In “How Capitalism Exploits Workers,” we saw how capitalism distributes wealth away from the many who create it and into the hands of the few. What went unstated was how this causes economic failure.

To keep the economic system running effectively, wages must rise with profits and productivity. Marx stressed, “The ultimate reason for all real crises always remains the poverty and restricted consumption of the masses.”^[1] Economist Nouriel Roubini writes:

At some point, capitalism can destroy itself. You cannot keep on shifting income from labor to capital without having an excess capacity and a lack of aggregate demand…the firm, to survive and thrive, can push labor costs more and more down, but labor costs are someone else’s income and consumption. That’s why it’s a self-destructive process.^[2]

In other words, if corporations (the producers) get wealthier and the common people (the consumers) do not, the natural result is too much production capacity and not enough consumption. The people cannot afford the goods of booming industry, goods created by their own labor! The accumulation of profit without a proportionate rise in wages leads to economic contraction, and with it greater poverty for the masses and lower profits for corporations.

The booms and busts of the economy, times of prosperity (for some at least) followed by times of widespread unemployment, falling wages, foreclosure, homelessness, and hunger, are built into the system. “The history of capitalism is a history of periodic lurches into crisis, into the insanity of unemployed workers going hungry outside empty factories, while stocks of ‘unwanted’ goods rot.”^[3] Conservative economists argue crises are caused by government meddling in the free market, such as the swelling of the money supply. While this can indeed have harmful effects (the Federal Reserve printing out billions devalues the dollar and leads to runaway inflation), it is not the cause of economic crises. Neither is government control of bank interest rates, or other forms of State regulation of the free market. The free market puts itself into crisis. It is important to remember there are certain ideologies that are very useful to the wealthy and powerful, and are peddled by them in every sector of society. In an In These Times article, David Harvey writes:

The steady decline in labor’s share of national income since the 1970s derived from the declining political and economic power of labor as capital mobilized technologies, unemployment, off-shoring and anti-labor politics (such as those of Margaret Thatcher and Ronald Reagan) to crush all opposition. As Alan Budd, an economic advisor to Margaret Thatcher confessed in an unguarded moment, anti-inflation policies of the 1980s turned out to be “a very good way to raise unemployment, and raising unemployment was an extremely desirable way of reducing the strength of the working classes… What was engineered there in Marxist terms was a crisis of capitalism which recreated a reserve army of labour and has allowed capitalists to make high profits ever since”…

Many thought that lack of effective demand underpinned the Great Depression of the 1930s. This inspired Keynesian expansionary policies after World War II and resulted in some reductions in inequalities of incomes (though not so much of wealth) in the midst of strong demand-led growth. But this solution rested on the relative empowerment of labor and the construction of the “social state”… By the end of the 1960s it became clear to many capitalists that they needed to do something about the excessive power of labor. Hence the demotion of Keynes from the pantheon of respectable economists, the switch to the supply side thinking of Milton Friedman, the crusade to stabilize if not reduce taxation, to deconstruct the social state and to discipline the forces of labor.^[4]

Despite the reasons the upper class provides, it is the under-consumption caused by low wages and the competition of capitalists that cause depressions. The competitive spending between firms sets the stage for a terrible collapse. As Einstein wrote, “The profit motive, in conjunction with competition among capitalists, is responsible for an instability in the accumulation and utilization of capital which leads to increasingly severe depressions.”^[5]

In years when borrowing rates are low, raw materials cheap, worker wages pitiful, new technology available, capitalists see a chance to increase their profits, expand their businesses and market share, and destroy competitors. They stampede into investment all at once, building new factories, buying new land, technologies, and raw materials, and hiring workers. This is the boom time. Firms benefit from the spending of all other firms. Each firm can sell more to some and buy more from others, and profits rise. Many unskilled workers find employment. Skilled workers often see a rise in wages. Consumers are spending more money. Production takes off, and the economy prospers.^[6]

But all good things must come to an end. Massive competitive demand eventually creates shortages in and thus raises the prices of raw materials, technology, land, available loans, skilled employees, and so on, which starts eroding profits. These increased costs raise the prices of consumer goods, and consumers buy less. During the boom time, after all, most of the new wealth and prosperity went to the capitalists at the top of society. The consumer base benefited a little, but not enough to prevent what’s about to occur. Quickly, the capitalists stampede out of investment. They saw the writing on the wall. Production is scaled back. Workers are fired. Rising unemployment then cripples consumption further – winding down production, cutting pay or hours, and letting employees go all deepen the crisis, rather than pull the economy out of it. Things spiral downward. Depression sets in.^[7]

The result is a huge waste of both our productive capacity and human talent. During the recession beginning in 2008, about 30% of our industrial capacity stood idle.^[8] Excess goods typically go to waste because no profit can be made from them – people cannot afford them. Workers desperately need work, and much work needs to be done to better society, but they will not find it from capitalists. Corporations sit on their money, refusing to invest. National wealth stays with the capitalists, as the pockets of the majority empty to stay alive. More and more people fall into debt, and are forced to compete with millions of others for dismal jobs, forcing down wages further. The larger employers will survive the crises intact, until eventually low interest rates, low worker wages, and cheaper raw materials begin the process again.^[9]

A system where the production of wealth is controlled by the profit-driven few causes economic instability. Since industrial capitalism arose 200 years ago, the advanced capitalist nations of the world have been devastated by crises in each decade. So the U.S. saw depressions in the 1810s, 1820s, and 1830s just as it did in the 1980s, 1990s, and 2000s. Obviously, the increasing interconnectivity between national economies meant countries brought each other into crises like a collapsing house of cards. Globalization ensured global meltdowns.

Marx and Engels are famous for criticizing the crises of capitalism. They wrote in The Communist Manifesto that each economic bust put capitalism on trial:

In these crises a great part not only of existing products, but also of the previously created productive forces, are periodically destroyed. In these crises there breaks out an epidemic that in all earlier epochs would have seemed an absurdity—the epidemic of overproduction. Society suddenly finds itself put back into a state of momentary barbarism; it appears as if a famine, a universal war of devastation had cut off the supply of every means of subsistence; industry and commerce seem to be destroyed; and why? Because there is too much civilization, too much means of subsistence, too much industry, too much commerce.^[10]

“And how does the bourgeoisie get over these crises?” he asks. “On the one hand by enforced destruction of a mass of productive forces; on the other, by the conquest of new markets and by the more thorough exploitation of the old ones. That is to say, by paving the way for more extensive and more destructive crises and by diminishing the means whereby crises are prevented.”^[11] Scaling back production, massive layoffs, and pay cuts deepen the crisis, rather than helping pull an economy out of it.

