It’s time to revisit the basics of capitalism

Richard D. Wolf
August 22, 2021 03:12 GMT + 10

Now that many have realized that the capitalist system has many problems, they are seeking a clear explanation of how the system works. They are dissatisfied and impatient with school courses, politician remarks, and how the mainstream media treats the subject. The United States is notorious for its low basic economic literacy, despite the great interest of its people in the economic aspects of life. Therefore, this short article is intended to give you the gist of the system.

Capitalism is just one particular way of system for organizing the production and distribution of goods and services. Unlike other systems such as slavery and feudalism, there are some similarities. Capitalism, like slavery and feudalism, divides people involved in the production and distribution of goods and services into two groups: small groups and large groups. Slavery had masters (minority) and enslaved people (many), while feudalism divided the group into lords (minority) and serfs (many). Employers are a smaller group of capitalists. They manage, direct and supervise the economic system. Employers use production and distribution to increase wealth. Capital is the wealth engaged in self-expansion. Employers are capitalists as systematic agents who are socially positioned to carry out that expansion.

A much larger group of capitalism is made up of employees (or multiple workers). As the majority of systems workplaces, they do most of the work. Employees are divided into two groups. One group, often referred to as “productive workers,” is the group that is directly involved in the production of goods and services. For example, in a company that manufactures chairs, they are chair makers (people turn wood directly into chairs). Employees of the second group, often referred to as “unproductive workers,” are not directly involved in contributing to workplace outcomes. Rather, unproductive workers provide the conditions and contexts that allow productive workers to produce direct output. Examples of unproductive workers in the workplace include clerk who holds records and sales, and employees in the purchasing department who secure inputs and market outputs.

Only the employer of the capitalist is the combination of productive and unproductive workers they hire, what each of them does, what technology each develops, where their work is done, And determine what will happen to the outcome of their work. Productive and unproductive workers are excluded from participating in these decisions, but they live with the consequences of these decisions.

Productive workers use the tools, equipment and buildings paid and provided by the employer who hires them. Productive workers convert the raw materials that employers purchase and provide as well. These “means of production” (tools, equipment, equipment, raw materials) purchased by the employer contain a certain amount of value that is carried over to the finished product. Productive workers add more value by spending their transformative workforce and leveraging their means of production provided to them by their employers. Therefore, the finished output of each capitalist’s workplace includes the value of exhausted tools, equipment, and raw materials, as well as the value added by productive workers.

The important point to keep in mind here is that the value added by productive workers is far greater than the value of wages paid to them by employers. For example, an employer may agree to pay a productive worker $ 20 per hour. This is because the labor of that productive worker brings more than $ 20 per hour. The important difference between value added and the value of wage payments is often referred to as “surplus value.” Capitalist employers receive (or better, take) their surplus value and derive what they call “profit” from it.

A simple arithmetic of capitalist production can reveal its structure. First, the value of the exhausted means of production plus the value added by productive labor is equal to the total value of production. The employer receives, owns, and sells the deliverables on the market. Second, the excess value added by productive work beyond the value of wages paid to productive workers provides the employer with surplus value. Part of that surplus value is used by employers to hire unproductive workers and provide conditions that allow productive workers to generate that surplus value. These terms include interest paid to creditors lending to capitalists and dividends paid to those who purchase the company’s stock.

The remaining surplus value is what capitalists call profit. They use their profits to grow their businesses and support their own levels of consumption. In modern capitalist companies, capitalists are the board of directors who hold profits, primarily grow the company, and use them to allow CEOs and directors to increase consumption. ..

Capitalists earn surplus value, and employees earn wages and salaries. The difference is very important. Employers occupy a dominant decision-making position in the workplace (company) and use that position to ensure that the company makes a profit as a top priority, “revenue.” Employers, both productive and unproductive, strive to reduce as much as possible the wages or salaries that must be paid to employed workers. The more they suppress the wages and salaries of productive workers, the more surplus value they can get. The more you suppress the wages and salaries of unproductive workers, the greater the percentage of surplus they can benefit from.

