What’s this blog about?

This blog is about getting from here to there

Where is here? 

“Here” is the social system we live in. We know we live in a capitalist system. But do we understand what this really means?

Contrary to conventional wisdom the defining characteristic of capitalism is not market exchange. Market relations have existed since classical times.

The essence of capitalism is a system of property relations, which I’ll call the “wage system”. Here, the capitalist firm hires-in labour at a pre-agreed rental price. The labour is mixed with other inputs and produces goods or services for sale in the market. Normally, firms sell at prices that exceed their costs of production, which includes the cost of used-up material inputs, rent, interest on capital loans, and labour costs etc.

Here, labour is just another ex ante cost of production. Any remaining revenue — the residual income — then gets distributed as profits to the owners of the firm.

What’s wrong with this?

Essentially, the wage system is a theft-based system of property relations. The mere legal ownership of a firm is sufficient to lay claim on its residual income. The owner of a capitalist firm can, as John Stuart Mill, put it: “grow richer, as it were in their sleep”. Yet this residual income is the fruit of others’ labour. Taking resources from others, without giving anything back in exchange, is theft. This is why Marxists label capitalism an exploitative economic system.

But wait. Isn’t profit a just reward for the risk of capital investment? Someone has to fund the firm. Surely owners deserve their returns too?

Actually, no. There’s a big difference between advancing capital to a firm, and owning the firm.

Let’s say you advance capital to a firm. You should expect repayment of your capital, plus a risk premium and collateral security, as a just exchange. But by lending capital you do not become an owner of the firm. Once your loan is repaid you have no further claims on the firm’s revenue.

This contract is based on the principle of exchange: in essence, it allows the loaner and loanee to exchange the time when they consume a set of resources. There’s no theft here.

But let’s say you want more. You advance capital to a firm, and in addition to the above, you expect joint ownership of the firm, i.e. equity capital. In this case you do become an owner of the firm. And so, once your initial loan and risk premium is repaid, you still retain a claim on the firm’s revenue. In fact you lay claim to the residual income, that is the fruits of others’ labour.

This contract is not based on the principle of exchange. You now get to take resources from others, solely in virtue of the paper claim of holding “equity”. You do not have to give anything to the firm in return for your claim. The contract bestows the right to take wealth produced by others by fiat. This is theft.

All ideological justifications of capitalism obscure this theft, and render it normal, almost entirely unnoticed, and socially acceptable. It’s largely an unquestioned and seemingly natural aspect of our economic relations.

Capitalist property relations are not merely unjust, however. They are also the hidden and root cause of the major social ills of our day, in particular those caused by extreme income and wealth inequality.

The capitalist firm minimises input costs, including wages, in order to maximise the residual income of the owners of the firm. This causes a two-class distribution of income and wealth, with a Pareto long tail of the super-rich. And it’s also the major cause of imperialism, which has a material foundation in the massive wealth disparities between countries. In consequence, capitalist property relations are also undesirable.

Where is there?

We might prefer to live in a system that avoids these widespread injustices and social ills. Traditionally this is the goal of socialism. But do we understand what socialism really means?

Contrary to conventional wisdom the defining characteristic of socialism is not the abolition of market relations and its replacement by centrally planned, top-down production. Economic planning has no bearing whatsoever on whether a set of social relations are exploitative or not.

The essence of socialism is a hoped-for system of property relations, which we’ll call the “communal system”. In this system, the renting of people has been abolished (just as liberal democracy abolished the selling of people, i.e. slavery). People no longer are workers available to rent by the owners of firms. Instead, people are workers available to join as equal members of a democratic firm, who together lay claim on the residual income.

A socialist firm is owned by its working members who hire-in capital at pre-agreed rental prices (compared to capitalism, the contracts are reversed). Capital, not labour, is now the ex ante cost of production. In consequence, the working members democratically distribute the firm’s residual income to themselves.

What’s right with this?

The communal system is an inherently egalitarian system because all income from production is earned in essentially the same manner: by the contribution of labour. Absentee owners no longer lay claim to the fruit of others’ labour in virtue of a piece of paper (e.g. “equity”). The systematic economic theft, characteristic of capitalism, has been abolished.

Socialism is not merely just, however. It also eradicates extreme income and wealth inequality for the simple reason that the entire working population earns the same kind of economic income, which is a kind of profit share. The split of the population into two main economic classes, that is workers (wage-earners) and capitalists (profits via ownership of firms), disappears along with the major social ills caused by extreme inequality.

How do we get from here to there?

The history of the workers’ movement has always exhibited continual exploration and innovation of different kinds of political organisational forms. None can be said to have been successful. And it would be a major mistake to think that we’ve exhausted the possibilities.