This critique is not at all a relic of Marx’s time. In his 2013 article “What Wal-Mart Could Learn from Henry Ford,” former Secretary of Labor and political economist Robert Reich writes of “the basic economic bargain that lies at the heart of a modern economy”:

Workers are also consumers. Their earnings are continuously recycled to buy the goods and services that they and other workers produce. But if their earnings are inadequate and this basic bargain is broken, an economy produces more than its people are capable of buying.^[12]

Reich points out that some executives and owners understood this, like Henry Ford. Socialist Michael Harrington noted the same in his 1989 book Socialism: Past and Future:

Mass production, Ford understood, could not exist unless there was mass consumption. The enormous increase in output made possible by the new technology that he had perfected—the assembly line—simply could not be absorbed by an economy of low-paid workers…

So Ford decided before World War I to pay the incredible wage of five dollars a day and to help buyers finance the purchase of his cars in order to deal with the new challenges of both production and consumption. More than that, Ford tried to persuade his fellow industrialists that, in their own self-interest, they should increase the pay—and the buying power—of their “hands” just as he had done. He succeeded in winning over converts, usually when there was a crisis—the Rockefellers joined the movement when their hired guns outraged the nation by killing strikers’ wives and children in Colorado—and mainly in the ranks of big business…labor historian David Brody called these changes in attitude in the United States “welfare capitalism”…

Ford and welfare capitalism made some prominent recruits—Herbert Hoover, who was something of an avant-garde Republican in the early 1920s, was one of them—but he failed to convince the capitalist class as a whole. Big business was mildly and sporadically receptive, but by and large decency toward the workers, even if it helped stop union organization, was seen as an extra cost, putting firms at a competitive disadvantage. Thus when the crash came in 1929, after a decade that had witnessed an extraordinary rationalization of production, a tremendous increase in capacity and productivity ended, just as Ford had feared, with the masses utterly unable to “buy back” the work of their own hands.^[13]

Ford wrote in his book Today and Tomorrow (1926) that

The owner, the employees, and the buying public are all one and the same, and unless an industry can so manage itself as to keep wages high and prices low it destroys itself, for otherwise it limits the number of its customers. One’s own employees ought to be one’s own best customers… We increased the buying power of our own people, and they increased the buying power of other people, and so on and on. It is this thought of enlarging buying power by paying high wages and selling at low prices that is behind the prosperity of this country.

Economist Paul Krugman writes in “A Permanent Slump?” (2013) that economists are increasingly accepting what Marx predicted in the late 1800s, that our economy is now “an economy whose normal condition is one of inadequate demand—of at least mild depression—and which only gets anywhere close to full employment when it is being buoyed by bubbles…and unstable borrowing.”^[14] Empirical studies support this; for example, a 2014 report from the International Monetary Fund itself confirmed lower inequality is strongly correlated with faster and more stable economic growth.^[15] In 2016, the IMF repeated this warning: “Increased inequality…hurts the level and sustainability of growth.”^[16] The Congressional Research Service looked at 65 years of data and concluded that tax cuts for the rich have no impact on economic growth. Simply giving more money to the rich does not fuel economic growth, as some claim (it will actually do the opposite if the wealth gap grows too large). Economic growth is fueled by the masses, by consumers. Only enriching the poor can bring about economic stability.

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Notes

^[1] Karl Marx, Capital Volume 3

^[2] Economist Nouriel Roubini (2011), from Lee Sustar’s article Why Marx Was Right

^[3] Harman, Economics of the Madhouse

^[4] http://inthesetimes.com/article/16722/taking_on_capital_without_marx

^[5] Einstein, Why Socialism

^[6] Harman, How Marxism Works, 45

^[7] Harman, How Marxism Works, 45

^[8] Richard Wolff, Occupy the Economy

^[9] A People’s History of the World and How Marxism Works, Harman; The Communist Manifesto, Marx and Engels; 23 Things They Don’t Tell You About Capitalism, Chang; Power Systems, Chomsky; Recovery in U.S. is Lifting Profits, but Not Adding Jobs, Schwartz, NY Times 3/3/2013

^[10] Marx, Manifesto, 13

^[11] Marx, Manifesto, 13

^[12] http://www.kansascity.com/opinion/opn-columns-blogs/syndicated-columnists/article332088/What-Walmart-could-learn-from-Henry-Ford.html

^[13] Michael Harrington, Socialism: Past and Future

^[14] http://www.nytimes.com/2013/11/18/opinion/krugman-a-permanent-slump.html?_r=0

^[15] http://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf

^[16] https://www.theguardian.com/business/2016/may/27/austerity-policies-do-more-harm-than-good-imf-study-concludes

Capitalism is the insanity of a company making a fortune each year but paying the very people whose labors created this wealth so little they live in poverty.

In 2011, Walmart made $15.7 billion in profits, or net income after expenses and taxes; its CEO took $17.6 million in total compensation and its average U.S. employee made $22,100.^[1] The CEO made almost 800 times what his average American employee earned. Over the last few decades, executive pay and corporate profits skyrocketed, while worker wages in America barely budged. On average, American CEOs are earning some 300 times the annual pay of their workers (in 1965 it was a 20:1 ratio). That’s just salaries – forget about the value of company shares that come with ownership! The Walton family, which owns the majority shares of Walmart, is worth $140 billion. Nike makes over $4 billion in profit, and its founder is worth $25 billion. In a matter of decades or even mere years, the capitalist’s wealth explodes – thousands, millions, billions of dollars. Are the workers who made this possible also growing tens of thousands or hundreds of thousands of times richer? This is also merely a comparison to American workers. Corporations like Walmart, H&M, and Gap find it more profitable to exploit impoverish Third World nations, so they move plants overseas and pay people starvation wages. Bangladesh employees suffered through terribly unsafe working conditions (1,100 died in 2013 when their factory collapsed in on them; others burned to death in early 2015 in a factory without proper sprinkler systems^[2]) to earn on average $1,097 in 2011, meaning the CEO made more money than 16,043 of his foreign laborers.

Is the value of a capitalist’s daily work really 800 times greater than an employee’s? Or 16,000 times greater? This is like believing the work of the king a thousand times more valuable than the work of the serf, whose very labors keep the king’s belly full. It is simple exploitation, a ruling minority growing wealthy off the hard labors of the poor majority. Business owners use their workers and the wealth created by worker hands to grow rich and live easier, more luxurious lives. Decision-making power is under the total control of one person, or a small handful of directors, making a business very much a dictatorship.

Richard D. Wolff, economics professor at the University of Massachusetts-Amherst, writes:

[We] need to democratize our enterprises. We need to stop an economic system in which all the enterprises that produce the goods and services we depend upon are organized un-democratically. The vast majority of people come to work Monday through Friday, 9:00 a.m. to 5:00 p.m. They arrive and they use their brains and muscles to work with equipment provided by the employer to produce an output, a good or a service. At the end of the day they go home. They take with them their brain and their body, but they leave behind what they’ve produced, and the employer takes it and sells it and makes as much money as possible.

