What is Capitalism?

The discussion of “Capitalism” in Wikipedia is extensive, replete with a wide variety of different concepts, and potentially confusing by its attempt to portray several different theories of capitalism. Yet it’s clear that we must mean something by the term, since it polarizes people into two main camps, those who endorse it and claim its essential validity, and those who resent it and charge it with various human abuses. My purpose here is to strip the idea down to its bare essentials.

So what is capitalism after all?

The essential ingredients of capitalism have a long evolutionary history. Even the earliest civilizations, for example, minted coins, used currencies, and implemented public markets where people actively bought and sold goods. Most descriptions of capitalism, including Adam Smith’s, emphasize the nature of capitalist commerce as stemming from the notion of a trade (exchange) in which a seller offers a good for sale, a buyer expresses an interest in it, and the two agree on a price (some amount of currency) as the condition of the trade. In this model, the seller is free to offer his goods for sale (not “black market”), and is not bound to accept any specific price; and the buyer is free to abandon the transaction or to accept its terms, nor is he forced to accede to any particular price demand. This is the basic concept of the “free market.”

In this way, free markets have existed for centuries. They can be as simple as a fruit stand in a small village where a farmer brings his produce and offers it for sale to interested passers-by. There may be some form of sheriff or policeman in the vicinity to assure that the seller’s goods aren’t stolen, or that buyers aren’t cheated out of their money by fake or inferior goods; or there may not be. Generally the free market concept assumes a fair and honest transaction, implying that the market has to be regulated at least by concepts of honesty and fairness, if not by explicit law.

But this model of the free market is neither descriptive of our modern world, nor sufficient to understand why Karl Marx–or anyone else–may have had a problem with it. I like to think of capitalism in terms of the economic features that Marx hoped to remedy, thus providing a means of distinguishing Marx from that which he criticized.

The story begins in the middle of the 18th century with James Watt’s invention of the steam engine (1775). His engine launched a major change in the structure of western society. Remember, before the Industrial Age began, people lived in a feudal, fundamentally agrarian society. Families lived on a common homestead in multi-generational homes and used subsistence agriculture to provide for their personal needs. Children were raised in an environment with several adults to share the burden and provide a safety net protecting against the loss of a parent or changes in the local economy.

But with the Industrial Revolution, factories sprang up at transportation hubs and began to attract young men from farms to work for money, something young men were not likely to see much as farmers. This change was not just economic. Young men need young women, and so there was a need to encourage women to move to the city as potential mates; thus was born the Cinderella myth at about the same time. Now, a young woman could dream of a Prince Charming who would take her away to their castle, which they would own together, and live happily ever after, he working at the factory while she raised the children and took care of the family nest. Thus the appearance of factories as the focal point of productive labor was matched with the change of the family model from a multi-generational extended group to the nuclear family consisting of just one man and one woman. This set the stage for a mass migration of population from the rural hinterlands to the city, and provided the employable fodder needed to staff the burgeoning industrialization.

It provided more liquidity, more freedom for the workers to move from factory to factory
accordingly as work was available, since they didn’t have to drag around either land or many family members with them. It was great for the employers, but not so good for the family, as it exposed the family itself to more risks since it rested on fewer support members.

For society as a whole, there was also another downside to this arrangement. The family no longer owned a subsistence farm to feed them. They were entirely dependent on an employer to provide the means of their survival. Unfortunately, factory owners owed no allegiance to the men who worked for them; they were hired on the condition of pay, and could be let go when no longer needed. Also, there were no economic protections for the unemployed and impoverished. Capitalism had grown up virtually unregulated, so there were few limitations on the freedom of employers or provision for those individuals abandoned by the owners of production. Debtors’ prisons and workhouses were set up to keep the unattached off the streets, out of trouble, and as punishments for those who didn’t pay their debts. Children ran free, uncared for, able to survive only by theft, picking pockets, begging, and other mischief. Charles Dickens wrote novels describing the depravity of living conditions in the cities, which eventually awoke the social conscience of the times to the need to make some provision for those whom capitalism had abandoned.

Thus the 19th century is the era when the industrial revolution had created, using James Watt’s steam engine, a transportation system based on railroads, and a production system based on the factory that made a large segment of society dependent on a class of factory and business owners for the basic means of human subsistence. And this is the millieu in which Marx’s theory of class warfare emerged.