The history of the co-operative movement is of limited success. For example, the co-operative sector has not spontaneously crowded-out the capitalist sector: it remains economically marginal. Trade-unionism is also highly limited: in general, it upholds the wage system, which is its raison d’Γͺtre. Revolutionary parties struggle to get from here to there: in most circumstances their practice reduces to agitation and protest, rather than effective strategies that help the majority of the population acquire economic power.

The premise of this blog is that formulating a political strategy for getting from here to there is both important and urgent. Unfortunately, the task has been neglected, not least because much of the energy of the worker’s movement is misdirected into institutional forms that historically have failed to deliver, and that most of these forms have explicitly denied the importance of formulating a political economy of socialism, and an explicitly economic, rather than political, plan to achieve it. The difficult historical problem of eradicating systematic theft from our social relations is unlikely to be solved by monocultures of theory and practice.

Part of the difficulty of travelling any path is knowing (i) where you are, (ii) where you are going, and (iii) how to get there. This blog will focus on developing a deeper theoretical understanding of all these questions, with a specific focus on developing a scientific, and empirically grounded, understanding of economic forms of organisation.

My fundamental premise is that we need to formulate a political economy of socialism that simultaneously constitutes a political practice that crowds-out capitalist property relations.

I hope to make the meaning of the above clearer to myself over the coming years.

This can never, ever be the work of one person. So please feel free to comment — I will welcome your feedback, because it will help me think, and develop the ideas.



  1. I think “an inherently egalitarian system” is an impossibility and not something we should wish. Different qualities will always lead to some kind of stratification and inequalities in appropriation of the collective income. One can live with that as long as the lower classes are treated well by the elite and wouldn’t call such a situation exploitation or theft.

    The problem is indeed the private property of the means of production. But primarily because of the forced and uncontrolled growth that results and destroys nature, including human nature. Putting the ownership in hands of the workers will not help much. Enterprises should be independent, socially owned organizations, where the management is democratically controlled and appointed by all parties involved. Labor should be hired, but in a more equal trading position.


  2. Hi Victor

    Thanks for your comment!

    I’m an egalitarian and i believe in economic equality. But I don’t think everyone should have the same income.

    Why? Because that would be in-egalitarian and cause inequality. All workers instinctively know and understand this. For example, if I work in a team, and we all get paid the same, but one person doesn’t pull their weight and rarely contributes, then that’s an unequal outcome.

    So I agree that “different qualities will always lead to some kind of stratification and inequalities in appropriation of the collective income”.

    Furthermore, there are also situations where people that supply no work at all should definitely get more income than those who supply lots of work (e.g., people who are ill or otherwise incapable of working).

    I also agree that merely putting ownership into the hands of workers is insufficient. Competition between enterprises would still exist in a market-based economy of worker co-ops. So, without further institutions and mechanisms, uncontrolled growth would be an unintended side-effect. We also need global, democratic control over the macro economy, such as deciding on the rate of growth and the length of the working day etc.

    I think that distinctions between “lower classes” and “elites” should be minimised or eradicated. I don’t think there’s any objective basis for such distinctions, since people have essentially the same capabilities. In class societies any small differences in competences between people are hyper-inflated to justify massive differences in social outcomes.

    Finally, I think it’s essential to grasp that capitalism is a theft-based economic system, and we must eradicate this theft from our social lives — if we have any chance to rationally plan global economic growth and institute better relations with our environment.

    I hope these comments are helpful.

    Best wishes,


    1. How would one measure effort of work, or productivity?

      There are different forms of capitalism, and the problem that Marx points out with capitalism is not one solely an outcome of capitalism, it is a problem that all society systems end up with. An inequality amongst the people.

      What’s your take on Jeffersonian capitalism?


      1. Hi Koser

        Thanks for your questions!

        > How would one measure effort of work, or productivity?

        I need more context before I can answer your question. Do you mean measuring productivity in the context of fairly distributing firm profit to working members?

        > There are different forms of capitalism, and the problem that Marx points out with capitalism is not one solely an outcome of capitalism, it is a problem that all society systems end up with. An inequality amongst the people.

        Obviously, Marx, as a historical materialist, views capitalism as just the latest historical incarnation of class-based societies where a class of exploiters pump out surplus-value from an exploited class. Capitalism, as both you and Marx rightly point out, isn’t the first exploitative economic system, nor the first system with inequality. Marx was concerned, however, with identifying the precise form in which class exploitation takes place within capitalism, and how capitalist ideology systematically obscures this theft.

