We’ve often heard the phrase “that’s not real capitalism” used as a denial for all the undemocratic, horrible, inhuman things capitalism does. Anytime capitalism does something horrible the excuse is made that a “real” free market wouldn’t have done it. This is usually accompanied by all manner of false claims about how the government is actually responsible. After that the usual prefect knowledge fallacy is used to claim that people would by subjective preference not allow it to repeat. In truth these horrible things are the very essence of capital itself and how it operates. Capital cannot be separated from how it functions. This dishonestly comes from “anarcho”-capitalists and sometimes conservatives.
To explain why “real” capitalism can never exist I will be using Marxist economics. The reason being there is a phenomenon, the nature of capital itself, which bourgeois economics doesn’t acknowledge the existence of. The reason why is because it has no way of analyzing it. In the makeup of bourgeois economic theory there is no tool available to explain such phenomenon because capital (in their view) rest on particular preconceived notions about capital itself. One of those is assuming that capital has no particular features to it, that it merely functions as the market dictates.
In bringing this to you I’ve chosen the basis for my argument four contradictions of capital. Having just recently read “17 Contradictions and the End of Capitalism” by David Harvey, there is a ton of valuable information regarding it. These four contradictions are all that is needed to show that this utopian notion of a pure “real” capitalism espoused by Austrian economics is nothing but a fantasy.
Contradiction 1: Use-Value and Exchange-Value
Every commodity has a two-fold value contained in it. It has a use-value and an exchange value which are in contradiction with each other. Use-values vary wildly from commodity to commodity, while exchange-value is usually uniform and qualitatively identical. A commodities’ use -value is what you do with it, how you experience it. The exchange-value can be described as what you have to pay for it, so ‘how much’ is it? This ‘how much’ affects our ability to obtain and utilize the use-values we want or need to have.
The exchange-value does not dominate, but can affect the creation of use-values. David Harvey uses the example of a house. We want to have a particular experience with a house, but we may not have all the money needed to have everything we want in it. That money (exchange-value) is made up of labour costs, raw materials, constant capital, and a portion for profit. The exchange-value of the house has affected our ability to create a use-value.
Houses are created for their exchange-value; the only thing the creator is interested in is what exchange-value he can get for it. The actual creation of a use-value is a means to that end. The builders are looking for a potential exchange-value not to fulfill a desired use-value. Exchange-value takes the driver’s seat in the creation of housing, a human need.
During the housing boom people could not get a hold of the use-value of a home without taking on a huge debt. Once the housing bubble popped those houses became worth less than the amount of money that was paid out to obtain them. This is called a mortgage being ‘underwater’ and a lot of houses are this way right now as a result. Many of those people could no longer afford their homes, so they ended up losing them when payments were not made. The reckless pursuit of exchange-value eventually destroyed the ability of people to obtain and then eventually maintain the ownership of the home’s use-value. When we take into consideration the phenomenon of housing speculation we begin to see how far the exchange-value of a house gets from its use-value, and how much it comes into contradiction with it.
The house is no longer about the use it has or the need it can fulfill, it’s about how much exchange value can be obtained for it.
Contradiction 2: The Social Value of Labour and Its Representation by Money
The exchange-value is a measure of value, the ‘how much’ it’s worth requires a measure. That measure is called money. Money serves several functions, as a measure of value, a store of value and as a means of commodity circulation. How does it proliferate in the political and economic sphere and how does it seem to make the economic world go round?
Money is the means by which someone can make the claim on the product of someone else’s labour which is used to produce the goods and services of society. Capitalism is a society in which we are heavily reliant on other people’s labour for the production of the things we need. All things in society are produced by someone somewhere where labour is exchanged for money. It is the social value of all that activity of all that labouring, that underpins what it is that money represents. Thus, ‘value’ is the social relations between all the labouring activities of the globe.
This social relation is ‘invisible’ to us because we don’t see each other, we see our products instead. This relation creates moral and ethical values that have real objective consequences. ‘Value’ is what makes some commodities cost more than others. These differences in values have nothing to do with their character as use-values (other than the fact that they must all be useful to someone somewhere). It does have everything to do with the social labour involved in their production.