The essential, core feature of capitalism is illustrated best by the 19th century factory. A factory is owned by one man or a small group (proprietors) forming a partnership. Later, the legal forms evolved to recognize a new type of ownership called a corporation. In any case, there were a group of people who owned these businesses and factories, and another group of people who did the work of the business, called employees.

Now there is a sort of magic created by this system. In the old days, craftsmen sold the products of their labor, and they received the full value of their products as the proceeds of the sale. But with the factory system, the employee received none of the proceeds of sales; he was paid a wage instead, which was arranged by an agreement between the employee and his master. Since there were usually a great many free men seeking employment, the employee had little leverage in negotiating his wage; if he didn’t like it, the master could release him from service and hire someone else for the same, or even less money, depending on the relative degree of desperation of the applicant. Meanwhile, the factory owner pocketed the gross sales of the factory’s products. From that income, he paid employee wages, bought what raw materials he needed, and paid any other operating expenses for his factory. But he never sold the factory. That remained his own property, and was available day after day to grind out copies of products. He sold the products but kept the factory that produced them.

Thus a new opportunity emerged. A craftsman can only produce so much in a day: the amount that his personal labor can generate. The factory owner, on the other hand, if there is a surplus of money left over from sales after paying all expenses, can expand the factory by buying new equipment, hiring more labor, and even building new factories. This is all done with the surplus money, or “profit,” generated with his employees’ labor. Once a working business is set up that generates a profit, it can expand indefinitely, adding to itself through a process of “capital accumulation” until the owner-proprietor has a huge income while his laborers are all still competing with each other over who will get the available jobs for the least wages.

In modern times, this idea of capital (income-generating property) has been extended to intellectual assets as well as the more familiar tangible kinds of things. Thus copyrights protect movies, books, and music sales, while patents protect new inventions. This protection means, for example, that the movie maker continues to own the movie; people who buy it don’t own it, aren’t allowed to show it or reproduce it, so anyone who wants to see the movie has to get it from the original producer. It becomes a kind of factory producing profits without being consumed itself.

Thus we have two basic kinds of individuals in the economy: capitalists, who own income-producing property; and laborers, who work for a wage negotiated independently of the value of any sales gained from the products the laborers produce. In this view, managers on the owner’s staff, who control and oversee the day to day operation of the business, are just as much laborers as a machine operator; managers in most cases work for a wage as well, which maybe a salary (fixed income) or a wage (hourly). Salaried workers cannot earn more money by working more hours. Wage earners do. In other words, the salaried employee is even more limited in earning potential than an hourly worker.

A capitalist economy has many other features:

1. Most markets are not free markets in the classical sense. They are mass consumer markets. The store sets a price for its wares and the buyer has only one choice: buy it for the set price or get out of the store and make room for another buyer. There are commodity markets where goods are auctioned, but these are usually not open to the general public.

2. Banks use money as capital by collecting it from people who have some (“savings accounts”) and giving it to people who need it (“loans”), while charging a fee for its use. Thus the money loaned becomes a product earning profits, created from the savings accounts as capital.

3. The law is extended to define a variety of legal forms of ownership, including simple proprietorships, companies, limited corporations, and public companies owned by shareholders. In each of these cases, there is a precise legal identification of the people who constitute the owners of the business, since they are the people who own the business’s capital assets and have all the rights of ownership; and who own any profits from its sales.

4. The use of interest by banks to make profits, and the use of banks by businesses to secure funds to meet short-term needs and make long-term investments in growth, results in the general diffusion of the burden of interest throughout the economy.

5. The prevalent use of assembly-line manufacture, which structures factory labor into specific jobs doing specific, limited and highly repetitive tasks, which are usually boring and provide little or no job satisfaction to workers

6. The invention of new, non-tangible kinds of capital assets such as movies, books, magazines, stories and articles, music records, sheet music, song copyrights, patents, and commercial software.

7. Modern capitalist economies usually include some form of social safety network to improve the living conditions of the laborer class, as well as those extensive numbers of people who are not employed and hence have no source of income. These types of services are considered “welfare” or “socialist” types of features, but are generally believed to be desirable, if for no other reason than to keep the streets clean of homeless people and starving beggars.

But despite these and other features of a modern capitalist economy, the basic concept is that of capital accumulation: selling products laborers make and investing the profits in the growth of the company, thus creating a constantly growing production capacity and thus more profits.

It’s this cycle of growth and re-investment which has created the vast difference in economic wealth of the modern world as compared to its condition a mere 150 years ago.

