labor. In advanced capitalistic economies (like ours in the United States), the means of production are usually too large or complex to be operated by one person alone anyway. One man cannot run an auto plant. One man cannot run a microprocessor factory. One man cannot operate a major cattle ranch. But, one man — or one corporation — can own an auto plant, a microprocessor factory, or a cattle ranch (or all three). That difference between one man's ability to operate large-scale means of production and his ability to own the same is the entry point for capitalism.

In order to operate his means of production, the capitalist must employ workers. He pays these workers a wage in exchange for their using his means of production. They do not own the means of production — the capitalist does. They do not own what they make with the means of production — the capitalist does. All they get for their labor is their wage, which is determined (like all prices) by the supply of and demand for labor in that industry.

But the produce of the workers in the capitalist's employ can be sold for quite a bit more than the cost of the wages paid to the workers. If it were not so, the capitalist could not afford to house or maintain the means of production. But the difference between the value of the produce and the wages paid to the people who actually produce it must be even higher than the cost of maintenance for the means of production in order for capitalism to occur. That additional measure of difference is profit, and it goes straight into the capitalist's bank account.

Note that in the case of corporate capitalism, the profit winds up in the hands of the various investors. Of course, in a corporation, where the people running the means of production are somewhat more removed from the capitalists who own the means of production, they usually succeed in skimming a good deal of the cream off the top before handing it over to the investors. The state has set up measures to limit their ability to do this to some extent, but the tendency of executives to cheat anonymous investors can never be fully eliminated. In other words, some of the profit in corporate capitalism usually also ends up in the hands of the executives. What's more, the bigger the corporation gets, the more executives it needs to operate it and the more distant it becomes from its investors, resulting in even less profit going to the investors themselves. I'll discuss this more later on.

So let's look at the big picture of capitalism. We have one person sitting in his rocking chair all day with a piece of paper in his hand that says he owns a factory. Meanwhile, we have a hundred people working in the factory making widgets. As a group, they make 8,000 widgets each day. The capitalist sells these widgets (through another employee or group of employees) for $3 each, for a total gross revenue of $24,000 a day. He pays his workers $8,000 a day — that's $80 a day for each of the hundred-man force, or $10 an hour. He pays $8,000 a day for overhead costs — maintaining the machines, keeping water and electricity running in the building, providing air conditioning, keeping M&M's in the candy dish at the receptionist's desk, and so forth. That leaves him with $8,000 profit for the day, which he can use however he pleases.

What did he do for his $8,000 that day? Did he labor? Is he eating his bread by the sweat of his brow? No. That's what the men in the factory were doing. Did he run the factory, participating in the often quite difficult task of coordinating the labor of scores of men working on different aspects of a large project? No. The person he hired to do that was one of the hundred people in the factory (who probably get more than the average $10-an-hour wage). So what did he do? He held the piece of paper the government gave him that said he owned the factory and had the right to pocket those $8,000 at the day's end.

That's the capitalism that anarchists, like me, oppose. The kind of economic system in which a hundred men get half of what they produce so that one man can take the aggregate of the other half from each of them without producing anything. I oppose that kind of system as much as I would oppose bandits riding a circuit through farming villages and taking half the harvest from each village. I oppose that kind of system as much as I would oppose a group of men with guns coming into my community flashing cards with the letters I.R.S. on them and demanding half of what I produce. All these system are inherently immoral and incredibly harmful to our spiritual progression. The Lord intends us to be creators. What incentive does a man have to be a creator if he's in a system where he can either get rich by creating nothing or have the bulk of his creations stolen from him by someone getting rich by creating nothing?

Now one more word about corporations — and the difference between anarchists and most other anti-capitalists. Most anti-capitalists notice the immorality of capitalism, particularly corporate capitalism, and decide that the government should do something about the problem. The single biggest example of this in modern times has been the Soviet Union, which took over ownership of all the means of production of a fairly rich and powerful nation. The problem with that approach is that, rather than eliminating the problem of capitalism, it exacerbates it. The Soviet Union was every bit a capitalistic economy, and an economy practicing corporate capitalism at that. All the capital was held by one big corporation — the Soviet state. And as the largest commercial corporation in history (though China might soon surpass the Soviets' peak if they haven't already), the Soviet Union was subject to all the evils of corporate capitalism to an extreme level. Those who ran the corporation skimmed all the cream off the top of the people's productivity and then helped themselves to most of the milk as well. And that is just what you'd expect from a commercial conglomerate of that size, especially if it ran on an ostensibly non-profit basis. The profit has to go somewhere, and it will go to the people running the whole conglomerate.

The solution to the inherent immorality of capitalism is not the government. As Ronald Reagan put it in his First Inaugural Address, "government is not the solution to our problem; government is the problem." The whole problem with the capitalist system stems from the fact that governments are support capitalism. In fact, governments are necessary in order for capitalism to work. Without a government behind the capitalist's piece of paper, there is no way for him to assert ownership over the produce of a hundred men. Running to the government to solve a problem created and maintained by government is like sticking your mouth to an open fire hydrant to cure you when you take a drink of water and it goes down the wrong pipe. The solution for the immorality of capitalism is to eliminate its roots: government itself. Then, and only then, can capitalism be removed and markets become truly free.