Economic Update: Capitalism's Definition is NOT Innocent

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On this week's all new EU, Prof. Wolff contends that defenders of capitalism chose a poor definition because that made it much easier to defend capitalism. A much better, clearer definition was and is available. But, he explains, it exposes capitalism to profound criticisms.

Transcript has been edited for clarity.

Welcome, friends, to another edition of Economic Update, a weekly program devoted to the economic dimensions of our lives, jobs, incomes, debts, the economic crisis all around us now, for ourselves, for our children, really for the future of the world. I'm your host, Richard Wolff.

The program I've designed for today is one I have long wanted to do, and it comes out of a lifetime of teaching and writing in which it became clearer and clearer to me that the very definition of the economic system we live in and depend on, capitalism, is itself something that has been manipulated, changed, adjusted. There's nothing innocent or neutral about the definition of capitalism.

And I think I'll be able to show you, by the end of today's program, that among the other ways that the capitalist system is now in deep trouble and being challenged in a way it hasn't for a long time, that among the challenges of capitalism are a challenge, and a profound one, to the very definition that has come to be the dominant one, and that I want to challenge today. Alright, so let's begin.

For most of the defenders of capitalism, the definition is pretty straightforward and almost universally agreed to. It goes something like this: private capitalism is a system of free or private enterprises. And the idea here is it's a system where anybody, any private citizen that's not a government official, a private citizen, can start, own, operate a business, free of government interference mostly, but private in the sense that these individuals who start a business can themselves decide how to operate it, how to run it, what to do with it. That's half of the definition.

Here's the other half, the conventional half of the people who defend capitalism, who like it. This one says that the system also moves resources and goods from one person to another, from the producers of things to those who will consume them, by means of a, here we go, free market. What does that mean?

It means that the buyers and sellers meet, literally, in a place called a market, and then they kind of dicker, and negotiate, and come up with a price, a ratio if you like, of exchange. I'll give you 3 of my shirts for 12 of your oranges, or whatever else is being traded. And the idea is this is a free activity, it is private in the sense that the buyers and sellers are private individuals, and they only make a deal if they're both satisfied with it. The government is to be kept out of all of this. If the government intervenes, that's called an unfree market, or a regulated market, or the government planning things, not even using a market, and that is not capitalism.

So, let's summarize for the defenders. Capitalism is private enterprises and free markets. And the antithesis of capitalism, the absence of capitalism, is argued by its defenders to be when you interfere with, when you block, when you suppress, when you deny private, free enterprises. You don't let people form them and operate them, the government typically comes in, or, if you don't have a market, if the market isn't the way we move goods from one person to another, but instead there's a rule, or a government again, or some regulatory authority. That's the conventional definition. That's what the people who like capitalism have always wanted to use as the definition. Okay, now let's examine that.

First of all, let's be clear what a definition is. A definition is a way to distinguish something from other things that are like it. You want to define it to make it unique so that people will recognize it. So, for example, we make a definition of Mary to distinguish her from other people like her. We make a definition of a dog to distinguish that from other animals, for example, those that have fur, or four legs, or other things like it, but we want to distinguish something. We call something a chair to distinguish it from other pieces of furniture. So, the point of a definition is to find and focus on something unique about whatever it is you're trying to define so that people will say, “Oh, I can now recognize Mary as opposed to other people, chair as opposed to other pieces of furniture, and a dog as opposed to other animals.” So, let's begin.

Here's what I would find as the unique thing about capitalism, and that is, at the core of the production of all the goods and services that we all consume and that we all depend on food, clothing, shelter, transportation, housing, medical care, all the things that make up our lives, are the product of human effort. And we organize that effort in a very particular way in capitalism. That way is the employer-employee relationship. [A] very interesting way of doing things. A small group of people, very small, are the employers. They decide how many other people they want to have working there, who those people should be, how long they should work, where they should work, with what equipment they should work, on what raw materials.

A small group of people make a decision to enter into an enterprise, to run it, and they tell a large group of people, “I will bring you here, I will pay you to come here, I will give you every Friday afternoon a check, money, and you come to work nine to five, five days a week, and I will tell you what to do, how to do, where to do it, etc., etc. And when you're done working, using your brains and muscles on whatever tasks I've given you, the fruits of your labor stay here in the workplace. You go home. I don't care what you do, eat, sleep, drink, watch tv, whatever. I just want you back here tomorrow morning to do it all again.” And we've arranged the production of goods and services that we depend on for our lives in this particular way, called the employer-employee relationship.