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Why We Shouldn’t Trust Markets

Title: Why We Shouldn’t Trust Markets with our Civic Life
By: Michael Sandel, prof. at Harvard University
Link: https://www.youtube.com/watch?v=3nsoN-LS8RQ

Michael Sandel has been teaching an ethics course titled “Justice: What’s the Right Thing to Do” for over twenty years. In this TED video, he addresses the question to what degree the commodification (buying and selling) of every aspect of our lives should be tolerated. There are, perhaps, two views on this subject. One, that there are values besides money, and reducing everything to a price, to a dollars and cents question, will blur or even obliterate perception of other values. The other, that money is only a tool, and using money to achieve “higher” values is completely justified. Which of these do you agree with? Listen to Prof. Sandel’s discussion, and then think again.

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The Power of Classical Music

Title: The Transformative Power of Classical Music
Speaker: Benjamin Zander
Link: http://www.ted.com/talks/benjamin_zander_on_music_and_passion?language=en#t-29426

In this talk, Zander is presenting a topic which rings near to my affections: the power of classical music. Trained in music as a child, I learned early on that music is more than a primitive echo of emotions, more than drums simulating the human heartbeat and some teenage kid whining over unrequited love. It’s a complex tapestry to appeal to the intellect as well as to a wide range of emotional experiences.

But more than that, what I want to show with this video is how Zander feels about people. His audience is not a sea of faceless receptacles to receive his message, he’s passionately interested in connecting to them, in trying to communicate what he feels, and receiving a response that confirms the success of his attempts. I want you to see what it is to truly care about people. This is something the best teachers always know.

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Is a Brain a Machine?

I have come up with the following definition of a machine:

A machine is a construct built by humans to accomplish a purpose, which implies that incorrect operation can be repaired or the unit trashed.

A machine can be repaired because we know the details of its fabrication and what it’s supposed to do, because we designed and built it. A machine can be discarded rather than repaired because we can make another one just like it.

This does not describe a human being, or any biological organism for that matter. People, plants and animals were built by evolution and biological processes, not by human designers and engineers. This means that we have to guess at the details of their construction and how they’re supposed to work, and no matter how accurate the guess, it remains a spectator’s view. An automobile comes with a shop manual telling maintenance personnel the device’s proper configuration, specifications, and operation, and detailing routine repair procedures. The shop manual was written by the car’s designers and takes into account the designers’ intentions for the vehicle. We don’t know the intentions for the designer of a giraffe or a human being; there isn’t one.

The “shop manual” for the human organism can’t be fit into one volume. Medical textbooks span dozens and hundreds of books. Understanding how the body works is such a complicated task that trained experts have to specialize in order to master their field, and there are still many details that remain unknown.

The reason to distinguish between machines, where the specifications are clearly and comprehensively understood, and organisms, where they are not, is to approach care and treatment with the appropriate caution and deference. We can’t always repair a person, and we shouldn’t casually discard them because we can’t make a replacement. One Bach, one Einstein, one Picasso is all we get.

There are other ways to define the word “machine,” some of which can be applied to people and other biological entities insofar as we believe the lowest level details of their behavior are governed by the same natural laws as everything else, but no other definition of the word captures this essential difference in moral responsibility, or correctly represents the epistemological gap between what we think the thing is and what it actually is.

By this definition, the human brain is not a machine.

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The Philosophical Relevance of the Brain

Lately I’ve been trying to write a position statement on the relevance of neuroscience to an understanding of human mental behavior, and I have found it a very difficult and frustrating project. This difficulty arises from the conflict of several factors. The first is the evident truth that brain facts do affect us, at the gross level of brain injury, alcoholic inebriation, and so on, but also in the peculiar effects of different stages of development in those parts of the brain responsible for moral judgement. This is like saying that a small engine can’t make a car go as fast as a big engine. It’s true, but it’s not that simple. Both kinds of cars can perform useful tasks, and both kinds of cars have value.

The second factor complicating the relationship involves causality. The explanations of human behavior are often, if not almost always concerned with real-world external facts, and not with the particularities of neural structure. For example, we want to go to the store because there’s a sale on bathroom tissue, and not just because the R12 ganglion is firing. The fact of the sale on bathroom tissue explains the expedition; the state of the R12 ganglion does not.

