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’être. 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.