Okay, let me now show you how that's a good definition. It is distinguished from the other main economic systems, just like we distinguished dog from other animals, chair from other furniture, Mary from other people, and so on. Let's see. Let's start with slavery, which is a different system from capitalism. We know it's an important difference because for Americans, we fought a civil war, the most devastating war in our history, whose echoes are with us to this day, as you all know, to make that difference real, to outlaw slavery, which that war did, to destroy slavery, which that war did. So, it's a big difference.

Well, what is the difference? Here we go. It doesn't have an employer-employee relationship. There is no employer. There is the master, the master who owns the slave, or who uses a slave owned by somebody else. Capitalism doesn't have anybody owning anybody. The employer doesn't own the employee. So, it's really easy to tell the difference, a good definition, you have slavery if the people who do the bulk of the work are the property of other people, and the people who direct everything are often the owners of the workers or have a good relationship with whoever the owner is, so they can get use of the slave, rather like you might borrow a horse, or a plow, or any other implement of the work process.

Okay, let's look at feudalism. That's another system. In feudalism, you don't have an employer-employee relationship either, so it's easy to distinguish from capitalism. In feudalism, you have a lord and a serf, and they go into the Roman Catholic Church in Europe, which sanctified a kind of ceremony in which the serf said, “I swear allegiance to this lord, and I will do the work that he assigns me to do,” and the lord promises to protect the serf from rampaging other lords, etc. And so, they agree, in a kind of ceremony of mutual obligation, to work together. Nobody owns anybody, and there's no employer-employee relationship. For example, in slavery and feudalism, nobody pays anybody a wage, or a salary, to come to work. That's a unique part of the employer-employee relationship.

And here's now the third one, the communist one. And here I'm going to borrow from Karl Marx, who had the closest to a basic definition. What Marx said was that capitalism is different from communism because in communism, here we go, there is no employer-employee relationship. That's gone. That's done away with. Instead, the work process, whether you produce a good or a service, is performed by a community of equals. Community is the key word. No employer-employee. That distinction is gone.

And so, it's really easy to distinguish capitalism from communism, because in capitalism, a small group of people are the employers, and everybody else is an employee. And in the communist idea that Marx puts forward, none of that exists. It's one person, one vote, in a community that together decides what's going to be produced, how it's going to be produced, what technology is going to be used, and at the end of the day the people together, the community, owns what was produced. It's not that some people do the work and others get the fruits. No. Communism is, therefore, different, the communist economic system, from the feudal, from the slave, and from the capitalist. So, wow, isn't it interesting. This relationship in production becomes a key way to define capitalism. Wow.

Final point. Let's go back to the definition that's conventional, free enterprise, free markets. Here's the problem with that definition. It doesn't separate capitalism from everything else. The other systems, slavery, feudalism, and the communist, they can have markets. We know they did. If you go to the South in the United States you will visit, in every major city, the slave market. There's still a sign downtown somewhere where they once, guess what, bought and sold slaves. Likewise, they bought and sold what slaves produced, cotton, for example. So, there were markets in slavery. And the same applies to the feudal. And the same applies to communist enterprises, that are communities, could buy and sell from one another. So, you don't distinguish these systems by the conventional definition, which is a real problem.

And here's another one. You know that in many phases of feudalism, and slavery, and communism, all kinds of incentives are given to people to start their own businesses, their own slave businesses, their own feudal businesses, their own communist collectives. That happens all the time. There's nothing distinctive about capitalism that lets people or incentivizes people to set up a business and run it themselves, to keep the government out, and let private people do it.

When we return after the break, since we've come to the end of the first half, I'm going to explain why a definition that isn't very good has become dominant, and what's at stake in that bizarre outcome.

Anyway, we've come to the end of the first part of today's show. Please remember to subscribe to our youtube channel, follow us on facebook, twitter, and instagram. Please be sure to visit our website, https://www.democracyatwork.info, to learn more about other Democracy at Work shows, our union co-op store, and the two books we've published, Understanding Marxism and Understanding Socialism. Last, but absolutely not least, a special thanks to our Patreon community for their invaluable support. Stay with us, we'll be right back.

