It is said that we live under capitalism,
and there appears to be no particular reason to deny it, though it is difficult
to define with precision. Investopedia defines it as an “an economic
system in which private individuals or businesses own capital goods. The
production of goods and services is based on supply and demand in the general
market—known as a market economy—rather than through central planning....” [1] “Capital goods,”
for those not diseased with economic curiosity, “are physical assets that a
company uses in the production process to manufacture products and services
that consumers will later use” including “buildings, machinery, equipment,
vehicles, and tools.” [2]
Since we live in a system where capital
goods are privately owned by those who compete in a market economy, we’ll
accept that the economic system in the United States is properly called
“capitalism.” And it is evident that we will be living in a capitalist system
regardless of whether Democrats or Republicans are in power, notwithstanding
the political polemic that accuses one of those parties of yearning to bring
socialism upon us.
That being established, perhaps trivially,
it is important that we understand that capitalism contains three
contradictions. The first is between the interests of the owners of capital
goods—the capitalists—and those who own no capital goods and work for the
capitalists—the workers. The second and third contradictions I will address in subsequent
posts in these pages.
Now, in the real world, one person might
meet both of those descriptions. She might own the business, but also perform
work and pay herself a salary. He might be an employee that has purchased stock
in the company he works for. In such situations one person will be both
capitalist and worker for the same firm. But the latter situation doesn’t
usually occur, and there are some people who simply own an interest in one
business or more and perform no work, simply living off the dividends, or
receiving a share of the profits. In any event, it is useful to consider the
capitalists and the workers as discreet economic entities in order to see the
contradiction I wish to highlight.
“The purest form of capitalism is free
market or laissez-faire capitalism. Here, private individuals are unrestrained.
They may determine where to invest, what to produce or sell, and at which
prices to exchange goods and services. The laissez-faire marketplace operates
without checks or controls.” This exists nowhere in the world in such an
unalloyed pattern, but it is nonetheless aspirational for many. The idea is
that goods and services will be produced and sold for such prices as are
determined by the market, without government interference. The production and
sale of automobiles and apples, it is anticipated, will achieve a state where
just enough of them are produced to be sold at just the right price.
But this idea is also applied to labor.
The notion is that labor is a service that can and should be compensated at
just the right price according to the laws of supply and demand. Labor unions
and minimum wages are decried as interferences in the market, diminishing the
prosperity that pure capitalism promises.
That idea hasn’t been borne out by
historical experience, however. Adam Smith, the philosopher and economist who
gave us the idea of the free market, understood that the relations between capitalists
and workers was unique, and described them this way:
“What are the common wages of labour,
depends everywhere upon the contract usually made between those two parties,
whose interests are by no means the same. The workmen
desire to get as much, the masters to give as little, as possible. The
former are disposed to combine in order to raise, the latter in order to lower,
the wages of labour.
“It is not, however, difficult to foresee
which of the two parties must, upon all ordinary occasions, have the advantage
in the dispute, and force the other into a compliance with their terms. The
masters, being fewer in number, can combine much more easily: and the law,
besides, authorises, or at least does not prohibit, their combinations, while
it prohibits those of the workmen. We have no acts of parliament against
combining to lower the price of work, but many against combining to raise it.
In all such disputes, the masters can hold out much longer. A landlord, a
farmer, a master manufacturer, or merchant, though they did not employ a single
workman, could generally live a year or two upon the stocks, which they have
already acquired. Many workmen could not subsist a week, few could subsist a
month, and scarce any a year, without employment. In the long run, the workman
may be as necessary to his master as his master is to him; but the necessity is
not so immediate.
“We rarely hear, it has been said, of the
combinations of masters, though frequently of those of workmen. But whoever
imagines, upon this account, that masters rarely combine, is as ignorant of the
world as of the subject. Masters are always and everywhere in a sort of tacit,
but constant and uniform, combination, not to raise the wages of labour above
their actual rate. To violate this combination is everywhere a most unpopular
action, and a sort of reproach to a master among his neighbours and equals. We
seldom, indeed, hear of this combination, because it is the usual, and, one may
say, the natural state of things, which nobody ever hears of. Masters, too,
sometimes enter into particular combinations to sink the wages of labour even
below this rate. These are always conducted with the utmost silence and secrecy
till the moment of execution; and when the workmen yield, as they sometimes do
without resistance, though severely felt by them, they are never heard of by
other people. Such combinations, however, are frequently resisted by a contrary
defensive combination of the workmen, who sometimes, too, without any
provocation of this kind, combine, of their own accord, to raise the price of
their labour. Their usual pretences are, sometimes the high price of
provisions, sometimes the great profit which their masters make by their work.