This value is invisible, but it needs a physical existence in order to be used. That physical existence is money. Money is the material manifestation of value and is a representation of that value. In money there is a gap between its physical representation and the social value it represents. Harvey uses the example of a map. It can do a good job of encapsulating the relative value of social labour in some respects, but in others it fails to do so, even misrepresenting it. This is just like the map. It can show you the way through a mountain, but can never describe everything about the passage, or about how hard it is to climb. This disconnection between money and the value it represents is the second contradiction of capital we’re talking about.
Money is inseparable from, but distinct from the social value that makes up its value. Money hides the immaterial social labour (value) behind its material form. What we see is the representation of money and not the reality of that value which money represents. This causes us to end up interacting and believing in something that is false. Just as we can’t see social labour in a commodity we cannot see the nature of social labour in the money that represents it. It is important to note that money cannot be separated from the value it represents. Value cannot exist as an immaterial social relation without money, because the commodity exchanges it facilitates give it this power. This value cannot exist without the physical representation of it and the act of exchange. Money and value are in a dialectical relationship.
This contradiction in money spawns many more contradictions depending on what form that money takes. I will go into some examples of the contradictions in money.
Commodity money (like silver and gold) are rooted in objects with physical qualities. Coins, paper, fiat money and computer digits are merely symbols. The advent of credit money turned everything on its head. Credit money, or money capital, is as good as a capital and it has a use-value because it can be used to generate more value (profit or surplus-value). The exchange-value of money capital is the interest payments you get from it. In the end we get a value put on something that is supposed to measure value. This is what makes money so unique. You cannot do this with other standard measures. You can purchase a kilo of potatoes, but you cannot purchase a kilo itself. Money can be bought and sold itself as money capital, i.e. you can buy the use of $100 for a certain amount of time.
Money began as gold and silver. These precious metals were a good choice because they were desirable, their supply was limited and they didn’t perish via oxidization. The supply of the metals was inelastic which meant they retained their relative value against all other commodities over time (except in times like the California gold rush). Finally the properties of gold are known and can be calibrated. This keeps it stable as opposed to using some other commodity where consumer preference might interfere with it. The properties of gold are used to represent the immaterial value of social labour.
However it’s pretty inconvenient to use a money commodity on a daily basis for small transactions like purchasing a cup of coffee. Can you imagine what it would be like to dole out an exact amount of gold for a Star Bucks coffee? Eventually these were replaced by much more useful and flexible forms of token money like coins and currency notes. Now something important happened here. Money was supposed to give a physical form to the immaterial social labour, now it is represented by a symbol. Representations of money eventually ended up as numbers on a computer.
The elimination of the money commodity and the rise of the fiat money created a whole new set of circumstances. Commodity money was relatively scarce and had a relatively steady supply. Now that money was numbers on a computer, there is theoretically no limit to the amount of money that could be created. Except of course the limits placed by state regulation. The rise of moneys of account and credit moneys place the power of money creation in the hands of individuals and private banks rather than state institutions. State regulation on this is a desperate attempt to manage the money system.
All of these oddities arise because the three functions of money have different requirements if they are to be carried out. Commodity money is good as a store of value but it is highly inefficient for use in commodity circulation. Coins and paper money are good as a medium or means of payment, but they’re not great as stores of value long term. Fiat currency issued by the state with compulsory circulation via taxation, are made subject to monetary policy. These functions themselves are not consistent with each other, but they are also not independent. If money couldn’t store value even for a moment then it would be useless as a means of circulation. But if we’re only looking for a medium circulation, then fake money can do just as good a job as ‘real’ money like silver coins. This is the very reason why gold and silver (stores and measures of value) require coins, paper money and credit money if the circulation of commodities is to remain fluid. Thus we end up with representations of representations of social labour as the basis of the money form.