Welcome back, friends, to the second half of today's Economic Update.

In the first half, we concluded by my driving home, I hope, the point that the conventional definition that focuses on free private enterprises, and free private markets, isn't actually very good. It does not help us, clearly, to distinguish. And I want to drive that point home one more moment.

The distinction that is so important for people in modern capitalism, the defenders of it, is this notion of private enterprise versus the state. As if the presence of the state having its own enterprises is something that undermines, or makes us no longer have, capitalism. This is strange because every other system has displayed both private and state enterprises. Both free markets, and markets regulated by whatever the government was.

In slavery, for example, were there state enterprises owned and operated by the government that had slaves? All the time, all over the place. In feudalism, did the state sometimes have its own serfs, unlike the private lords? Yes, all the time. There's no problem about having a mixture of private and state, and nobody ever thought to say you don't have slavery because there's a state enterprise alongside the private ones that has slaves. And no one ever thought to question the feudal system, that it isn't feudal anymore because there is a state enterprise with serfs alongside private enterprise.

So, it's bizarre for capitalists, who are people who like capitalism, to think that the presence of a state enterprise that hires people, just like a private capitalist does, somehow means you don't have capitalism. That's bizarre and doesn't kind of work real well. And the same is true of a communist enterprise. Can a collective of individuals who are private set up a business run like a commune? Sure, they can. Can the government set up a bunch of people to do that? Sure, you can. You could have private communist enterprises and public or state communist enterprises. So, the distinction between private and state doesn't allow you to separate capitalism from any other economic system which is what a good definition would do.

Alright, now let's ask and answer the question. Why, given everything I've said, why do you think that it has become dominant, and I mean dominant, to define capitalism with definitions that don't work? And why has it been almost impossible to get people to recognize that the employer-employee relationship is the definition that does work to distinguish capitalism from feudalism, slavery, communism, and so on?

I'm going to give you three reasons. There are three reasons why the conventional definition has been the dominant one. Okay, here we go.

Explanation number one. If you use the conventional definition, you're going to have a kind of easy time that you won't have with the correct, the better definition. Let me explain. With my definition, and the one that people like me use, the employer-employee relationship, you immediately, if you use that, you're going to have a problem. Why? Because this arrangement is very clearly and obviously undemocratic. It's worse. It's anti-democratic. Why? Because a tiny group of people make all the decisions for a large group of people, and the large group of people are excluded from those decisions.

If you go to work in a capitalist enterprise, you don't control the executives. You don't control the board of directors. You don't vote on them. You don't put them in or out of office. You have no authority at all. In contrast, they have absolute authority over you. They can tell you on a Friday afternoon, “Don't come back here Monday. You don't have a job here anymore.” They take your job. They take your income. They throw you out of your situation. You may have to leave the area. You lose your house. Your kids lose their school. You understand the importance. These people have enormous power over you, and you have none over them.

If you were to define capitalism as you ought to, with a definition that does the job definitions are supposed to do, you would be vulnerable to the critique that this system that you're defending is the antithesis of democracy. And, you know something, they don't want to have to defend it. Much better to define it in terms of free enterprise and hope you don't know that free enterprises existed in slavery, feudalism, and communism, and free markets, too.

Alright, the second reason. If you understand the employer-employee relationship to be the key, defining relationship of capitalism, you're going to have a thought that comes to your mind pretty quickly after that. That there's a certain arresting parallel, isn't there, between capitalism, feudalism, and slavery. It's easy to distinguish them because only capitalism has the employer-employee relationship, the other two don't. Capitalists pay their workers, the other two don't, etc. But you are going to notice something similar. In all of those systems, capitalism, feudalism, and slavery, there is a striking similarity despite their differences.

In each of those systems, the key relationship between people, among people, in the production of the goods and services everybody depends on, in all those systems, it's a dominant-subordinate. Small group at the top, large group at the bottom. Small group has all the power, [small] group takes it all. The masters control the slaves, the lords control the serfs, and guess what? The capitalists control the working class. You've probably noticed that in your own life.

