What is Capitalism

What is Democracy | What is Communism | What is Capitalism | What is Socialism | What is Republic | What is Fascism | What is Aristocracy | What is Anarchism | What is Corporatism | What is Libertarianism | Conclusion

What is Capitalism

You may be thinking Capitalism has something to do with ‘Democracy’. Well, to put it bluntly, you are wrong.

Capitalism is private ownership of means of production.

In street speak, it’s the possibility of one guy being able to own an entire river like Amazon. Leave aside the factory in your local community, or the entire internet backbone of your country. Note: there is no concept of commons in capitalism in its true form – anyone can own anything, including one single guy owning everything in your country entirely. However, in our reality capitalism is limited and regulated by laws to prevent this from happening. For example, many countries in Europe have laws from preventing an individual from owning over a certain amount of land. For if a person owned more than a certain amount of land with all the resources and amenities on it (ranging from rivers to mines to farms), then that land would basically become a small kingdom and that person would be de facto king of that land.

Also in pure capitalism, the owner can do whatever he wants with what he has – there is no limit. The most normal use of such ownership is to utilize the means of production to create more economic wealth for self.

Of course, since one person – the owner – cannot operate an entire factory (or a river) – just by himself, he needs to hire employees which will make the factory work or get the river utilized.

What does this mean in practice? This means that one person can own entire factory, hire other people to make the factory work for him, and then he still owns the economic value that is created by the factory and all the employees who make it work.

Technically, the compensation that the factory owner will give to the employees working in the factory is totally negotiable and open ended. But reality is different: Since all the factory owners everywhere will be trying to maximize their profits, they will be pushing the workers to accept less and less compensation as time goes by. And, because all the factory owners everywhere would be wanting to do that, you would naturally end up with an economic environment in which the compensation is constantly pushed down, economy-wide. You won’t find a factory owner who is continually increasing the compensation he gives to his workers as the profit increases and the company grows. Because, if he does that, he will be left behind by those who don’t do that, and will eventually be overtaken and undone in the competition. This is the problem that most of the world is currently facing. When things are left to ‘the market’ to handle, everything goes down in a spiral because of one single trait of the capitalist system: Profit maximization.

Profit maximization means everyone will try to maximize their profits everywhere. Giving less wealth out, and trying to get more wealth in. The logic is that since everyone will be doing that, they will somehow ‘compete’ and make everything better for everyone. But of course, there is no such logic: In every competition there are winners and losers, with the winners always being less than the losers by a large margin. Therefore for some to win, the others must lose. Capitalism proposes that this would be alleviated by growth of the economy. But when you look at it, this is a travesty: In order for the masses to have a chance at getting a slice of the wealth pie, economy must always grow. This makes capitalism a system which is not sustainable.

But even with growth, things do not get fixed. Because there is another – and the worst – trait of this system – unbounded wealth accumulation.

In Capitalism the players are free to amass as much wealth and ownership as they want. There is no limit. Coupled with the profit maximization mechanic, these two reinforce each other: The more you maximize your profit, the more wealth you gain, and you get a better position to maximize your profit even further. A la Walmart, a la Exxon, a la any random major Wall Street, Fortune 100 corporation.

Wealth, is inevitably ownership of things, and ownership is control. For example, two major companies own entire US internet backbone as of this moment. 4-6 major companies own 90% of news in USA. Moreover, research showed that not only ~150 corporations control anything you buy, but also 4 Corporations control every one of those ~150 corporations. Therefore entire world economy, basically anything you buy/use/need, is owned and controlled by 4 corporations as of this very moment. So much for choice and freedom.

The theory was that the ‘market’ would deal with this, by creating competitors who would then undo the ones who grew too big. Therefore, ‘everyone would benefit’, because costs would get lower, there would be better quality, there would be ‘competition’.

But think – who is the ‘competitor’ who is supposed to save the entire ‘market’? That competitor is just another player who wants to undo the bigger competitor, in order to get the exact position that competitor had! S/he wants the same thing. So, what’s proposed as a solution to this problem, is another of the same, doing the same, which will somehow, ‘magically’ save everyone.

But of course in practice there is nothing like that – upstart competitor who would usurp the dominant position of the established one can’t even get going, due to the fact that it is impossible to cope up with the capital/wealth that the already existing ones have. Walmart can wait to bankrupt any upstart competitor for even a century. Trillions would be necessary to challenge the internet backbone monopoly in USA. Exxon can buy out any competitor, and so on.

But lets for a single split second imagine that it was possible, and the ‘heroic’ competitor would actually save us from the concept of monopoly and therefore, wealth concentration.

Do you know how long would it take? Competitor starting up, gaining momentum, establishing himself and eventually being able to bring services/products to a vast swath of population, therefore undoing the monopoly ?

A lot of time. In the best case it would take a decade or so, and an entire generation would have to grow up until that happens. Imagine one generation growing with potential private censorship which a single monopoly private internet backbone company could do. Or imagine a generation growing up in a climate in which oil prices, therefore prices of all commodities in the country, being dictated by Exxon.

Private Tyranny :

Analysis into the effects of capitalism on man in the street is not so much necessary anymore, since its effects are well-felt and widely discussed these days.

One thing that needs to be said before concluding is, Capitalism does not have any indispensable organic link with ‘free market’, or ‘economic freedom’. These were present since the inception of human civilization without capitalism being there – even cavemen were trading simple commodities in trade networks spanning entire continents, as research found. So, there can be free market, trade, economic activity without capitalism just like how it had been for thousands of years.

Long story short, Capitalism is a system in which anyone – even a minority – can amass all the wealth, by controlling and increasing the amount of ownership of the means of production/wealth generation.

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CC BY-SA 4.0 What is Capitalism by Via Populi is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

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