Who makes all the decisions in this arrangement? A tiny group of people. In most U.S. corporations, that group is called the board of directors, fifteen to twenty people who decide what to produce, how to produce, where to produce, and what to do with the profits. And who selects these people? The major shareholders. Another tiny group of fifteen to twenty people. They make all the decisions. The vast majority of working people make no decisions. If the company decides to close down here and go somewhere else, what does that mean? It means that a small group of board members and major shareholders are moving the factory from Ohio to Canton, China…all the people who work in the Ohio plant are going to lose their jobs…

We permit that decision to be made by a minority. That’s capitalism. And we’ve allowed it as a system to dominate over democracy as a system. The majority of people who have to live with the consequences of a decision ought to participate in making it, but they don’t…^[3]

Apologists for this system argue, as Chris Harman writes in Economics of the Madhouse, that “profits… [are] a reward to the capitalist for using his wealth to employ people rather for his own immediate consumption.”^[4] We take exploitation for granted, hardly giving it a second thought. The capitalist deserves his millions, doesn’t he? He built a business from nothing, he worked hard for decades to make it profitable, he gave others jobs.

Well, in the beginning the founder creates the good or provides the service (creating the wealth), but without workers he or she cannot produce on a scale larger than him- or herself. Would Bill Gates be where he is today without employees?

The founder must hire workers and become a manager, leaving the workers to take his place as producer. The capitalist exploits workers because it is they who create the wealth by producing the good or providing the service. For the capitalist, the sale of each good or service must cover the cost of production, the cost of labor (worker compensation), and a little extra: profit the owner uses as he or she chooses. Therefore workers are not paid the full value of what they produce. This is exploitation. The wealth the workers produce is controlled and pocketed by the capitalist. The capitalist awards herself much while keeping worker wages as low as possible–to increase profits. The capitalist holds all decision-making power, making capitalism authoritarian as well as a grand theft from the people who generate wealth. Capitalism is the few growing rich off the labor of the many.

Say a woman begins a business by herself. She is creating her own wealth, selling a good or service to others and exploiting no one when she decides how much profit she will keep for herself as income and how much she will use to invest and expand. Should this woman take an equal partner, and they together decide where to take their business and what earnings to subtract from the year’s profits, exploitation is still a non-issue. But when the woman assumes a managerial role by hiring people to perform the good or service, they will not democratically decide earnings or business goals. As the owner, the woman will retain total decision-making control, and take a larger income out of the profit pool than she will award to her employees.

Exploitation has begun. The workers are creating the commodity, but the capitalist will reap more of the wealth created by their hands than they will. The capitalist, while perhaps still working hard, is no longer doing the miserable tasks necessary to directly generate wealth. Anyone who has held a job would surely agree with Marx: “In proportion, therefore, as the repulsiveness of the work increases, the wage decreases.”^[5] The owner no longer scrubs dishes in the back of a fast food joint or operates sweatshop machines sewing our clothing. Instead, she decides what to do with the profits created by others. And by taking more of the wealth as personal income, she steadily builds for herself a better life. She keeps worker wages down to protect profits, her means of making a higher income and expanding her business. She will hire more people, but they will be exploited too, the majority of the wealth they create being appropriated by her, “not by force,” as Einstein noted, “but on the whole in faithful compliance with legally established rules.”^[6] The workers do not get to take an equitable portion of the money they have made for the company. Their wages are kept low by the capitalist, their lives seeing little improvement unless they strike to convince her that more of the profits should go to those who produced it.

Privately, capitalists will admit that they grow wealthy at the expense of labor, as in Citigroup’s 2005 and 2006 internal strategy documents.

Expanding on the absurdities, Harman points out:

Employing people involves buying their labor. If a capitalist gets a profit for doing this, than everyone else who buys something should get a profit… [Plus,] the capitalist does not sacrifice his existing wealth when he invests. In fact, his investment preserves its worth, while profit is something he gets on top for doing nothing.

So if real profit rates are 10 percent (quite a low figure by capitalist standards) someone with a million pounds to invest can spend £100,000 a year (£2,000 a week) on indulging themselves in the most unabstemious way and still be worth as much at the end of the year as at the beginning—and get another £100,000 the next year for doing nothing…

What is really happening, Marx insisted, is that the capitalist is able to make a profit by seizing some of the labour of his workers.^[7]

Even Adam Smith, author of what is now considered a conservative bible, The Wealth of Nations (1776), knew that wealth is created by the labor of workers. He wrote:

The real price of everything, what it really costs the men who want to acquire it, is the toil and trouble of acquiring it… It is not by gold or silver, but by labour, that all the wealth of the world was originally purchased, and its value to those who possess it and who want to exchange it for some other object, is precisely equal to the quantity of labour which it enables them to purchase or command.^[8]

He noted how profit was the wealth generated by labor that was taken by the capitalist:

The landlord demands a share of almost all the produce which the labourer can either raise or collect from it. His rent makes the first deduction from the produce of the labour which is employed upon the land… The produce of almost all other labour is subject to the like deduction of profit… He shares in the produce of their labour…and this share consists his profit.^[9]

Smith also describes the fundamental clash of interests between workers and owners, the poor and the rich, and the imbalance of power between them:

The interests of the two parties are by no means the same. The workmen desire to get as much as possible, 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 difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute and force the other into compliance with their terms.^[10]

This description of an adversarial relationship is similar to what University of Oxford fellow G. A. Cohen wrote in his little book Why Not Socialism? in 2009, when he discussed what the cash reward motive of the marketplace did to people:

It is true that people can engage in market activity under other inspirations, but the motives of greed and fear are what the market brings to prominence, and that includes the greed on behalf of, and fear for the safety of, one’s family. Even when one’s concerns are thus wider than those of one’s mere self, the market posture is greedy and fearful in that one’s opposite-number marketers are predominantly seen as possible sources of enrichments, and as threats to one’s success.^[11]

Smith, comparing feudalism with the property owners and business owners of his time, wrote, “All for ourselves and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind.”^[12] Chomsky notes that Smith believed in markets because he thought free markets could produce perfect equality, and give workers a chance to control their own work and lives.^[13] This was before early capitalism had full formed into industrial capitalism. Smith’s ideas were later accepted by and expanded upon by Marx, who knew that even when capitalists provide machines, factories, or tools for the worker to use to generate new wealth, that technology was likewise the product of labor, which was also exploited by capitalist owners, and on and on into the past. This reveals the absurdity of capitalist claims that they are the true creators of wealth. Workers create wealth and create the machines that enable other workers to do the same. Capitalists are not the creators of wealth, they are the hoarders of wealth created by others. And as we will see in our discussion of worker ownership, capitalist control is by no means necessary to run a business.

Abraham Lincoln, while no socialist, understood all this. As John Nichols points out in The “S” Word: A Short History of an American Tradition…Socialism, Lincoln was close to socialist editor of the New York Tribune Horace Greeley, befriended and allied himself with radicals who fled after the failed revolutions in Europe in 1848 (some of them friends of Marx), appointed one socialist as his assistant secretary of war and another his ambassador to Spain, and even cordially corresponded with Marx, who opposed black slavery, about the American Civil War.^[14] Lincoln said in his 1861 State of the Union Address:

Labor is prior to and independent of capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration. Capital has its rights, which are as worthy of protection as any other rights. Nor is it denied that there is, and probably always will be, a relation between labor and capital producing mutual benefits. The error is in assuming that the whole labor of community exists within that relation. A few men own capital, and that few avoid labor themselves, and with their capital hire or buy another few to labor for them…^[15]

But, one might protest, isn’t it the capitalist’s right as creator of the company to do this? Shouldn’t ideals of basic human freedom allow her to delegate more unpleasant tasks to employees, to award herself more money than employees, and to maintain all decision-making power over the business she launched? It seems you are hinting at, one might say, a structure where the employees have decision-making power and award themselves higher, equal incomes.