The third factor has to do with the difference between reduction and explanation. This can perhaps best be illustrated by a recent discussion of how much the price of a bottle of wine influences a person’s enjoyment of the wine. The speaker pointed out that in certain tests conducted under scientific conditions, it was determined that people who drank a certain wine, and were told it had a high price, enjoyed the wine more than people who drank that same wine but were told it was cheap. What’s more, observations of their brain while they were drinking the wine confirmed that the former drinkers actually did enjoy it more. Now, this involves a reduction. It’s easy to see on a brain scan that a part of the brain is more active than another part: the active part shows up brighter. But how do you know that part of the brain signifies pleasure?

There’s only one way to find out. You have to set up a lab experiment where the subject is exposed to some sort of pleasurable experience, and then observe what’s happening in their brain. This establishes a correspondence between the phenomenology (“feeling pleasure”) and the neural facts (activation of the cingulate cortex, for example). Note that you can’t predict the phenomenology of a neural structure just from the facts of its structure and connections, because these facts are not phenomenological. They aren’t about feelings and subjective experience; they’re just structural. Consequently, the correlation between a particular neural fact and a particular phenomenology is known only through empirical observation and not on any deeper theoretical knowledge.

The upshot of this difference between reduction and explanation is that the reduction of mental phenomena to neural facts loses its relevance to the external world and human behavior, and this relevance can only be re-established empirically. On the other hand, if we really want to know why Susan goes shopping, you have to address her motivations in terms of what shopping is and facts about the store, and not in terms of her brain, even though the brain is clearly required to support the behavior.

These observations are not sufficient to resolve our difficulties. What’s at stake is what we can expect to learn from brain science, whether we can expect psychology to be replaced with brain science (I don’t think so), and whether an understanding of mind as brain is overly reductionist.

In a recent lecture, John Searle said “All of our conscious states without exception are caused by lower level neurobiological processes in the brain, and they are realized in the brain as higher level or system features.” [“Consciousness & the Brain: John Searle at TEDxCERN,” https://www.youtube.com/watch?v=j_OPQgPIdKg .]” I have to take exception to this position. Some of the neurophysiological processes in the brain are caused by the person’s relationships to the real world and their meaning to her, and so the problem is one of understanding how the meaning of a computational sequence can affect the results of the computational sequence, because that’s what happens. And yet we don’t clearly understand how meaning affects the process.

This is like trying to understand how arithmetic determines the results of a series of operations on a calculator, which it does, even though the calculator doesn’t do arithmetic, it does electronics. An exploration of how causal relations can exist between levels of abstract behavior is what we need here.

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Happy Planet Index

Title: The Happy Planet Index
Speaker: Nic Marks
Link: http://www.ted.com/talks/nic_marks_the_happy_planet_index

Marks suggests that the best economy is not necessarily the one that makes the most money but the one that most improves our general happiness. It seems clear, at least to me, that money by itself does not bring happiness. In management training, I was taught that a worker’s pay is called a disincentive because, if you pay too little, it causes discontent, but beyond a certain point, paying more does not increase productivity; there’s a law of diminishing returns. Workers work for many reasons; only one of them is to collect a paycheck.

These observations lead to the conclusion that a good society emphasizes values besides money, and a great society excels in ways that have nothing to do with profit and wealth.

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Who is Nellie McKay?

There are two reasons I’m writing this, firstly to convince you (or me) that I’m serious about providing some sort of guide to finding good talks on TED, and secondly, because this particular video affects me deeply, no doubt for some deep-seated psychological reason I can’t or don’t want to identify.

Nellie McKay presents two songs. Okay, she’s not Julie Andrews. She has a soft, gentle voice, gets the pitch right, and sounds a bit whimsical, but the overall effect is very personal. I get the feeling she’s singing to me and not just a huge auditorium. Maybe you’ll like that, maybe you won’t. It’s more for people who like heart than drama. The first song is humorous, sarcastic, funny, a scathing reprise of all the repudiating rhetoric we’ve heard against the social movement called “Feminism.” If you have any sympathy with the struggle of women to gain self-respect and equality in our time, I think you’ll like the way Miz McKay comments on the subject. The second song is a linguistic encoding of the feeling of romantic love, and you should be warned, it could leave you in tears.

I give this one “two thumbs up.”

Title:Nellie McKay: “Mother of Pearl,” “If I Had You”
Speaker: Nellie McKay
Link: http://www.ted.com/talks/nellie_mckay_sings_feminists_and_if_i_had_you#t-201032

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