On the Meaning of Capitalism, We Don't Agree
On the Meaning of Capitalism, We Don't Agree
By Richard D. Wolff / truth-out.org

Within conversations on the left, many of us use the term "capitalism," but we aren't all using it to mean the same thing. Among both its champions and opponents, capitalism acquired too many different meanings over the 200 to 300 years of its global ascendancy. I am sometimes faulted for using the term as if everyone knew and agreed on its meaning, when that is not the case. My critics demand instead that I - and anyone using the term - acknowledge its different meanings and justify whichever meaning is preferred and used. Because I think these critics are right, I'd like to define what capitalism means in my ongoing discussion of this topic at Truthout.

Capitalism is one particular way of organizing the interpersonal relationships of people in their work activities. Capitalism divides the persons engaged in work - producing the goods and services upon which life depends - into two basic groups: employers and employees. In capitalism, the former buy the labor power of the latter. Employers hire employees in two distinct groups. One group (production workers, blue-collar workers etc.) is set to work with tools, equipment and workspaces to transform raw materials into finished products, both goods and services. The other group (enablers, white-collar workers etc.) is set to work doing the necessary clerical, supervisory, security and managerial tasks that support the first group to produce those finished products.

Employers make all key production decisions - what to produce, how and where - with little or no input from employees. Employers likewise make all the key decisions about what to do with the enterprise's profit or surplus. Employees again have little or no power over the disposition of the profits their work achieves.

Legalistically "free" employees in reality must sell their labor power since they lack other ways to live.

Both employers and employees are considered legally "free." Employers voluntarily enter markets to buy the tools, equipment, raw materials, workspaces and labor power needed for production and for enabling that production. Employers keep the difference between the revenue gained from selling what the employees produced and the costs of all the inputs purchased. That difference is variously understood as the net revenue, surplus or profits of an enterprise.

Employees voluntarily sell their labor power for wages and salaries, and use them to buy products and consume them. Consumption reproduces the employees' labor power that they then sell. Legalistically "free" employees in reality must sell their labor power since they lack other ways to live without becoming socially disapproved burdens on their families, friends, government or charity.

Capitalism understood as the prevailing employer-employee relationship in most of today's factories, offices and stores is not and never has been the only kind of work relationship inside enterprises. Examples of non-capitalist workplace organizations include the "slave" and "feudal" structures that largely predate modern capitalism. Slavery has no employers and employees, no hiring of one by the other. Instead, people are divided into (or relate to one another as) master and slave. The former decides everything about work (and much else), while the latter is property of the master. The slaves' total output belongs to the masters who are largely free to give more or less of it back to the slaves for their consumption.

In feudalism, the work relationship divides people into serfs and lords (to use the European example). Serfs are neither "free" in the capitalist sense, nor are they slaves. Some serfs have traditional and religiously sanctioned rights to the land on which they were born coupled with obligations to the feudal system and lord that prevail there. Lords make the key economic decisions. The fruits of serf labor are kept partly by the serf for consumption; another part is appropriated by the lord as "feudal rent." Lords and serfs connect neither by slavery nor market exchange. Instead feudal lords and churches enforce structures of personal obligation and rents to bind serfs to lords.

In European history, many regions went through long periods of slave then feudal and then capitalist economic systems into the present. Other regions experienced variations in the order and duration of these periods and/or periods when still other workplace relationships signaled the presence of still other economic systems.

Understanding capitalism in terms of workplace relationships differs from how others define capitalism.

Understanding capitalism in terms of workplace relationships differs from how others define capitalism. For example, during the last century's epic struggle "between capitalism and socialism," capitalism was defined in terms different from workplace relationships. Both sides defined capitalism in terms of private ownership of enterprises plus market exchanges to distribute resources and products. Both sides defined socialism as state ownership of enterprises plus state-planned distribution. Using my definition instead, the last century's epic struggle was not between capitalism and another economic system. That is because both capitalism and 20th century socialism relied upon basically the same employer-employee relationship for their workplaces' organization. The difference was who the employers were: private persons in capitalism versus state officials in socialism.

From the standpoint of a definition focused on workplace relationships, the 20th century struggle was between private and state capitalism. Twentieth century revolutions against capitalism never carried through a systematic, society-wide transformation of workplace relationships beyond the employer-employee kind. They did shift from largely private to much more public ownership of enterprises and they prioritized planning over markets. Those were important changes with immense social consequences, positive and negative, on the societies in which they occurred.

But by not transforming workplace relationships, 20th century revolutions did not go beyond a transition from private to state capitalism. To have gone beyond capitalism would have required a clear, basic transformation of relationships at work. For example, it could have meant ending the workplace division between employer and employee. A new relationship could have been constructed such that the employees would become collectively the employers, thereby ending the employer-employee division. What we call a workers' self-directed enterprise (and others call worker cooperatives, among still other names) could have been the result.

I suspect that in the 21st century, another epic struggle will unfold between capitalism and socialism, but it will differ from its 20th century predecessor. This time it will be a struggle focused on and between alternative workplace relationships. The defining slogan may well be "democratize the enterprise; democratize the economy."

One of many justifications for a workplace relationship definition of capitalism is that it addresses a profound disappointment in the outcomes of the 20th century revolutions. Examining their shortcomings (without denying or denigrating their social advances), one recognizes their failure to transform workplace organization beyond its capitalist form. This recognition then leads to the conclusion that democratizing enterprises is a prerequisite if socialized production and socially planned distribution are to generate a socialism that is genuinely democratic and is not a state capitalism.

Copyright, Truthout. Reprinted with permission.


Richard D. Wolff

Richard D. Wolff is Professor of Economics Emeritus, University of Massachusetts, Amherst where he taught economics from 1973 to 2008. He is currently a Visiting Professor in the Graduate Program in International Affairs of the New School University, New York City. He also teaches classes regularly at the Brecht Forum in Manhattan. Earlier he taught economics at Yale University (1967-1969) and at the City College of the City University of New York (1969-1973). In 1994, he was a Visiting Professor of Economics at the University of Paris (France), I (Sorbonne). His work is available at rdwolff.com and at democracyatwork.info.

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On the Meaning of Capitalism, We Don't Agree