Capitalism: bigger is not just better, it is necessary

History of the Global Now
Capitalism
Terese Howard
8/28/09

The purpose of this paper is not too simply to define capitalism, but to better understand its diving force within the world today. The primary question is “what drives capitalism,” however, in order to address this, a functional definition of capitalism must be given, as well as a note about capitalism in comparison to other systems.

Definitions of capitalism vary greatly. Capitalism is defined in terms of economics, culture, politics, and more. Definitions of capitalism as economics are probably the most prevalent. Dictionary.com defines capitalism as,

“an economic system in which investment in and ownership of the means of production, distribution, and exchange of wealth is made and maintained chiefly by private individuals or corporations, esp. as contrasted to cooperatively or state-owned means of wealth.” http://dictionary.reference.com/browse/capitalism

James Fulcher states that “capitalism is essentially the investment of money with the expectation of making a profit” (James Fulcher, Capitalism: A Very Short Introduction 2). The role of investment in both of these definitions is a driving force to capitalism. The goal of profit mentioned in Fulcher’s definition makes the driving force of investment even clearer. Ownership is fundamental to both definitions.

Capitalism is often treated as if it were the only economic system that ever existed or exists today, but that is simply false. It is helpful to compare capitalism to other systems to see what it is not and, therefore, see something of what it is.

Prior to capitalism in western Europe, exchange, as part of the feudal system, was driven by lords and producers. Fulcher explains that in capitalism, “Instead of being a place where you can buy some extra item that you do not produce yourself [as in precapitalist society], markets become the only means by which you can obtain anything” (Fulcher, 16). Producers exchanged with other producers according to what they produced instead of being owned by an employer and working for a wage that was unrelated to production. These roles were not decided by people’s ability to fulfill qualifications, as in capitalist society, but for the most part by birth (Richard Grassby, The Idea of Capitalism before the Industrial Revolution, 6). Grassby articulates that incontracst to capitalist societies, “precapitalist societies are defined as totally integrated, immobile, homogenous, organic communities based on custom, reciprocity, status, and kinship, on social rather than economic division of labor” (Grassby, 7). In these ways precapitalist economics is a system of exchange, even with money, unlike capitalism in that it is not driven and maintained by investment in future profit by owners but instead by consumption (which includes acquisition of luxury goods).

Capitalism can also be contrasted with socialism (or communism) and anarchism. In so far as socialism is defined as an economic system that runs on state owned means of wealth, products and production are both owned and distributed by the state instead of by individual or corporate owners as in capitalism. Marx’s critiques of capitalism draw on the imbalance of wealth present when individual and corporate owners distribute the wealth in accordance with their drive for profit. Anarchism critiques capitalism for similar reasons but calls for the abolition of ownership to a much greater extent (though there are variations on this within anarchism and socialism on this, some anarchist calling for collective ownership as some Marxists do).

So what is it that drives capitalism to keep perpetuating itself throughout the world for the past 500 years or so (the beginning of capitalism is under debate)? Let us consider a few key driving forces: profit/surplus, production, and owners.

As seen in Fulcher’s definition of capitalism, “capitalism is essentially the investment of money with the expectation of making a profit” (Fulcher, 2). Profit here means getting back more than what one originally put in. It is the surplus that is acquired by the owner after investment. Capitalism is driven forward by the necessity of profit for perpetuating future capital. Grassby says that “The essence of capitalism is defined as continuous reinvestment” (Grassby, 5). In this way capitalism is dependent on profit as the means for reinvestment. If no profit was made then items would have to be exchanged directly instead of through investment in a larger outcome – that is profit. In order for a profit to be made an owner has to exchange products of unequal worth. This sort of transaction is better understood not as exchange but as investment. Profit drives the capitalist market as a part of the cycle of investment. Robert Heilbroner defines capital not just as the production of goods or as money but as “either of these things when it is used to set into motion a process of continuous transformation of capital-as-money into capital-as-commodities, followed by retransformation of capital-as-commodities into capital-as-more-money” (Robert Heilbroner, The Nature of Capitalism, 36). The “more” is key here because without it no investments could be made because there would be no excess to make the investment with. Without profit capitalism would die.

Another driving force of capitalism is production. This is in contrast of precapitalist societies which were driven by consumption. While a wealthy lord in a feudal society would buy an excess of food and luxuries in order to consume more and have more and therefore be weatlthy, a wealthy owner in capitalism was not the one who had more stuff, but the one who could continuously participate in the cycle of investment and profit. There is no end to wealth in capitalism because there is always more to be had the more one invests. Grassby points to the driving force of production saying, “A capitalist economy is defined simply as one in which capital predominates and is invested in production rather than consumption” (Grassby, 5). By investing in production rather than consumption the goal becomes to produce more rather than just to consume more. The owner will make more profit if he (not until recently have we be able to say she) produces more. This has no connection to what the owner actually keeps for himself as it did for the wealthy before capitalism. An owner can own far more of something than he could even want for himself. The owner makes profit if he sells more of what is produced, but in order to sell more, more must be produced.

Capitalism could not exist without owners. It is the owners who take the initiative in making a profit and producing more. Fulcher explains that “it is only possible to turn property into capital if its ownership is clearly established, its value can be measured, its title can be transferred, and a market exists for it”(Fulcher, 14). Things are not things, they are property, and only as property can they participate in the capitalist system. The owner directs the production, instead of the producers themselves (what become workers in capitalism). Because the owner does not just own the products but owns the entire means of production (including the workers), and the workers are paid a wage that is not directly affected by the sales, the owner bares all the losses. Accordingly, the owner makes all the decisions and makes those decisions in accordance with the drive of overall profit.

Between the drives of profit, production and individual/corporate ownership, capitalism is driven into a necessary continual growth. Instead of maintaining itself by continuous exchange, capitalism maintains itself by continuous investment which waits on a surplus return. Because the means of production are not owned by those producing, the owner is driven to produce enough to make an excess profit instead of being driven to make as much as one wants to exchange for consumption of other products. This is the transformation of things as things into things as property and potential profit which leads to a disconnect between the matter crafted and the drive of production itself. The cycle of capitalism is not connected to the earth’s cycles of birth and rebirth, but to the cycle of investment and profit which always seeks more profit. Capitalism necessitates growth.

James Fulcher, Capitalism: A Very Short Introduction, Oxford University Press: Oxford, 2004.

Richard Grassby, The Idea of Capitalism before the Industrial Revolution, Rowman and Littlefield Publishers: Boulder, 1999.

Robert Heilbroner, The Nature of Capitalism, W.W. Norton and Company: New York, 1985.

http://dictionary.reference.com/browse/capitalism