27 November 2013

Capitalist Relations of Production

Chapter 2

Capitalist Relations of Production

As trade and manufacturing increased, feudalism gave way to capitalist relations of production.

Capitalist relations of production are between employers (capitalists) and employees (workers).

Employees sell their ability to work by the hour, the week, etc., and in exchange, they receive a wage, salary, piece-rate, or commission. Employers hire workers with the intention of selling their output for more than their costs of production, including labor costs. If employers succeed, they make a profit; otherwise, they suffer a loss and soon go out of business.

In the capitalist mode of production, workers are neither owned nor bound to a master and are free to move from one employer to another. Since employers appropriate the profits their employees’ work produces, capitalists are an exploiter class, and the relationship between capitalists and workers is antagonistic.

Capitalist relations of production are now dominant in almost all countries starting first in Europe and then the United States, in the 1700s. In the 1900s, the world saw large-scale experiments in building socialist relations of productions; in these societies, capitalist relations of production were almost entirely outlawed. This happened in the USSR (1917), Eastern Europe (1948-51), China (1949), Cuba (1959), and Vietnam (1976). These experiments eventually ended, and these countries’ economies now include large amounts of capitalist production (foreign and domestically owned), small business, self-employment, and co-operatives.

Capitalism is often called a market economy. Capitalist relations of production require markets for: (1) labor; (2) direct products of nature (land, minerals, petroleum, water, fish, etc.); (3) semi-finished and finished products; and (4) money.

In theory, a market is an institution to exchange things of equal value to satisfy different needs. If a person sells something worth $10 and receives something in exchange worth only $5, we say, “You were robbed!” If, week after week, the same unequal exchanges take place, we know it is not a “free market” – a market in which both sides voluntarily participate. The side that always loses in the exchange probably participates because it has no choice. Workers know it is better to be exploited and make a living than to be jobless and beg, borrow, steal, or starve.

This booklet focuses on the market for labor ($8.2 trillion in 2011).[i] One amazing thing about the market for labor is that every year (except 1932 and 1933, at the bottom of the Great Depression) the capitalist class increases its wealth, while the wealth of the working class remains limited to household necessities (a place to live, clothing, furniture, etc.) - and maybe some savings for unemployment, sickness, and retirement. While workers struggle to pay their bills, corporations and the wealthy struggle to find places to invest their wealth most profitably.

According to official government statistics, business wealth in the United States reached almost $21 trillion in 2008, up from $7.4 trillion in 1990.   

Business Wealth (Assets Less Debt)

Non-Financial Corporations
Entrepreneurs, Partnerships
Total Business Wealth
$15.4 trillion
$5.5 trillion
$20.9 trillion
$5.0 trillion
$2.4 trillion
$7.4 trillion
US Statistical Abstract, 2010, Table 734, Nonfarm Non-corporate Business-Sector Balance Sheet: 1990 to 2008; Table 735, Nonfinancial Corporate Business-Sector Balance Sheet: 1990 to 2008.

Owners of US businesses also own most personal wealth. The chart below shows that the top 10%  of the population owned 79% of all personal (non-home) wealth  in 2007, while the top 1% alone owned 43%  and had an average net worth of $17 million!

In contrast, the average working class family in the bottom 40% had no wealth and owed $10,400! The next 20% owned, on average, $26,000 – which might be enough to get through one year of unemployment or to pay a substantial hospital bill. Combining the debts and the small savings of the two groups, we find that the bottom 60% owned nothing. The next higher income group (61-80th percentile) in the working class owned $136,000, on average, and as a group it owned 7% of all non-home wealth in the United States

Non-Home Wealth Distribution, 2007
Population Distribution
Share of Non-Home Wealth
Average Net Worth
Top 1%
$17 million
Top 2-5%
$ 3 million
Top 6-10%
$0.9 million
Top 11-20%
$0.4 million
Bottom 61-80%
$ 136,000
Bottom 41-60%
$   26,000
Bottom 40%
(Debt)    $  -10,400
Working Paper 589, Edward N. Wolff, March 2010. Levy Economics Institute of Bard College.

Inequality between workers and capitalists has interconnected, re-enforcing dimensions. First is wealth, as seen above. Second is unemployment, which is a permanent feature of capitalism. Unemployment rises and falls with the stages of the business cycle, but it always works to capital’s advantage. It wipes out the savings workers put away in good times and makes people desperate for jobs. The higher the unemployment, the greater the competition between workers for jobs - and the more unequal the exchange between labor and capital.

A third dimension of inequality between workers and capitalists is that capitalists control the government. They dominate elections by spending unlimited millions of dollars on election advertisements and using their ownership of the media to control what the public learns. After the elections, they control government officials, using their thousands of full-time lobbyists to bribe and bully. The Center for Responsive Politics (OpenSecrets.org) reports that in 2011, 13,000 lobbyists handed out $13 billion ($1 million per lobbyist) to government officials.[ii] One result of such lobbying is that a powerful combination of laws, regulations, and court decisions severely limits workers’ ability to organize unions, to bargain collectively, and to strike. These inequalities also prevent workers from becoming an independent political force with their own political parties, although workers are the majority of the population. Finally, employers have raw, direct power over employees to punish those who raise their voices in protest.      

An important aspect of the labor market of US capitalism is that one of every five employees, including military personnel, works for the national, state, or local government.[iii] They provide tax-subsidized services such as schools, mass transit, police, fire, courts, tax collection, hospitals, and military.

Labor markets in the private and government service sectors have one significant difference: the profit motive drives private business, and the service motive usually drives government operations. The government offers free and below-cost pricing models for its services, and it taxes the population to make up the difference. In contrast, the private sector raises its prices whenever it can do so profitably. However, when government minimizes public spending and/or operates its services as business units, it attacks labor rights as vigorously as private sector businesses do, disregarding the impact on workers and the populations they serve.

Chapter II Vocabulary List

1.  Capitalist relations of production
4.  Free market
2.  Profit
5.  Exploited
3.  Exploiter class
6.  Business cycle

Discussion Question

            Many economists say that when supply equals demand, there is “equilibrium.” What would happen if the supply and demand for labor were equal (0% unemployment rate)?

[i] US Statistical Abstract, 2012, Table B–28. National Income by Type of Income, 1963–2011.
[ii] http://www.opensecrets.org/.
[iii] US Statistical Abstract, 2011: Tables 508 and 631.


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