It is money that allows us to take a commodity to the market and label it with a price. This labeling comes with another set of contradictions. That asking price may or may not be realized depending on the conditions of supply and demand. There is not an immediate correspondence between the singular price and generality value. So what happens with price in real life? As the market determines the price, that price is able to diverge from the value of the commodity. Because of this capitalists try to take advantage of various fluctuations in the market (if not outright cause them), monopoly for example. This can make prices completely diverge from the unified standard of value in production. This quantitative divergence between prices and value presents a problem. Capitalists respond to prices and not values because in the market they only see prices and have no way of seeing the underlying value. As the prices diverge from value it sends misleading information about the commodity to the capitalist which he has to respond to as opposed to the underlying value.
You can put this price tag on anything anywhere whether or not it is a product of social labour. You can put it on a piece of land and extract a rent for its use. I can make all kinds of money via unethical and illegal acts. I can then take that money and use it to purchase a congressman legally through campaign donations like all other big businesses do. There isn’t just a quantitative, but a qualitative divergence between market prices and social values. You can create a ton of fictitious capital – money capital, for activities that generate no value at all, but they are extremely profitable via interest. State debt is used to fight wars funded through fictitious capital. People lend to the state and get a return through interest paid out of tax revenue even though no value was created. Quite the opposite it was destroyed.
Here we face another contradiction of money. Money is supposed to represent the social value of creative labour. This money takes on the form of fictitious capital that circulates eventually ending up in the pockets of financiers and bondholders via the extraction of wealth from all kinds on non-value creating activities. A prime example of this is the housing speculation that blew up in the market’s face in 2008.Betting on mortgages and creating collateralized debt obligations don’t create any value, yet there was an astronomical amount of fictitious capital created.
In money we take a particular use-value (the metal gold) and use it to represent exchange-value in commodity circulation. What we are doing is taking something that is inherently social (social value) and having it represented (in money) in a way that can be appropriated as social power by private persons. This ability to take social power and have it held by a private person is the driving force of all the horrible human behaviours of capitalism. The lust and greed for money power is inevitably the central feature of the body politic of capitalism. All the fetishistic behaviours and beliefs center on this. The desire for money as social power becomes an end in itself which is what warps the neat supply-demand relation of the money that would be required to simply facilitate exchange. This fact is what destroys the capitalist myth of the rational market. This is why there can never be a “truly free market” and why “real” capitalism has never and can never exist.
Contradiction 3: Private Property and the Capitalist State
Buyers and sells meet each other in the market to exchange money for commodities. This requires that both the commodities being sold and the money that is purchasing them be held by people who have the exclusive right to them. Exchange-value and money both presuppose the existence of individual property rights over both commodities and money.
To understand this contradiction we must first understand the difference between individual appropriation and private property. When you use a commodity you are appropriating it, you eat food, you ride a bike or you use a computer. The use of these things precludes anyone else from using them while you are. There are some things where the use is not exclusionary. A television show is a good example, you watching it does not prevent others from watching it. Then there are other goods called ‘public goods’ that are held and used in common, typically with some restrictions. A public road can be used by anyone, but there’s only a certain amount of people that can use it at a time, and there are limits to what you can do on it. For many processes and things, however, an exclusive relationship exists between the user(s) and the thing being used. This is not the same thing as private property.
Private property is the establishment of an exclusive ownership right to an object or a process whether or not it is being actively used. The very basis of commodity exchange is the presupposition that the commodity produced is not actively needed or wanted by the person who is offering it for trade. Marx defines a commodity as something which has no use-value for the person who produced it, but instead produced it for the purpose of exchange. It is produced for someone else to use. Private property rights are what give someone the right trade away that which is owned. The difference emerges from what are called usufructuary rights (rights that pertain to active use) and exclusionary permanent ownership rights.