Socialistic worker cooperatives are the goal indeed, as explained in detail elsewhere. They are non-exploitative, democratic institutions. This is about human freedom for the many, the workers. To put it bluntly, it is about a higher form of ethical thinking. After all, the freedom for business owners has often come at the expense of the freedom of workers, such as when the former desires the “freedom” to refuse to higher women, blacks, Hispanics, gays, and so on, or the “freedom” to pay them less than white males. Dr. King once said humanity needed “a revolution of values”—I think the idea applies here. Whose freedom will we prioritize? How much do we value democracy? Will we reject exploitation and poverty? Humanity must move beyond a system that transforms the labor of the majority into the riches of the minority. An ethical person should not tolerate a system that embraces authoritarianism, exploits the labor of others, and creates massive inequality.

Dylan Monahan says:

It goes without saying that capitalism causes economic inequality. This is actually a point of pride for defenders of the system—they believe that the free market thrives because the deserving few are rewarded. The Marxist critique of capitalism takes the exact opposite position: The tiny few who live so well compared to the rest of us are completely undeserving of their immense wealth—they amassed their fortunes through systematic theft of the labor of the working majority in society.^[16]

Apologists insist that under capitalism, everyone is free to sell their labor to whomever they wish. So if the woman exploits you, you can work elsewhere. However:

As Marx put it, ‘the worker can leave the individual capitalist to whom he hires himself whenever he likes… But the worker, whose sole source of livelihood is the sale of his labor, cannot leave the whole class of purchasers, that is the capitalist class, without renouncing his existence.’

The worker may not be a slave, the personal property of one capitalist. But he or she is a ‘wage slave’, compelled to toil for some member of the class of capitalists. This puts the worker in a position where he or she has to accept a wage less than the total product of their labour. The value of their wage under capitalism is never nearly as big as the value of the labour they actually do.^[17]

Einstein agreed: “What the worker receives is determined not by the real value of the goods he produces, but by his minimum needs and by the capitalists’ requirements for labor power in relation to the number of workers competing for jobs. It is important to understand that even in theory the payment of the worker is not determined by the value of his product.”^[18] Remember how the price of a good or service is divided up. The worker’s wage is not equal to the value of what he or she produces, because if it was there would be no profit for the capitalist.

Because you and your fellow workers are not adequately paid for the value of your labor, capitalist profits can build up immensely while your own wages improve only marginally, remain the same, or even fall.

Take a company that announces a ‘net rate profit’ of 10 per cent. It is saying that if the cost of all the machinery, factories and so on that they own is £100 million, then they are left with £10 million profit after paying the wages, raw material costs and the cost of replacing machinery that wears out in a year.

You don’t have to be a genius to see that after ten years the company will have made a total profit of £100 million—the full cost of the original investment…the capitalist is twice as wealthy as before. He owns his original investment and the accumulated profits.

The worker, in the mean time, has sacrificed most of his life’s energy to working eight hours a day, 48 weeks a year, in the factory. Is he twice as well off at the end of that time as at the beginning? You bet your boots he’s not.^[19]

This is why our minimum wage is absurd. The prosperity of the business class has skyrocketed, but worker wages have stagnated. In the 1960s and 70s, average CEO compensation was 30-40 times greater than the average worker compensation. Today, it’s on average 300-400 times greater (in 2011, the J.C. Penny CEO earned 1,795 times as much as the average department store worker^[20]). From 1979 to 2013, middle class incomes rose only 6 percent, while lower class incomes fell 5%.^[21] According to The New York Times, in 2012 corporate profits comprised its largest share of the national income since 1950, but employees had nearly its smallest portion of the national income since 1966.^[22] Productivity rose 72.2% from 1973-2014, while hourly compensation rose only 9.2% (but owners’ compensation rose with the productivity, up 63.3%).^[23] See The Last Article on the Minimum Wage You Will Ever Need to Read for a refutation of conservative myths on the topic.

The massive increases in the prosperity of the corporate class can allow for substantial increases in worker wages. In fact, wages must rise with profits and productivity to preserve a stable and successful economy, to allow buyers to keep up with production. But the free market, in pursuit of profit, doesn’t do this. The richest 1% saw its share of the national income double since 1979. The share of the richest 0.1% almost tripled. Between 1989 and 2006, the top 10% in the U.S. appropriated 91% of the income growth; the top 1% took 59%!^[24] Between 2009 and 2012, 95% of income gains went to the top 1%.^[25] Income inequality worsens. More wealth is concentrated in fewer hands. There exists

trillions in cash the so-called “job creators” and “captains of industry” have parked unproductively in bank accounts, while millions of able and willing workers languish in unemployment. The top 1% have as much wealth as the bottom 95%. The richest 400 families in the U.S. have as much wealth as the bottom 50% of the population… The poorest 50% own just 2.5% of the country’s wealth.^[26]

The bottom 80% of the people own 16% of American wealth, and the share of the top 1% is nearing 50%.^[27] Globally, the richest 85 people have more money than the poorest 3.5 billion. The bottom half of earth’s population has less than 1% of humanity’s wealth, the top 10% of the population has 86% (the top 1%, 46%).^[28] 82% of wealth created in 2017 went to the world’s richest 1%.

Besides increased productivity and employers taking higher percentages of profits as salaries, all while wages remain stagnant, why else does this wealth gap keep growing?

There are many factors, but let us consider a few major ones. First, capitalists shift to temporary, contract, or part-time workers who don’t get benefits. Second, they invest in new technology that makes their systems more automated, allowing them to further reduce their workforce and save on labor costs. I have written more on technology under capitalism (versus under socialism) elsewhere. Third, as union membership and collective bargaining power shrink, income inequality grows. Finally, firms outsource their workforces to places like China, Bangladesh, Mexico, and the Philippines, since they can get away with paying workers pennies in comparison to American employees, with the added benefit of weaker environmental and workplace safety regulations. The conditions of the factories overseas are often horrific. Sometimes workers live at the factory, packed into dormitories like sardines. They work long hours at exhausting speeds, and can be exposed to dangerous toxins. Companies like Apple have had to deal with suicide scandals, as some workers cannot tolerate the conditions (Goldin, Smith, and Smith, Imagine: Living in a Socialist USA).

Outsourcing became common practice, as capitalism grew more global and corporations became international. There are sometimes strategic exceptions to these trends (raising wages is used by corporations to gain highly-skilled, specialized workers, drive competitors into the ground by sapping their workforce, or, among an enlightened few, to prevent economic failure by increasing consumer purchasing power). But keeping low-skill labor costs down is central to higher revenue, and is the driving force behind the loss of American jobs and the brutal exploitation of foreign workers. In the 2000s, the largest U.S. corporations alone, employing a fifth of American workers, reduced their American workforce by 3 million jobs while increasing outsourced jobs by 2.5 million. The nation as a whole sent 3 million jobs to China alone between 2001 and 2013. Some 14 million people work for American corporations overseas – far higher than the typical U.S. unemployment rate. Most at risk are manufacturing jobs, as well as call center, tech, and human resources jobs.

