Capitalist mode of production

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The capitalist mode of production is a concept in Karl Marx’s critique of political economy. For Marx, “capital”, “capitalism”, the “capitalist mode of production” and “capitalist society” referred to different phenomena. They were not all the same thing, although he sometimes treated them as synonymous in his manuscripts (a sort of shorthand).

Contents

Basic distinctions

The existence of “capital” presupposes only property relations which make it possible to make money from trade in goods, money and services, and to accumulate that money.

“Capitalism” as a chrematistic, money-making activity could exist in the shape of merchants and bankers who acted as intermediaries between non-capitalist producers engaging in simple commodity production (hence the reference to “merchant capitalism” – an economic system of banks and trading houses or trading companies in which factory industries play only a minor role, if at all).

What is specific about the “capitalist mode of production” is that all or most of the inputs and outputs of production are supplied commercially through the market (i.e. they are commodities).

This has the important consequence that the whole production process is reshaped and reorganized in line with the economic rationality of capitalism, which is expressed in price relationships between inputs and outputs (costs, sales, profits).

That is, the whole process is organized is reshaped in order to conform to “commercial logic”. Another way of saying this is that production itself becomes directly a source of capital accumulation, based on the commercial exploitation of surplus labour.

In this context, Marx refers to a transition from the “formal subsumption” of production under the power of capital to the “real subsumption” of production under the power of capital. In what he calls the “specifically capitalist mode of production”, both the technology worked with and the social organization of labour have been completely refashioned and reshaped in a commercial (profit and market-oriented) way; the “old ways of producing” (for example, crafts and cottage industries) have been completely displaced by modern industrialism.

Origins

Marx argued that capital existed incipiently or on a small scale for thousands of years, in the form of merchant and lending activities, and occasionally also as small-scale industry with some wage labour (Marx was also well aware that wage labour existed for hundreds or even thousands of years on a modest scale before the advent of capitalist industry). Simple commodity exchange, and consequently simple commodity production, which form the initial basis for the growth of capital from trade, have a very long history.

For the capitalist mode of production to emerge as a distinctive mode of production dominating the whole production process of society, many different social, economic, cultural, technical and legal-political conditions had to come together.

For most of human history, these did not come together. Capital existed, commercial trade existed, but it did not lead to industrialisation and large-scale capitalist industry. That required a whole series of conditions, namely specific technologies of mass production, the ability to independently and privately own and trade in means of production, a class of workers compelled to sell their labor power for a living, a legal framework promoting commerce, a physical infrastructure making the circulation of goods on a large scale possible, security for private accumulation, and so on. In many Third World countries, many of these conditions do not exist even today, even although there is plenty capital and labour available; the obstacles for the development of capitalist markets are less a technical matter and more a social, cultural and political problem.

A society, region or nation is “capitalist” if the predominant source of incomes and products being distributed is capitalist activity; even so, this does not yet mean necessarily that the capitalist mode of production is dominant in that society.

Defining structural criteria

Marx never provided a complete definition of the capitalist mode of production as a short summary, although in his manuscripts he sometimes attempted one.

In a sense, Das Kapital as a whole provides his “definition”. Nevertheless, it is possible to summarise the essential defining characteristics of the capitalist mode of production as follows:

  • The means of production (or capital goods) and the means of consumption (or consumer goods) are mainly produced for market sale; output is produced with the intention of sale in an open market; only through sale of output, can the owner of capital claim part of the surplus-product of human labour, and realize profits. Equally, the inputs of production are supplied through the market, as commodities. The prices of both inputs and outputs are mainly governed by the market laws of supply and demand (and ultimately by the law of value).
  • Private ownership of the means of production ("private enterprise") as effective private control and/or legally enforced ownership, with the consequence that investment and management decisions are made by private owners of capital who act autonomously from each other and, because of business secrecy and the constraints of competition, do not co-ordinate their activities according to collective, conscious planning. Enterprises are able to set their own output prices within the framework of the forces of supply and demand manifested through the market, and the development of production technology is guided by profitability criteria.
  • The corrolary of that is wage labour (“employment”) by the direct producers, who are compelled to sell their labour-power because they lack access to alternative means of subsistence (other than being self-employed or employers of labour, if only they could acquire sufficient funds) and can obtain means of consumption only through market transactions. These wage earners are mostly "free" in a double sense: they are “freed” from ownership of productive assets, and they are free to choose their employer.
  • Being carried out for market on the basis of a proliferation of fragmented decision-making processes by owners and managers of private capital, social production is mediated by competition for asset-ownership, political or economic influence, costs, sales, prices, and profits. Competition occurs between owners of capital for profits, assets and markets; between owners of capital and workers over wages and conditions; and between workers themselves over employment opportunities and civil rights.
  • The overall aim of capitalist production, under competitive pressure, is (a) to maximise net profit income (or realise a net superprofit) as much as possible, through cutting production costs, increasing sales, and monopolisation of markets and supply, (b) capital accumulation, to acquire productive and non-productive assets, and (c) to privatize both the supply of goods and services and their consumption. The larger portion of the surplus product of labor must usually be reinvested in production, since output growth and acccumulation of capital mutually depend on each other.
  • Out of preceding characteristics of the capitalist mode of production, the basic class structure of this mode of production society emerges: a class of owners and managers of private capital assets in industries and on the land, a class of wage and salary earners, a permanent reserve army of labour consisting of unemployed people, and various intermediate classes such as the self-employed (small business and farmers) and the “new middle classes” (educated or skilled professionals on higher salaries).
  • The finance of the capitalist state is heavily dependent on levying taxes from the population and on credit; that is, the capitalist state normally lacks any autonomous economic basis (such as state-owned industries or landholdings) that would guarantee sufficient income to sustain state activities. The capitalist state defines a legal framework for commerce, civil society and politics, which specifies public and private rights and duties, as well as legitimate property relations.
  • Capitalist development, occurring on private initiative in a socially unco-ordinated and unplanned way, features periodic crises of over-production (or excess capacity). This means that a critical fraction of output cannot be sold at all, or cannot be sold at prices realising the previously ruling rate of profit. The other side of over-production is the over-accumulation of productive capital: more capital is invested in production than can obtain a normal profit. The consequence is a recession (a reduced economic growth rate) or in severe cases, a depression (negative real growth, i.e. an absolute decline in output). As a corollary, mass unemployment occurs. In the history of capitalist development since 1820, there have been more than 20 of such crises; nowadays the under-utilisation of installed productive capacity is a permanent characteristic of capitalist production (capacity utilisation rates nowadays normally range from about 60% to 85%).