But whether their combinations be offensive or defensive, they are always
abundantly heard of. In order to bring the point to a speedy decision, they
have always recourse to the loudest clamour, and sometimes to the most shocking
violence and outrage. They are desperate, and act with the folly and
extravagance of desperate men, who must either starve, or frighten their
masters into an immediate compliance with their demands. The masters, upon
these occasions, are just as clamorous upon the other side, and never cease to
call aloud for the assistance of the civil magistrate, and the rigorous
execution of those laws which have been enacted with so much severity against
the combination of servants, labourers, and journeymen. The workmen,
accordingly, very seldom derive any advantage from the violence of those
tumultuous combinations, which, partly from the interposition of the civil
magistrate, partly from the superior steadiness of the masters, partly from the
necessity which the greater part of the workmen are under of submitting for the
sake of present subsistence, generally end in nothing but the punishment or
ruin of the ringleaders.” [3]
This was the state of things in Great
Britain in Adam Smith’s day, and it is to be recognized that organized labor
was strictly prohibited at that time and place. Labor activity isn’t so draconianly
regulated today; but, in the United States, we are still visited with attempts
to weaken labor’s bargaining power, most notoriously with so-called
“right-to-work” laws.
Another advantage enjoyed by the
capitalists is their ability to influence legislatures. Campaigns cost money,
and there is no secret about how donations impact legislative outcomes.
Still, there are voices to be heard, even
today, that the terms of labor contracts should be left to the parties—unless,
of course, the parties agree that all employees will become members of a union.
The concept seems to be that workers should negotiate with their firms on an
individual basis, and that only in this way will workers be paid their true
market value.
But that idea has been tried, and it
didn’t work out so well for labor.
“The life of a 19th-century American
industrial worker was far from easy. Even in good times wages were low, hours
long and working conditions hazardous. Little of the wealth which the growth of
the nation had generated went to its workers. The situation was worse for women
and children, who made up a high percentage of the work force in some
industries and often received but a fraction of the wages a man could earn.
Periodic economic crises swept the nation, further eroding industrial wages and
producing high levels of unemployment.
“At the same time, the technological
improvements, which added so much to the nation’s productivity, continually
reduced the demand for skilled labor. Yet the unskilled labor pool was
constantly growing, as unprecedented numbers of immigrants—18 million between
1880 and 1910—entered the country, eager for work.
“Before 1874, when Massachusetts passed
the nation’s first legislation limiting the number of hours women and child
factory workers could perform to 10 hours a day, virtually no labor legislation
existed in the country. Indeed, it was not until the 1930s that the federal
government would become actively involved. Until then, the field was left to
the state and local authorities, few of whom were as responsive to the workers
as they were to wealthy industrialists.
“The laissez-faire capitalism, which
dominated the second half of the 19th century and fostered huge concentrations
of wealth and power, was backed by a judiciary which time and again ruled
against those who challenged the system. In this, they were merely following
the prevailing philosophy of the times. As John D. Rockefeller is reported to
have said: ‘the growth of a large business is merely a survival of the fittest.’
This ‘Social Darwinism,’ as it was known, had many proponents who argued that
any attempt to regulate business was tantamount to impeding the natural
evolution of the species.
“Yet the costs of this indifference to the
victims of capital were high. For millions, living and working conditions were
poor, and the hope of escaping from a lifetime of poverty slight. As late as
the year 1900, the United States had the highest job-related fatality rate of
any industrialized nation in the world. Most industrial workers still worked a
10-hour day (12 hours in the steel industry), yet earned from 20 to 40 percent
less than the minimum deemed necessary for a decent life. The situation was
only worse for children, whose numbers in the work force doubled between 1870
and 1900.” [3]
No wonder that, in 1891, Pope Leo XIII was
able to describe his era as one where “a small number of very rich men have
been able to lay upon the teeming masses of the laboring poor a yoke little
better than that of slavery itself.” [4] And all of this
in the interest of so-called “free enterprise.” But this is what you get when
you have firms built to have a kind of war within themselves, where the “workmen
desire to get as much, the masters to give as little, as possible.”
Thus, we have a contradiction built into
capitalism: people in the same firm pulling in opposite directions. And without
legal protections for working people, the results for labor can be dire indeed,
as history has shown. The reason why this is a problem is that an economy
should be organized so as to enhance general prosperity. But capitalism in its
inherent design applies pressure to have the opposite result for a large class
of humanity.