        But Marx doesn’t really criticise capitalism for generating “inequality amongst the people” (in the sense of differential outcomes between individuals). His critique is more fundamental: capitalists, as a class, dictate to and steal from the workers, and this is an irreducible injustice and cause of diverse social ills; and also capitalist property relations retard economic progress, and therefore our social life is not as rich, free and dynamic as it could be.

        > What’s your take on Jeffersonian capitalism?

        I’m afraid my knowledge of US history is cursory, so I haven’t heard of it. Happy to be enlightened!

        Best wishes,


  3. Hi Ian, I came across your excellent piece in Notes from Below and look forward to reading more on this blog. I’m interested in your views on one arguably positive aspect of equity capital in funding (at least some types, or some portion of) business activity? Arguably one of the ongoing risks in the financial sector, for example, is its overreliance on debt financing. This leverage is preferred by the banks because it increases their return on equity and introduces a “Too big to fail” implicit subsidy in the rate they pay on that debt. At least in the case of banking, greater equity funding would in my mind counteract the socialization of risk arising from their activities.

    I completely agree with you that equity finance is at the heart of many issues with business, markets, the economy etc. Do you think post-capitalist entities should still adopt equity buffers to finance their activities, but funded through retained profits? If not, do you not see any risks arising from pure debt financing?



  4. Hi Dominic,

    Thanks for your question, and apologies for the delayed reply.

    The underlying political principle is the necessity to abolish exploitation and the wage system, where a class of employees rent their labour, at an ex ante price, subsequently produce surplus value, and then ex post a class of employers appropriate that surplus. All capitalist firms are a mini dictatorships that institutionalise theft. In consequence, the vast majority lose access to the resources they created, and lead unnecessarily impoverished lives. In the aggregate, this setup generates extreme inequality and multiple social ills. Equity capital is just a particular financial form through which this social relationship is reproduced.

    A socialist economy of worker-owned democratic firms, would abolish this kind of exploitation at this micro level. Of course, at the macro-level, a socialist economy still needs redistribution since not everyone can or should work. So I can see a role for “equity capital” in the context of a socialist government taking equity stakes in firms in order to socialise profits and redistribute accordingly (e.g., Meidner like schemes).

    Other than that, I don’t understand the point your are making, which may be my failing. The fundamental distinction between loan capital (with a risk premium and collateral) and equity capital (ownership of the firm) is not differential risk but differential property relations. Equity capital, in almost all contexts, is a property relation where workers make and capitalists take.

    Best wishes!


    1. Ian,

      Many thanks for taking the time to reply – I find your assessment of the exploitative nature of equity capital compelling. I suppose my point is more mundane. Presumably post-capitalist economic agents/ activity will still, in many cases, require some form of funding to finance their activities (including any expansion, working capital management), and if this was entirely debt financed it would introduce greater entity-specific risk, in that any operational and ultimately financial stress will more quickly lead to default because the debt entails specific repayment obligations. For example, if a significant customer of the firm defaults or is late in paying its bill, the firm itself must still honour the interest on its own debts. Where its activity is funded by equity, it will be able to cut dividends to its equity investors (at least temporary, depending on the implicit cost of capital) thereby stemming outflows. The more significant debt obligations are in the firm’s funding structure, the less able it is to withstand such issues.

      I used the example of banks because they are an extreme example of the risks arising in business models from excessive leverage, but the same principle applies to the respective roles of debt and equity finance in buying a house. Conversely, equity capital is non-recourse and therefore provides a loss-absorbing buffer in the event of financial stress, before a debtor firm must default on its debt servicing obligations. This kind of buffer could of course be built up by worker-owners through retaining some proportion of their firm’s profits, but this would take time. Or firms could issue some amount of convertible debt (i.e. when a threshold for financial stress is reached, the debt is converted into loss-absorbing equity rather than enforcing the repayment obligation which could force default). But then we have the problem of equity again..

      I’m just wondering whether it is possible to remove equity entirely, without increasing financial stress and default risk.

      Apologies if my thoughts remain unclear. If I’ve succeeded in clarifying them then I’d be interested in any further views!




      1. Hi Dominic

        I understand your point better now. But I think the answer is pretty simple: there isn’t a necessary connection between equity financing (i.e. ownership of the firm) and more wiggle room for firms with cash-flow problems (i.e. flexible creditor-debtor relationships). Most firm growth is funded from its own profit anyhow, and earlier stage startups, which often have significant equity funding, don’t pay dividends. But more importantly, within venture communes, or in a post-capitalist economic systems, I expect there are good reasons, as you suggest, to structure debt financing to include sufficient wiggle room to avoid unnecessary defaults.

        Best wishes!


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