To explain the difference Harvey goes into the history of colonial Whites and First Nations peoples. Before European colonization First Nations people were nomadic, they would follow animal herds or move from place to place as food was used up. This nomadic life was brought to an end by the colonizers. This land that was traditionally open for them to use was now the private property of someone who had an exclusive right to it whether they were using it or not. This was the death of the way for life for indigenous North Americans. We see the same thing happening in Africa today. People’s customary and collective resource rights are being converted into an exclusionary private property rights system which is being done via what many people believe to be fraudulent agreements. These agreements take place between village chiefs (who have customarily held the land in trust for their people) and foreign interests. We generally refer to this practice as a ‘land grab’ by capital and foreign interests with the purpose of gaining control of Africa’s land and resources.
Private property rights presuppose a social bond between something that is owned and a legally defined person who is the owner of that something. A newer advancement in this legal framework is the advent of corporations they are defined as legal persons who have the same right to own private property. This social bond is the basis for bourgeois constitutions and their ideas of individual human rights. The legal framework becomes the protection of those rights. This right to ‘private property ownership’ is the focal point of nearly all contractual theories of government.
What private property rights are depend on the particular state power and legal system that codifies, defines and enforces the contractual obligations attach to both private property rights and the rights of legal individuals. This is usually comes with compensation for this service via monetary taxation agreements. Now between the usufructuary and private property rights are several different degrees of mixture of the two which are defined in a social organization or law. This does not necessarily make them open to all people, but they do presuppose sharing and cooperative forms of governance between the members of the social organization. As these common ownership rights were eliminated in favour of a system of individualized private property rights backed by state power, it built the basis for a society based on exchange relations and trade. This is the form consistent with capital circulation and accumulation.
An individualized private property rights system is the very basis of what capital is all about. Capital, exchange-value, and money cannot exist without the legal infrastructure that is private property. This legal infrastructure is fraught with contradiction. This is so because the contradictions of use-value and exchange-value, money and social labour spill over into the individualized private property rights system.
The first contradiction should be the most obvious, the free use of private property as a right is sustained and given authority by the power of the state. This state provides the collective exercise of regulatory power to define, codify and give legal form to those rights and the social bond that holds it all together. Legal definitions of the individual and, hence, a culture of individualism arose with the proliferation of exchange relations, the rise of monetary forms and the evolution of the capitalist state. Some state power is needed to sustain those individualized property rights and laws that protect that individual liberty. This same state must also have a monopoly over the legitimate use of force to resist any opposition to individualized property rights or transgressions against said property. The centralized power of the state is used to protect a decentralized private property system. The advent of corporate personhood essentially takes private property and makes it collectively owned via the collective ownership of the corporation.
The society of market exchange is fraught with problems that require state intervention. There are problems with the provision of collective and public goods (such as highways, ports and harbours, water and waste disposal, education and public health). It also requires a state to not only administer but also secure these institutions via police and military forces funded through taxation.
Most importantly the state exists in order to organize the various social groups in society. Different interests, classes and all other manner of divisions exist in capitalist society. Many capitalist states present democratic institutions and mechanisms of governance to give the appearance of elicit consent as opposed to outright coercion and violence. Of course we know that any democracy under capitalism should be properly recognized as bourgeois democracy, a democracy for the capitalist class not the rest of us. It is however the most efficient and effective means of governance in capitalism. The problem is this leaves people with the false impression that there is an inherent bond between democracy and capital accumulation. The real genius of bourgeois democracy is how to bridge all the different tensions and social views to create a form of governance that protects the desire for individual liberty and freedom.
Market failures are another reason why states are useful. Externality effects are also a problem, the things the market does that causes negative results. The best example is pollution where firms and individuals do not pay for deleterious effects on air, water and land qualities through their actions. These require collective efforts to combat as opposed to individual action. Property is subject to externality effects, the exchange value of housing, for example, is captive to externality effects since investment or disinvestment in one house in a neighbourhood has an effect (either positive or negative) on the value of houses in the immediate vicinity. One form of state intervention designed to cope with problems of this sort is land-use zoning.
Most people agree that there should be some kind of state or other forms of collective action to control or regulate activities that cause great negative externality effects. In this case the state has to trespass onto private property rights in order to protect other private property rights. The question faced by every society of this type is: “How far should the state go and to what degree that encroachment might be based on coercion rather than the building of consent. In any case, the state has to have a monopoly over the legalized use of violence to exercise such functions.
