How does Capitalism work?

(Article: From Socialist Perspective)

There’s a powerful myth about capitalism, put about by politicians, bosses and the media alike – that it’s about “risk taking” and “wealth creation”, and that the rest of us should be grateful to capitalists for investing and giving us all jobs.

But most of us can recognise something quite different about capitalism – that it’s a fundamentally unjust system. Corporations controlled by a tiny minority control society’s wealth and productive power. The majority of people can survive only by selling their ability to work to the capitalists.

The Sydney Morning Herald’s economics columnist at the end of January showed how these two things fit together: “When business people focus on the risks of incurring certain expenses, it’s not long before they come up with the perfect way to ‘manage’ those risks: shift them onto the shoulders of their employees”.

Contrary to the myth, workers are the key wealth creators, but the goods and services that workers produce belong not to them, but to their bosses. Workers produce what society needs – in workplaces that they neither own nor control, working under bosses they don’t choose, and earning only enough to live from one month to the next.

Whatever the mythology, every capitalist knows that workers are the source of their profits. While raw materials are worth a set amount, capitalists can “stretch” the workers’ ability to work. They make workers work longer hours, or make them work as hard and as “productively” as they can while they’re at work.

That’s what the increased “flexibility” that Howard’s WorkChoices changes have given employers is for. It shifts the “risks” onto their workers – the risk of unfair dismissal, the risk of delay in finding another job, the risk of being required to work at family-unfriendly hours and so on.

This exploitation is hidden under capitalism by phrases like “a fair day’s work for a fair day’s pay”. But the more we work, the richer and more powerful our exploiters become.

Capitalism is a system that depends on this daily robbery, carried out in every workplace every minute of every day.


All this would be bad enough, but because it is founded on that exploitation, the system inevitably goes into crisis, throwing millions out of work.

Capitalists are not interested in what they produce, only in whether it can be sold for a profit. Profit means the capitalists can reinvest and then perhaps survive against their rivals. The drive for profit, rather than to produce things that people need, is the central motive of the system. Capitalists are in competition with each other to do this.

Competition forces capitalists to constantly reinvest their profits into more efficient means of production. More and more of their investment has to go into technology, machinery, etc. and less and less into human labour. Just think of a modern steelworks – multi-million dollar plant and equipment, and a few hundred workers at most.

But as only human labour can create new value, the process has squeezed the source of profit, eventually leading to economic crisis. The Great Depression of the 1930s gives us some idea of the human cost of economic crisis – millions out of work, and it took World War II to restore full employment.


Another effect of competition is that as the more profitable firms take over their rivals, enterprises become bigger and more concentrated. The constant competitive struggle with rival capitalists becomes an international one. Corporations’ economic power is backed by the force of the nation state. Thus the major powers vie for advantage in trade deals, international financial institutions, setting international law, etc.

This system of international economic competition, reinforced by military force when needed, is known as imperialism. Imperialism, in other words, is not just powerful states dominating backward countries, but the shape of modern capitalist competition.

War is the most “advanced” form of competition. The capitalists and their states do not wait around to see if the market will favour them. If military force gives them an edge in the competition with their rivals, they will use it.

This is why US imperialism is not just a bad policy of the Bush administration. It is an inevitable outgrowth of capitalist competition.

For most of the world’s population the result is disastrous. The three wealthiest billionaires have more than the combined wealth of the 600 million people in the least developed countries. Even in the most advanced capitalist countries workers work longer hours and are less secure.

Must 30,000 children die each day from easily preventable diseases? Must billions be wasted on the military?

Must education, housing, health, water and every other kind of production be placed under the control of multinational corporations? Must the planet be wrecked by the demands of profit?
While capitalism continues, the answer will be yes.

Socialist Alternative MagazineSocialist Alternative Magazine


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