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Notes

^[1] http://fortune.com/fortune500/2012/wal-mart-stores-inc-2/

^[2] http://www.cbsnews.com/news/the-bangladesh-factory-collapse-one-year-later/; http://www.wsws.org/en/articles/2015/02/03/bang-f03.html

^[3] Wolff, Occupy the Economy

^[4] Harman, Madhouse

^[5] Marx, Communist Manifesto

^[6] Einstein, “Why Socialism?”

^[7] Harman, Madhouse

^[8] Smith, Wealth of Nations

^[9] Smith, Wealth of Nations

^[10] Smith, Wealth of Nations

^[11] Cohen, Why Not Socialism?

^[12] Smith, Wealth of Nations

^[13] Chomsky, Anarchism

^[14] Nichols, The S-Word

^[15] http://www.presidency.ucsb.edu/ws/?pid=29502

^[16] http://socialistworker.org/2014/03/31/snapshots-of-inequality

^[17] Harman, Madhouse

^[18] Einstein, “Why Socialism?”

^[19] Harman, Madhouse

^[20] http://www.bloomberg.com/news/2013-04-30/ceo-pay-1-795-to-1-multiple-of-workers-skirts-law-as-sec-delays.html

^[21] http://www.epi.org/publication/charting-wage-stagnation/

^[22] http://www.nytimes.com/2013/03/04/business/economy/corporate-profits-soar-as-worker-income-limps.html

^[23] http://www.epi.org/publication/the-top-charts-of-2015/?utm_content=buffer791fd&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer

^[24] Milanovic, The Haves and Have Nots

^[25]http://www.slate.com/blogs/moneybox/2013/09/10/one_percent_recovery_95_percent_of_gains_have_gone_to_the_top_one_percent.html

^[26] http://www.marxist.com/is-capitalism-dying.htm

^[27] http://www.people.hbs.edu/mnorton/norton%20ariely.pdf

^[28] http://www.washingtonpost.com/blogs/wonkblog/wp/2014/01/22/10-startling-facts-about-global-wealth-inequality/

In Wage-Labour and Capital, Marx posited: “The share of (profit) increases in the same proportion in which the share of labour (wages) falls, and vice versa. Profit rises in the same degree in which wages fall; it falls in the same degree in which wages rise.” 

He was talking about the relationship between wages and profits, both of which are garnered from the sale of a good or service. The business owner splits the money from the sale of a commodity in three basic ways. Part of it goes toward replacing the raw materials, and maintaining the machines, technology, and facilities needed to create the commodity at current production levels; part of it goes to the workers as wages; the last part of it goes to the capitalist as a profit. This profit is earnings over the cost of production; in other words, after the cost of creating commodities and paying workers is covered, it is extra money the owner can use as he wishes—to expand his business, to create more commodities, to build new factories or stores, to hire more workers, to raise wages, to give himself a fat paycheck, anything. No matter the price of a good or service, each one of these parts stands in proportion to the other two.

Capitalist competition drives the hunt for new means of production, in an attempt to create more products with less money. The division of labor and new technology will often mean fewer workers are necessary to produce the same output, but will always mean that a single worker can produce more product in a given amount of time than he could before. A business will therefore be able to sell its product for a lower price (undercutting the competition and seizing a larger share of the market) and increase profits at the same time (as a larger share of the market means more people are buying its product).

When this happens, Marx writes:

Profit, indeed, has not risen because wages have fallen, but wages have fallen because profit has risen. With the same amount of another man’s labour the capitalist has bought a larger amount of exchange values [reaped more profit] without having paid more for the labour…the work is paid for [with] less in proportion to the net gain which it yields to the capitalist.

With new technologies, the owner is getting higher productivity, more products, and more sales, while paying the worker the same wage. With a lower cost of production, a greater proportion of the sale price can go to the capitalist. With a larger share of the market and increased sales, the capitalist will take in larger profits for himself and his business and can decide whether or not he wants to increase wages to reward the very people who created his wealth. And sometimes he does, and “real” wages rise. But there remains a difference between real wages (what’s on your paycheck) and relative wages (the proportion of your paycheck to company profits). Marx writes:

Profits can grow rapidly only when the price of labour—the relative wages—decrease just as rapidly. Relative wages may fall, although real wages rise simultaneously with…the money value of labour, provided only that the real wage does not rise in the same proportion as the profit. If, for instance, in good business years wages rise 5 per cent. While profits rise 30 per cent., the proportional, the relative wage has not increased, but decreased.

To increase wages in the same proportion as increased profits is unthinkable for the owner—if he did that his proportion of profits would remain the same as if he hadn’t invested in new technologies. He would still be getting more money, naturally, but he wouldn’t be seizing a larger proportion.

This process is without end. Competition will drive someone else to divide labor further or use a new technology, someone will reap a larger share of a given market with a lower price, and profits will rise out of proportion to worker wages. The effect:

If, therefore, the [real] income of the worker increases with the rapid growth of capital, there is at the same time a widening of the social chasm that divides the worker from the capitalist, an increase in the power of capital over labour, a greater dependence of labour on capital.

The competition-driven frenzy to invest in new technology and get rid of workers, to increase productive output and profits, widens the power gap between the producers and the consumers. A worker who is fired, or whose wages are slashed, cannot fuel the economy as much as he had previously. But this is done at the same time productivity increases. So productive output grows as worker purchasing power shrinks. Socialist and famous adventure writer Jack London marveled at this, writing:

In the face of the facts that modern man lives more wretchedly than the cave-man, and that his producing power is a thousand times greater than that of the cave-man, no other conclusion is possible than that the capitalist class has mismanaged…criminally and selfishly mismanaged. (Zinn, A People’s History of the United States)

This system is obviously exploitive. Corporate owners enrich themselves and leave worker wages stagnant. A tiny few is growing unbelievably wealthy off the work of the many. As Mark Twain said, “Who are the oppressors? The few: the king, the capitalist and a handful of other overseers and superintendents. Who are the oppressed? The many: the nations of the earth; the valuable personages; the workers; they that make the bread that the soft-handed and idle eat.”

All wealth is created directly by workers, who make the good or provide the service. American Socialist Eugene Debs proclaimed, “I am opposing a social order in which it is possible for one man who does absolutely nothing that is useful to amass a fortune of hundreds of millions of dollars, while millions of men and women who work all the days of their lives secure barely enough for a wretched existence.” The money people do secure, of course, is quickly given back to capitalists as people pay for food, clothing, rent, and fuel.

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The Russians have a long history of battling for basic human rights and true anarchist democracy, as documented in Daniel Guerin’s Anarchism, published in 1970.