Contradiction 4: Private Appropriation and Common Wealth
The common wealth created (use-values) appears in nearly infinite forms. Every commodity that exists from utensils to the buildings of cities, to food is commodities. The private appropriation and accumulation of this common wealth and the social labour contained in it occurs in two ways. The first is the extra legal activities like robbery, thievery, swindling, corruption, usury, predation, violence and coercion, and unethical practices in the market. The second is individual accumulation through legal measures of the ‘normally’ functioning capitalist system. In bourgeois theory the illegal acts, or black market, or even unethical practices in legal operations don’t count as ‘real capitalism’. Their premise is that these acts are external to private accumulation and thus ‘don’t count’.
This is of course completely false, all these illegal market transactions are the accumulation of social value just as legal transactions. How can this be denied when illegal arms and drug trafficking play such a huge part in the global economy? How can they even claim this when those unethical practices were such a huge part of the global collapse of capitalism in 2008?
Aside from this the very fact that an economy based on dispossession lies at the heart of what capital is foundationally about. The direct dispossession of the value that social labour produces at the point of production is but one (albeit major) strain of dispossession that feeds and sustains the appropriation and accumulation by private ‘persons’ (that is, legal entities including corporations) of large portions of the common wealth.
Bankers have no moral qualms about where their profits and bonuses come from. That money may come from lending money to landlords who carry exploitive rents, merchants who price gouge poor people for food, credit card companies, mortgage foreclosures, or deadly worker exploitation. Private appropriation is infinitely creative when it comes to collecting common wealth. The higher wages workers may get through class struggle in the workplace can all too easily be snatched back by the landlord, the credit card companies, the merchants, to say nothing of the taxman. Bankers use all manner of financial trickery to collect immense profits. Even when they get caught it is, for the most part, the bank (that is, the shareholders) who takes the hit and not the bankers themselves.
At the heart of this process of private appropriation of the common wealth lies the contradictory way in which, as we have seen, money represents and symbolizes social labour (value). The fact that money, as opposed to the social value it represents, is inherently appropriable by private persons means that money (provided it functions well as both a store and measure of value) can be accumulated without limit by private persons. And to the degree that money is a repository of social power, so its accumulation and centralization by a set of individuals become critical to both the social construction of personal greed and the formation of a more or less coherent capitalist class power.
The true ‘evil’ nature of capitalism, the one that religion speaks of can be found here where the distinction between value and price created a gap between the realities of social labour on the one hand and the ability to hang a fictional price label on anything, no matter whether it was a product of social labour or not. Anything can be sold for money even uncultivated land and conscience. The gap between values and price is not just quantitative (where the market affects price) but also qualitative (in that prices can be put on immaterial traits as honour, allegiances and loyalties). This gap has grown larger as capital has expanded in range and depth over time. This phenomenon was theorized by Karl Polanyi, an émigré Hungarian socialist economic historian and anthropologist. He wrote The Great Transformation in 1944 where he gave his ideas.
The markets for labour, land and money are, he pointed out, essential for the functioning of capital and the production of value but they are not commodities themselves. Labour is another word for human activity which goes with the phenomenon of life itself. It is not produced for sale, but for other reasons that cannot be detached from the rest of the life or be stored or mobilized. Land is another word for nature, which is not produced by man. Actual money, finally, is merely a token of purchasing power which, as a rule, is not produced at all, but comes into being through the mechanism of banking or state finance. None of them is produced for sale. The commodity description of labor, land, and money is entirely fictitious.
As we can see the reason why “real” capitalism doesn’t function the way Austrian economics claims it does is due to the inherent contradictions within a system of capital accumulation itself. The inherent failing of Austrian economics is in its denial that the existence of money as a representation of social value allows that value to be perverted. Money as a representation of value means, value is no longer something that is created of human labour and creativity. It is a commodity itself, money capital, which turns the product of labour into something alien to its producer, a form that can and must be appropriated by others.