In examining particular manifestations of the capitalist mode of production in particular regions and epochs, it is of course possible to find exceptions to these main defining criteria. But the exceptions prove the rule, in the sense that over time, the exceptional circumstances tend to disappear.

State capitalist interpretation

As mentioned, Marx never explicitly summarised his definition of capitalism, beyond some suggestive comments in manuscripts which he did not publish himself. This has led to controversies among Marxists about how to evaluate the "capitalist" nature of society in particular countries.

Supporters of theories of state capitalism such as the International Socialists reject the definition of the capitalist mode of production given above. In their view, claimed to be more radical and revolutionary (a "socialism from below"), what really defines the capitalist mode of production is:

  • means of production which dominate the direct producers as an alien power;
  • the existence of a wage-earning working class which doesn't hold or have power;
  • the existence of an elite or ruling class which controls the country, exploiting and/or oppressing the working population.

If true, then property relations generally and private property in particular are irrelevant to the definition of capitalism. The existence of commercial relations and commodity production are also irrelevant.

Many of the state capitalist theories, (which actually originated in Germany, where they were already criticised by Frederick Engels), define "capital" only as a social relation of power and exploitation. If that power exists over the workers, and if exploitation of the workers exists, then there must be a capitalist mode of production.

This idea is based on some passages from Marx, where Marx emphasized that capital cannot exist except within a power-relationship between social classes which governs the extraction of surplus-labour. It is this power-relationship that is most important for the "state caps", everything else is secondary.

The "state-cap" definition thus emphasizes political and moral aspects, rather than objective structural characteristics.

The underlying argument is that:

  • Calling societies such as the USSR, China, Cuba and Vietnam etc. "socialist" or "communist" makes no sense and is confusing - because those societies have been just as oppressive and exploitative as capitalist societies.
  • True socialism would consist precisely in eliminating exploitation and oppression.
  • If the USSR, China, Cuba, Vietnam etc. are not, or were not, some kind of socialist societies, it is argued they must be state capitalist, just as much as Western "state capitalisms".

The "state cap" interpretation of the capitalist mode of production however remains a minor leftist interpretation, because in reality, few serious people have ever believed it. Critics argue that:

  • For the Western and Oriental bourgeoisie or capitalist class, capitalism is fundamentally about private enterprise based on private property and free markets.
  • The majority of Russian, Chinese, Cuban etc. people have viewed their own societies as being some kind of socialism.
  • Reputable Marxologists or Marx-scholars acknowledge that "state cap" interpretations cannot in truth be reconciled with Marx's own texts. Those interpretations are very selective interpretations of those texts.
  • "State-cap" theorists make their interpretation true by definition, by running together characteristics from very different historical epochs and forms of society. By the same token, they fail to identify what is specific about the socio-economic structure of different societies.
  • The "state cap" interpretation makes it difficult to understand how a transition from capitalism to socialism could occur, beyond general rhetoric about "workers power".

This does not mean that state capitalism cannot exist; of course it can, if the state plays a very big role in an otherwise capitalist society, or monopolizes a strategic resource of major economic importance. But it does mean that the concept of the capitalist mode of production shouldn't be used indiscriminately in a vulgar way.

References

  • Karl Marx, Das Kapital
  • Karl Marx, Grundrisse.
  • Alex Callinicos, "Wage Labour and State Capitalism - A reply to Peter Binns and Mike Haynes", International Socialism, second series, 12, Spring 1979.
  • Erich Farl, "The Genealogy of State Capitalism", in: International (London, IMG), Vol. 2, No. 1, 1973.
  • Anwar Shaikh, "Capital as a Social Relation" (New Palgrave article)

http://homepage.newschool.edu/~AShaikh/pal2.pdf

  • Marcel van der Linden, Western Marxism and the Soviet Union. New York: Brill Publishers, 2005 (forthcoming).
  • Fernand Braudel, Civilization and Capitalism.

See also

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