In 1905, the Russian people rose up in rebellion against the brutal dictatorship of the czar and the horrendous inequality between the ruling and lower class. 150,000 impoverished workers protested their tragic living and working conditions in the capital of St. Petersburg in January, agitation that led to Russian soldiers at the White Palace firing into the unarmed crowd. The “Bloody Sunday” massacre sparked a revolution: nearly half a million people went on strike across the nation, clashing with police, who shot people down in the streets; sailors and soldiers mutinied against their officers; peasants attacked the homes of their landlords; Baltic peoples demanded independence; students rioted at their universities; and terrorists assassinated government officials and military and police commanders. Workers seized factories and businesses from their employers, taking ownership by force. In St. Petersburg, anarchists and socialists helped set up worker councils called “soviets,” true anarchist organization. The people and their leaders demanded an elected parliament, voting rights, freedom of the press and religion, and the right to form political parties. In other words, they demanded basic individual rights and a less autocratic system of government that other parts of the world, such as the United States, had won. Daniel Guerin writes:

The Russian Revolution was, in fact, a great mass movement, a wave rising from the people which passed over and submerged ideological formations. It belonged to no one, unless to the people. In so far as it was an authentic revolution, taking its impulse from the bottom upward and spontaneously producing the organs of direct democracy, it presented all the characteristics of a social revolution with libertarian tendencies.^[1]

The State of course responded with repression: the army was dispatched to destroy the worker councils and disperse strikes, protesters were imprisoned, and some citizens were executed. Well over 10,000 people died, and scores of thousands more imprisoned. Nevertheless, power yielded hesitantly to ever increasing demand and strife. Toward the end of 1905, Czar Nicholas II agreed to broadened personal freedoms and the establishment of an elected parliament, expressed in the October Manifesto. The working people celebrated. However, as under the American oligarchy, the new Constitution of 1906 granted little power to the people. The czar retained veto power over all law, the power to elect half the legislature of the new parliament the revolutionaries had called for, and total power over the military and the church. These concessions satisfied few socialists, many of whom still pushed for the overthrow of the czar.

Struggles for more freedom, political power, and decent living conditions continued, exploding violently again in February 1917. Russian soldiers, horribly unprepared for the Great War against Germany, were being slaughtered, wounded, and imprisoned by the millions. Troops were mutinying and deserting by the tens of thousands each month. The people were starving, commodities scarce, inflation skyrocketing. The czar consistently worked to weaken the elected parliament.

On February 23, 90,000 people went on strike and marched in Petrograd (formerly St. Petersburg), demanding food and an end to the war. Tens of thousands more joined them, until Petrograd fell into chaos. Many of the strikers were women, who were left to suffer in the factories and plants as men were shipped to the bloodbath of Europe. Army groups were sent to crush the strikes, but soldiers refused to fire upon women, and many joined the protestors. Workers again took control of their workplaces. Peasants seized the land of the agricultural bosses. Socialist political parties recreated the 1905 soviet. The people organized socialist communities characterized by cooperatively- and communally-owned government, childcare facilities, kitchens, laundries, farms, and factories, and also characterized by personal freedoms when homosexuality, abortion, and birth control were legalized.^[2]

Without the power of the military, the czar surrendered his power in March.

But the battle was far from over. As the world has been reminded in the recent Arab Spring, the ousting of a dictator often leaves political establishments in the best position to take control. The political party that took charge of the transition government, the Constitutional Democratic Party (Kadets), had been a liberal party born during the 1905 revolution, but was distinctly non-socialist, made up of political elites and aristocrats led by Prince Georgy Lvov. The transition government was expected to organize elections for a Constituent Assembly, in which the people would democratically select representatives to compose a new government. But the Kadets announced they would continue the war, and would not organize such elections until the war was concluded. This outraged the people, and a new wave of massive protests shook Russia. Half a million workers and soldiers marched on July 1, 1917 in Petrograd alone; they called for the war’s end and all political power to be handed over to the soviets, the worker councils. Hundreds of soviets banded together into an All-Russian Congress of Soviets. The Kadet government responded with the usual means of repression, but was forced to yield in July; Alexander Kerensky, from a coalition of socialist parties, was made the new prime minister by the political establishment. But Kerensky also refused to organize a Constituent Assembly. He declared himself commander-in-chief and Russia a republic.

Civil unrest continued, and more and more the soviets, having no political power of their own, looked toward a party called the Bolsheviks for representation. The Bolsheviks, led by Lenin, would increase in popularity and come to dominate the All-Russian Congress of Soviets, taking the reigns of the worker revolution, and would thus become an enemy of the Kerensky regime. But the Bolsheviks did not hold the anti-statist views of anarchists, other socialists, or even much of the citizenry. Lenin rejected free speech, and said that the workers were “a hundred times further to the left”^[3] than he or the Bolsheviks. In fact, “The anti-Bolshevik, left-wing labor movement opposed the Leninists because they did not go far enough… [Leninists] used the international radical movement to satisfy specifically Russian needs, which soon became synonymous with the needs of the Bolshevik Party-State.”^[4]

Guerin wrote that the party “had been authoritarians for a long time, and were imbued with ideas of the State, of dictatorship, of centralization, of a ruling party, of management of the economy from above, of all things which were in flagrant contradiction with a really libertarian conception of soviet democracy.”^[5] Lenin wrote before the October 1917 Revolution that the anti-capitalist organization of industry should be overseen by the State, that it should seize a monopoly over all industry and operate in the interests of the people and not capitalist owners.^[6] The Bolsheviks even “regarded the soviets with suspicion as embarrassing competitors.”^[7] They were interested in ending capitalism and building a new, prosperous Russia without suffering or poverty, but without question sought the power to oversee this process themselves as a ruling party. But in order to appeal to a far more liberal base, the party often had to offer support to ideas that contradicted their traditional beliefs. In the words of the anarchist Voline, “in order to catch the imagination of the masses, gain their confidence and their sympathy, the Bolshevik Party announced…slogans which had up till then been characteristic…of anarchism,”^[8] like “All power to the soviets!” The party had to make concessions here and there and play along with certain ideas in order to survive and grow.

As soviets across Russia pressured the All-Russian Congress of Soviets to end the Kerensky government, the Bolsheviks organized an armed uprising that faced no real resistance. On November 7, Lenin led tens of thousands of armed supporters to the government buildings in Petrograd and took them over. The Winter Palace was seized and the Kerensky officials were arrested. The Bolsheviks seized power, and while it was legitimized by the soviets and a cause for celebration among much of the citizenry, libertarian socialists and anarchists were dismayed. Voline wrote:

Once they have consolidated and legalized their power, the Bolsheviks–who are socialists, politicians, and believers in the State, that is to say, centralists and authoritarian men of action–will begin to arrange the life of the country and the people by governmental and dictatorial means imposed from the centers… Your soviets…will gradually become simply executive organs of the will of the central government… An authoritarian political state apparatus will be set up and, acting from above, it will seek to crush everything with its iron fist… Woe betide anyone who is not in agreement with the central authority.^[9]