The high priests of capitalism-professional economists-spin stories that justify the system (they prefer to call them theories). Therefore, they are trying to convince us that capitalist “profit maximization” achieves maximum efficiency, economic growth, and maximum profit for the largest number. We believe that employer-class self-serving (profit-driven) behavior is magically the best for our employees. At the same time, early priests argued that slavery and its selfish masters were the best possible social arrangement for enslaved people. The priests during the feudal system likewise praised the feudal system and its selfish lords as the best possible social arrangement for serfs.

Mainstream economics celebrates profits because profit maximization helps capitalist employers. In recent decades, its mainstream has borrowed from mathematics the abstract concept (model) of a simplified system that automatically maximizes many of its aspects by maximizing one aspect. bottom. They then argued that such a model captures (properly represents) how capitalism works. Don’t be fooled. it’s not. The mathematical model is simple, but capitalism is not. Maximizing and withdrawing profits from each capitalist company is a way for capitalists to accumulate wealth. That’s good for them, but not at all for our other people. Keeping profits away from employees keeps them in need of employment from capitalists. That’s also good for employers. The profit system recreates capitalism over time by recreating the capitalist at one end and the workers in need of work at the other end. Capitalists and workers were not equal beneficiaries of the system.

The market is another system that capitalism uses to recreate itself. Markets existed before modern capitalism became the predominant economic system in the world today. Slavery and feudalism had markets, but not in a unique way, not as much as capitalism. Capitalism inserts the market into the core relationship between employers and employees, two major positions in the system. The employer purchases the workforce of the employee from the latter (owner). In contrast, enslaved people were bought on the market, but their workforce was not what they sold. Neither serfs nor serf labor were purchased by the feudal lord. Only when slavery and feudalism declined did some markets emerge for the workforce, thereby demonstrating a transition to capitalism.

In the case of capitalism, the market provided a means to secure that decisive ratio. It is the difference between the value paid to the workforce (wage) and the value added by the labor effort of the worker. The difference is a prerequisite for surplus value to be produced by productive workers, allocated by capitalists and socially distributed.

Profit maximization and markets have always been carefully restricted and designed to help recreate capitalism. It is how the market evolved after the production and distribution capitalist organizations replaced the preceding slavery and feudal systems. Those other systems either rejected the market or shaped the market to recreate their different non-capitalist systems. Only narrow idealistic fundamentalism raises markets, profits, or capitalism itself to a state beyond history, as if any of them had the power to stop the flow of change.

Capitalist profits and market systems do not represent the ultra-historical absolute value of maximum efficiency or optimality (a favorite term in mainstream economics). Recall that previous economic systems have always produced strong ideologies, claiming that they are also the lasting and optimal “end of history.” That alone should have given modern economists a sense of self-critical discipline. Instead, most of these economists have only made yet another absolutist claim in place of capitalism. Mainstream economics, including such self-criticism, was very difficult. The capitalist’s demand for ideological loyalty from workers may have influenced the difficulty.

History hasn’t stopped. All other economic systems in human history were born, evolved, and at some point disappeared. The most rational expectation is that someday the born and evolved capitalism will no longer exist. Humans have often been impatient with the economic system they had and longed for something better. The number of people who feel that way about capitalism is increasing worldwide. Clarifying the basics of capitalism to be replaced will now help move society forward.

Richard D. Wolff is an emeritus professor of economics at the University of Massachusetts Amherst and a visiting professor at the New School University Graduate School of International Studies program in New York. Wolff’s weekly show, “Economic Update,” is synergized by more than 100 radio stations and delivered to 55 million TV receivers via Free Speech TV.His three recent books on democratic work Illness is a system: when capitalism cannot save us from a pandemic or itself, Understand Marxism, When Understand socialism..

Source: Independent Media Institute

This article was created by Economy for everyone, Independent Media Institute project.

It’s time to revisit the basics of capitalism

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