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.
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Business
Wealth (Assets Less Debt)
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Year
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Non-Financial
Corporations
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Entrepreneurs,
Partnerships
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Total
Business Wealth
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2008
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$15.4 trillion
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$5.5 trillion
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$20.9 trillion
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1990
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$5.0 trillion
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$2.4 trillion
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$7.4 trillion
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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.
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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
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Non-Home
Wealth Distribution, 2007
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Population
Distribution
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Share
of Non-Home Wealth
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Average
Net Worth
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Top 1%
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43%
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$17 million
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Top 2-5%
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25%
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$ 3 million
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Top 6-10%
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11%
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$0.9 million
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Top 11-20%
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10%
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$0.4 million
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Bottom 61-80%
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7%
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$ 136,000
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Bottom 41-60%
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1.3%
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$ 26,000
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Bottom 40%
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-1.0%
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(Debt)
$ -10,400
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Working Paper 589, Edward N. Wolff, March 2010. Levy
Economics Institute of Bard College.
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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.
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Chapter II Vocabulary List
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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)?
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