Anarchist Errico Malatesta warned that the

…armed forces which have served to defend the Revolution against external enemies…tomorrow will serve to impose the will of the dictators on the workers, to check the course of the Revolution, to consolidate newly established interests, and to defend a newly privileged class against the masses. Lenin, Trotsky, and their companions are certainly sincere revolutionaries, but they are preparing the government cadres which will enable their successors to profit by the Revolution and kill it. They will be the first victims of their own methods.^[10]

And all this is precisely what happened. Despite a 1918-1922 civil war, in which other political parties and anti-Bolshevik organizations battled to remove Lenin and his party, despite intervention by the United States military and other Allied powers, and despite persistent riots and strikes against their regime, the Bolsheviks became the ruling party of Russia. They arrested and executed political opponents, crushed independence movements among peoples like the Ukrainians, and established a bureaucracy of directors to manage the economy. Many of these directors were wealthy capitalists “left over from old Russian capitalism, who had adapted themselves all too quickly to institutions of the soviet type, and had got themselves into responsible positions in the various commissariats, insisting that economic management should be entrusted to them and not to workers’ organizations.”^[11] They dismantled worker cooperatives, refusing to allow any factory or company to operate with its own democratic will. Government dictators replaced capitalist dictators. The workers and the soviet worker councils had no real power, and were subject to all decisions made by the State.^[12] Anarchist groups became the most active and the most popular among the Russian people by 1918, but the Bolsheviks systematically crushed their movement by 1921, criminalizing anarchist literature and activities, then arresting, exiling, or executing anarchists and other libertarians.^[13] The dream of worker self-management in Russia died under authoritarian socialists, under communists, under “the vilest and most dangerous lie of our century…Red Bureaucracy,” as Mikhail Bakunin said.^[14] He declared:

I detest communism because it is the negation of liberty and I cannot conceive anything human without liberty. I am not a communist because communism concentrates all the powers of society and absorbs them into the State, because it leads inevitably to the centralization of property in the hands of the State, while I want to see the State abolished. I want the complete elimination of the authoritarian principle of state tutelage which has always subjected, oppressed, exploited, and depraved men while claiming to moralize and civilize them. I want society, and collective or social property, to be organized from the bottom up through free association and not from the top down by authority of any kind… In that sense I am a collectivist and not at all a communist.^[15]

Though crushed in Russia, the soviet worker councils inspired other ordinary people throughout Europe, in Ukraine, Italy, Spain, Germany, Holland, Bavaria. Guerin writes of Ukraine, which was shaken by peasant revolts and saw brief independence after World War I:

Peasants united in “communes” or “free-work soviets,” and communally tilled the land for which they had fought with their former owners. These groups respected the principles of equality and fraternity. Each man, woman, or child had to work in proportion to his or her strength, and comrades elected to temporary managerial functions subsequently returned to their regular work alongside the other members of the communes.

This Bolsheviks destroyed this movement also.

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Notes

^[1] Guerin, 82

^[2] Maass, Case for Socialism, 133

^[3] Guerin, 83

^[4] Paul Mattick, Marx and Keynes: The Limits of the Mixed Economy (Boston: Porter Sargent, 1969), p. 295.

^[5] Guerin, 86

^[6] Guerin, 86-87

^[7] Guerin, 84

^[8] Guerin, 85

^[9] Guerin, 87-88

^[10] Guerin, 112

^[11] Guerin, 90

^[12] Guerin, 91

^[13] Guerin, 95-96

^[14] Guerin, 22

^[15] Guerin, 22

Put simply, capitalism is an economic system characterized by the private ownership of business and industry, where earning a profit by selling a good or service is each owner’s basic and necessary goal. Private firms compete to seize a larger and larger share of a given market, to meet (and, in the modern world of advertising, create) the demands of the greatest possible number of consumers, the ultimate success being driving one’s competitors out by underselling them. The capitalist (the owner) can take a greater piece of the market with each competitor that goes under, resulting in more profits. Profits not only enrich the capitalist personally, they allow the firm to expand into markets in other cities, nations, or continents. They allow a commodity to be sold at a lower price. They provide opportunities for investment in new technologies that reduce the cost of production, the number of hours needed to create a commodity, and the number of workers the capitalist needs to employ.

But to accomplish all these things, the capitalist needs workers. He needs them to produce and sell his product at a rate and on a scale he cannot do himself. The workers need currency to survive, so they sell their labor to the capitalists for a wage. The capitalist exploits the workers, as it is the workers who create the wealth. Workers construct the good or provide the service, thus producing the wealth, which is controlled, and pocketed, by the capitalist. The capitalist awards herself much while keeping worker wages as low as possible–to increase profits. The capitalist holds all decision-making power, making capitalism authoritarian as well as a grand theft from the people who generate wealth. Capitalism is the few growing rich off the labor of the many.

Capitalism was a revolutionary change that brought with it unimaginable advances in technology and living standards. While its negative impacts on human society (exploitation and theft, authoritarianism, environmental destruction, etc.) are clear, it also had a positive impact, and one need not read Marxist literature long to notice many authors give an appreciative nod to its inception and early development, an example of which you will see below. Capitalism is still a young enterprise—it has not existed since the beginning of time. As British socialist Chris Harman writes, “Capitalism as a way of organizing the whole production of a country is barely three or four centuries old. As a way of organizing the whole production of the world, it is at most 150 years old” (How Marxism Works). Competition between private firms that use wage-labor has been the driving force of human economics for but a moment in the lifetime of our race, so those who view capitalism as the zenith of economic progress may one day be disappointed. Modern humans have been on earth for 100,000 years and, as Harman notes, “it would be remarkable indeed if a way of running things that has existed for less than 0.5 percent of our species’ lifespan were to endure for the rest of it.”

Much older than capitalism is the division of society into classes, and it is important to understand the origins and societal effects of this phenomenon in order to understand the rise of capitalism.

For 95,000 years, most human societies were characterized by “primitive communism,” in which labor was cooperative and resources were distributed equally or according to need. Anthropologist Richard Lee writes, “Before the rise of the state and the entrenchment of social inequality, people lived for millennia in small-scale kin-based social groups, in which the core institutions of economic life included collective or common ownership of land and resources, generalised reciprocity in the distribution of food, and relatively egalitarian political relations” (see Harman). People’s survival depended on cooperation, which necessitated a classless form of social organization and political leadership. Sometimes, men and women had equal power, and revered leaders usually worked alongside everyone else. Many Native American nations were structured like this only a century ago, and some isolated aboriginal tribes still are in the Pacific and South America.

Human society started changing when agricultural surpluses during the Urban Revolution of 10,000-5,000 B.C. created the specialization of work, which gave rise to class divisions, the State, and the exploitation of the masses under an economic system called feudalism. New technologies allowed food production (and the human population) to explode, and it became necessary for certain individuals in each community to guard and manage stored food. That fell to leaders who had once worked alongside the people, often religious leaders. When cooperation was no longer required for survival, social structures became divided into upper and lower classes. We see that in the most ancient of nation-states, such as Egypt. Those divisions have characterized the last 5% of human existence.