And why is this a problem for the defenders of capitalism? It's a huge problem, and that's because of history. Capitalism comes into the world making a revolution. In this country, as I mentioned earlier, it revolts against slavery, and it presents itself as the system committed to freedom, liberty, equality, all of that. Capitalism in the other parts of the world, for example, in France, comes about through the French Revolution back in 1789, that had on the banner of the revolutionaries: liberty, equality, fraternity.

In other words, capitalism wants to be associated with, and the leaders and revolutionaries like Thomas Jefferson and Benjamin Franklin in this country, wanted, and believed in democracy, equality, and all of those things. They, therefore, do not want to defend this system that looks alarmingly like the very feudalism they thought they had broken from, that looks alarmingly like the slavery they thought they had broken from, that they wanted to break from. They confront the possibility that by having gotten rid of master-slave, and having gotten rid of lord and serf, and having replaced them with employer-employee, they may have betrayed the very big, wonderful objectives of liberty, equality, fraternity, and democracy, that they had in their minds.

I'm taking them at their word, that they were sincere in wanting these wonderful, humane values. But then I have to conclude, and so would the defenders of capitalism if they understood the definition of employer-employee as key to understanding capitalism, they would have to admit that the promises made during the revolution that established capitalism have never been fulfilled. We don't have equality, fraternity, democracy, or liberty. We have a system in which a tiny group of people, sitting at the top of the corporate ladders, run this society, and that's because of the nature of the employer-employee relationship.

And now, the third one. The third reason that the defenders like that stuff about free and free markets has to do with the nice thing that that suggests. Isn't it wonderful that capitalism has an incentive built in, you know, that you can make money, you can become rich, by setting up a business and coming up with something interesting for people to buy, and perhaps a good way to produce it, and you go into business, and you're successful, and you grow. These kinds of stories that capitalism permits that to happen are heard every day. They're the kind of storytelling, sometimes called mythology, with which a system celebrates itself, justifies itself, and, of course, they would like to define capitalism as a system that allows that.

By the way, capitalism does allow people to do that, I have no quarrel with that. But it's not a good definition because every other system did that, too. There were times and places in slavery when people, even slaves themselves, were given incentives to set up other enterprises with slaves. Were there slaves who had slaves? Yes, in many of the world's slaveries you had that.

In feudalism, often, you had the following situation, that wealth was inherited by the oldest son. That's called primogeniture in the feudal system. Of course, that made life a little difficult for the second and third sons, because they didn't inherit the family farm, only the eldest son did. Well, guess what happened? In various kinds of feudalism, lords would give support, they would give a piece of land, they would help clear some land, so a second or third son could also start a feudal manor with serfs of his own, etc., etc. Here's my point, other systems at various times in their history, have also created incentives for free, private enterprises to form.

And to drive the point home, capitalism at various times blocks, thwarts, prevents, private enterprises from forming. For example, we have a patent and trademark system. You develop something new, you get a patent for it, you can forbid anyone else from making that thing for many years. That's blocking free, private enterprise from forming. Every business wants to become a monopolist, to have such control that nobody else can break into the business. That's another way that capitalism often blocks or thwarts. In other words, capitalism isn't uniquely favorable to incentives in private enterprise, and other systems are not uniquely absent [of] those things. That's why it's not a good definition.

And finally, the same is true of markets. Every system has markets, every system of which I've ever heard, at least in the last three thousand years, anywhere in the world, has had some markets. Have they all been free markets where buyers and sellers make all the decisions? No. Sometimes they've been that way, free. Sometimes they've been regulated by the local government, just like in the United States, we have a mixture of free and regulated markets. You cannot pay below the minimum wage, that market is regulated. You can't charge anything for various goods and services, they're regulated.

Bottom line then, defining capitalism as free enterprise and free markets, doesn't distinguish it from slavery, feudalism, or a communist alternative system. Using employer-employee as the key relationship does the definitional work that needs to be done. And the only reason you haven't heard before of the employer-employee relationship, if indeed it's new to you, is because the people who run capitalism are afraid of where that better definition leads, so they prefer a poorer one because it serves the ideological function of protecting capitalism. There's nothing innocent about a definition.

Thank you very much for being with me, and I look forward to being with you again, and talking with you again, next week.


Transcript by Scott McCampbell
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Showing 1 comment

  • Andy Cabot
    commented 2020-08-18 13:38:26 -0400
    Excellent distinctions re: definitions !!

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