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What Is Capitalism and Why Has It Failed?
Article by Grac
I am going to start with a VERY simple, but precise, definition of capitalism, and then explain how it works.
Capitalism is an economic system characterised by private property in capital. Capital, to put it simply, is money and goods that are used to make more money. A capitalist, therefore, is one who owns capital.
So when people say that capitalism is about the free market, and that government intervention is socialist or anti-capitalist or whatever, you can say "no, that's nonsense and you are either mistaken or a liar." The free-market is not necessary for capitalism, and has actually never existed. It is important to point out that capitalism was born through government regulation, government trade charters, and government monopolies. That said, how does capitalism actually work?
Being based on private property in capital, each individual holder of capital is compelled to invest it in order to make it grow. The core form this investment takes is the use of capital to purchase machinery, raw materials, and hire labour to use the machinery to turn the raw materials into finished goods. In doing this, the worker is paid less than they produce, because otherwise no profit would come to the capitalist, the worker is paid enough to maintain them as a worker in that field. We don't have to morally condemn this as theft to make the abolition of capitalism necessary.
The thing is this, each piece of machinery or each new type of training costs a certain amount, and so each worker needs to produce a certain amount before the machinery or training they work with is paid off. In competition with each other for control of the market, each capitalist is compelled to invest in newer and newer machinery and more advanced training for the workers. This machinery and training is increasingly more expensive as time goes on, while it enables each worker to produce more goods in a shorter time, reducing the cost of the goods, and thus their price to the consumer.
So as time goes on, the cost of the machinery increases, while the profitability of the worker's labour is decreasing: The worker produces so much so quickly, that each item is much cheaper, and so even more needs to be produced before the machinery is paid off.
Eventually there comes a crisis, as the whole economy is frozen due to the inability of the already-made products to bring a profit, while the current capital cannot be renewed. The capitalists cannot invest in new capital because they don't have the money on hand, while the declining rate of profit means that financial institutions are less and less willing to provide credit. With no credit, the whole system grinds to a halt. So factories are closed, workers laid off, products burnt, crushed, thrown into the ocean, or otherwise removed from the market so profitability can be restored. This crisis period is what we know as 'recessions' and 'depressions'.
A hundred and fifty years ago, these crises were happening about once every ten years, where the whole global capitalist market would grind to a halt. After the great depression the 'business cycle' as it is called contracted to around 7 years (except for an exceptional period of about 20 years after WW2 when almost half of the world's productive capacity was destroyed and it was slowly being rebuilt). over the last 30 years, we've seen the cycle vary between 5 and 10 years in different parts of the planet, but keeping with the overall trend of about 7 years.
All the different 'market crises' come down to this happening either on an international level or with regard to a particular national or regional market. They are all 'sparked' by different things, but this is what they all come down to. THIS is why we need to do away with capitalism. Because for all the rationality behind the planning of each business, each corporation, and each monopoly,they are all in competition for profits,and they can't avoid these economic implosions which leave millions dead,homeless, unemployed, malnourished...
In short then:
Capitalism is an economy characterised by private property in capital. To make a profit, the capital is invested in machinery and labour. Better machines cost more, but produce more with a given input of labour, driving the price of goods down and increasing the amount of goods the machinery needs to produce until it is payed off, until it is profitable. This tendency of the rate of profit to decrease over time results in a surplus that cannot be sold. It is therefore not enough to oppose the 'excess of the banks' alone, or even the banks themselves. It isn't enough to oppose federal banks or privately owned banks, but the whole profit system, capitalism itself.
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