So most human societies now had a small minority of rulers and a huge majority of laborers, and all the exploitation and inequality that comes with such a structure. Though capitalism has similar characteristics, feudalism dominated human societies from 5,000 B.C. to the 15th century A.D. Workers labored not for capitalists who compete with other firms for more profits and market control, but to provide wealth and luxury to powerful heads of state. Harman explains:

The emergence of civilisation is usually thought of as one of the great steps forward in human history—indeed, as the step that separates history from prehistory. But it was accompanied wherever it happened by other, negative changes: by the development for the first time of class divisions, with a privileged minority living off the labour of everyone else, and by the setting up of bodies of armed men, of soldiers and secret police—in other words, a state machine—so as to enforce this minority’s rule on the rest of society.

Under feudalism, your resources and labor were devoted to pharaoh, the emperor, the king, or to your local feudal lord. The vast majority of people worked in agriculture, and did not sell their labor for a wage (soldiers were a notable exception). Production was limited to self-contained estates, and workers (“serfs”) were stuck in unshakable caste systems. One did not expect his or her lot in life to improve or change in any way before death. Most people exchanged their labor for protection, turning over large portions of their produce to the lord and receiving in return the protection of the lord’s armies from bandits and enemy lords, though of course this “exchange” was usually forced upon the poor through conquest and violence. Serfs were by no means allowed to leave as they chose—that would hurt the rulers. There was widespread oppression of the peasant masses by the rulers and their armies, and by the church as well, which demanded portions of crops as tithes.

During this time, there were small numbers of artisans, merchants, and traders in towns selling goods for individual profit, but they worked alone, as a family, or with an apprentice. There were also those who loaned money. But merchants held no economic power over others. Like peasants, they produced a good or service in order to survive, but their goods had to be exchanged for money so the family could in turn purchase agricultural produce. Money had little significance beyond a lord’s need to pay soldiers for their services or a merchant’s need for a means to put food on the table. True wealth was in land. It gave workers a way to feed themselves, and lords sought land through conquest to gain more resources, workers, and power—to live in greater luxury. So the work output of most people enriched the lives of the nobility, and under such a system there was little means for workers to improve production techniques or technology.

But things slowly changed in the 15th century. In Europe, plague destroyed a huge percentage of the population in the 14th century. The surviving nobles demanded more and more goods from the merchants in the towns. Towns thus became more important and more work opened up there for roaming free laborers and escaped serfs. The surviving peasants seized the best land from the dead, and were able to produce more. As a result, trade networks sprung up, markets grew more important in feudal society than isolated production on estates, and living standards rose. Exploration, conquest, and the enslavement of foreign lands and people led to globalization and international trade that made some merchants rich alongside kings, queens, and men of the church.

The “putting-out system” provided peasants a new way of making a living and thus weakened the economic power of the feudal lord. It was also an infant form of capitalist exploitation. Merchants bought the raw materials needed to make a commodity, and paid poor peasants to carry out production. Thus, “the direct robbery of the products of peasant labour was replaced by a system in which individual workers voluntarily accepted less than the full value of their products in return for being supplied with raw materials or tools” (Harman, A People’s History of the World). The poor had not the resources to buy or own the means of production—the raw materials and technology. To survive they were forced to accept whatever payment the merchant offered. Payment was dismal, as the merchant desired and needed profit—money from the sale of a good left over after all production and labor costs had been paid—to continue and improve his way of life. He kept wages low to keep more money for himself.

Importantly, for the common people wealth could be now be amassed in currency. Survival could be ensured by selling one’s labor for a wage (one who did so Marxists called a proletarian, an employer of wage labor being the bourgeois, the merchant, the capitalist). Over the next four centuries, merchants increasingly supervised production (though it was a very slow change, as until the Industrial Revolution of the late 1700s and early 1800s the vast majority of people still did not work for a wage, were not employees of someone else; see Curl, For All the People). New technologies revolutionized production and garnered huge profits. Markets became global. The merchant class grew larger and richer, and more industries were organized under firms with one person employing a larger and larger labor force. Industrial capitalism was born. Marx observed in The Communist Manifesto in 1848:

Modern industry has converted the little workshop of the patriarchal master into the great factory of the industrial capitalist. Masses of laborers, crowded into the factory, are organized like soldiers. As privates of the industrial army they are placed under the command of a perfect hierarchy of officers and sergeants. Not only are they slaves of the bourgeois class and of the bourgeois State; they are daily and hourly enslaved by the machine, by the overseer and, above all, by the individual bourgeois manufacturer himself. The more openly this despotism proclaims gain to be its end and aim, the more petty, the more hateful and the more embittering it is.

Yet American socialist Michael Harrington called capitalism “the greatest achievement of humankind in history” because “political power no longer had to be authoritarian, for it had ceased to be the principal instrument of economic coercion” (Socialism: Past and Future). Private ownership and competition weakened the power of feudal lords, though “the shifts in social structure opened up possibilities of freedom and justice, not inevitabilities.” In many ways, capitalism helped push the world in that direction. Marx wrote the bourgeoisie “put an end to all feudal, patriarchal, idyllic relations. It has pitilessly torn asunder the motley feudal ties that bound man to his ‘natural superiors.'” Unfortunately, the change only substituted one form of minority rule for another. The power of the church and of ruling dynasties declined, and the power of the capitalist class increased. “In one word,” Marx wrote, “for exploitation, veiled by religious and political illusions, [the capitalist class] has substituted naked, shameless, direct, brutal exploitation.”

He also noted, “Each step in the development of the bourgeoisie was accompanied by a corresponding political advance of that class,” from “an oppressed class under the sway of the feudal nobility” to today, where “the executive of the modern State is but a committee for managing the common affairs of the whole bourgeoisie.” Within each nation, as a capitalist class grew and gained colossal wealth, it gained political power, advancing to the top of the social hierarchy, until it “conquered for itself, in the modern representative State, exclusive political sway.”

Over the centuries, capitalists solidified control of political power, and in many ways this slowed down the development of liberty and democracy. It was no longer the king or feudal lord oppressing the class of businessmen and the class of laborers, it was the class of wealthy ruling businessmen (like George Washington, James Madison, and Alexander Hamilton  in the United States) oppressing the class of laborers. To repeat what Dr. King wrote, “[Capitalism] started out with a noble and high motive, viz., to block the trade monopolies of nobles, but like most human systems it fell victim to the very thing it was revolting against.” New oppressors took over, and like back then the governments of many advanced societies today mostly serve the interests of big business, because politicians are also business leaders or are bought off by them in the form of lobbying, campaign contributions, and so on.

As under feudalism, the majority experienced barbaric treatment at the hands of the minority, not just physical mistreatment in deadly working conditions but also the robbery of their wealth, the wealth workers created with their own hands. The capitalist owners exploited the labor of the people, keeping them poor and desperate while enriching themselves, a problem that still exists. To quote The Communist Manifesto:

The history of all past society has consisted in the development of class antagonisms, antagonisms that assumed different forms at different epochs. But whatever forms they may have taken, one fact is common to all past ages, viz., the exploitation of one part of society by the other. No wonder, then, that the social consciousness of past ages, despite all the multiplicity and variety it displays, moves within certain common forms, or general ideas, which cannot completely vanish except with the total disappearance of class antagonisms.

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