Capitalism and Post-Capitalism Explained

Popular discussions of capitalism’s end and the emergence of a post-capitalist society are often full of confusion and muddled-thinking. Unnecessary debates and pointless digressions arise wasting everyone’s time. There are probably many reasons for this but one looms larger than all others — A failure to precisely define exactly what capitalism is.

Some use the term so loosely that capitalism seems to refer to almost any type of economic activity. Others have in mind the idea of enterprise, of buying and selling, or of making a profit in general. None of these conceptions are helpful.

A textbook definition might include aspects like the private ownership of the means of production ( often reduced to the confusing formula “the private ownership of property”), or the existence of more or less free and open markets, and of prices being set by those markets. These may be true aspects of a capitalist system but they are not the defining aspects.

The defining aspect of a capitalist system, what sets a mode of production apart as truly capitalistic, is its unique relations of production.

Understand this and you will understand exactly why the Rise of the Robots will precipitate the emergence of a post-capitalist society and gain insight into what form the new social order is likely to take.

So what do we mean by uniquely capitalist relations of production? We refer to the class antagonism between the owners of capital and the workers they employ. This explanation requires further explanation because the term “class” is used here in a very specific manner. We are accustomed to hearing the word “class” in socioeconomic terms as referring to one’s station or ranking in society — middle-class, upper-class, lower-middle-class, upper-lower-class, etc.. Or we may hear the term “class warfare” used to refer to the interests of the working-class in opposition to the interests of the wealthy. Neither of these are the precise definition we are seeking.

In this context, “class” refers simply to which variable of the economic equation c+v+s=w,  one is represented by in any given instance.

As you may recall capitalists invest capital in profitable ventures (at least, they hope they will be profitable). This investment has two facets, the fixed investment (c) and the variable investment (v). The fixed, or constant facet includes such items as the means of production — the tools or resources used to produce, for example, and the variable facet represents the labor power purchased to operate those means of production. The surplus value generated (s) belongs completely to the capitalist. Thus if you earn your living by selling your time and labor to an employer you are represented by the variable, v. If you collect the surplus value of other people’s labor and appropriate it for yourself you are represented by the variable, s. We refer to this relationship as antagonistic because these two interests are naturally at odds with one another.  If we consider the total output (w) as a fixed value we can see that v, the worker’s wages, cannot go up without s, the capitalist’s surplus value, going down, and vice versa. And this brings up a third commonly misunderstood term — exploitation.

But before we address exploitation we must further clarify a few things about class. Notice our definition includes the phrase “in any given instance.” Some people earn their livelihoods entirely off the labor of others. Some earn money only by selling their labor-power on the labor market. But in an advanced economy many incomes contain aspects of both. Workers often have some type of 401k or retirement account through which they profit financially (at least, that’s the idea). No matter how blue-collar one’s occupation, this is profit accruing from s. We can say however that one’s overall interests should reasonably lie on the side which dominates one’s economic circumstances. Thus, despite what that woman in the black pantsuit in those commercials tries to tell you, you don’t really “own an oil company” and the oil company’s interests and your’s are not necessarily aligned.

One other aspect of class which is often confused is the idea of the middle-class. The common usage of this term refers to people earning some range of income near the mean in society. Technically, middle-class refers to those who are neither capitalist nor proletariat. These include self- employed professionals such as lawyers, doctors, artists, etc., as well as those who run their own small-businesses. Again, people in this class may at times engage in transactions in which they play the v or s role, but non-class transactions predominate.

Finally, it should be clear by now that class, properly speaking has nothing to do with income. As a proletariat, I may earn many times more than what some struggling capitalist might manage to squeeze-out. It’s a matter of which variable one is described by, not percent of the take. Those things which suppress wages increase profits and those things which inflate wages eat into what would otherwise be collected as profits. These facts engender certain self-interested mindsets which form the basis of class antagonisms.

Now to clarify the term exploitation.

Returning to our equation c+v+s=w we can see that exploitation is nothing more or less than the relationship between v and s.

Thus we can say that the rate of exploitation is the same as the rate of surplus value and is represented by s/v.

In Capital vol.1, Marx gives the example of a capitalist enterprise which advances £410 in constant capital (c) and £90 in variable capital (v). This amount of investment generates a surplus value of £90.

Now according to “the usual way of reckoning” the capitalist’s rate of surplus value is 18% because 90 / 500 = .18, but this, Marx explains, is to confuse the rate of profit with the rate of surplus value.

The rate of surplus value is the measure of how much value the labor is generating versus what the labor is costing.

So it is really represented by 90 /90 or 100%.

Imagine I own a sub shop and pay my employee $10 per hour. I sell on average 5 subs per hour for $5 each. My employee’s labor produces $25 worth of value each hour but I only pay him $10. My rate of exploitation is 25 / 10 or 250%.

Now you may be thinking what about my other expenses, the c component of my investment? Those costs exist, of course, but they affect my profit margin independent of my employee’s productivity.

Imagine that demand for my subs increases and I am now selling 10 subs per hour. My fixed costs increase only marginally,  I still pay my employee $10 per hour, but my profits are higher and my employee is getting a smaller fraction of the value of his labor. My rate of exploitation is now 500% (50/10).

If demand for my subs increased exponentially and I had to hire more employees each making 10 subs per hour and each being paid $10 per hour my fixed investment increases only marginally again but I get to collect all of that surplus value for myself. If I decide to increase the price of my subs to $7 each I keep all that extra cash for myself also.

Now here is an important point and the source of much misunderstanding. If, when I raise the price of my subs to $7 I also decide to give my employees a raise to $12 per hour, the rate of exploitation still goes up. 70/12 = 583%

Therefore, an employee can be experiencing an increase in wages and a rising standard of living while the rate of exploitation is increasing.

Exploitation is simply a relationship between s and v and technically does not imply abuse or mistreatment. In theory the employee could earn many times more than the employer receives from the labor process. But if the rate of exploitation drops too low any intelligent capitalist will take his money elsewhere in search of higher profits.

In capitalist relations of production the employees must always produce appreciably more value than they are paid, otherwise there is no incentive for the capitalist to continue the relationship.

Now, you may be wondering about the capitalist’s fixed, or constant investment. If the capitalist owners shell out a lot of money for upgraded equipment and tools which make the employees much more efficient and productive, aren’t they entitled to the increased surplus value? Yes, of course they are, and as a rule they generally take it. There is no direct correlation between increased productivity and increased wages, despite popular misconceptions. In fact, as more work is accomplished with fewer and fewer workers wages can actually stagnate or go down due to increased unemployment and the laws of supply and demand at play in the labor market. More people applying for fewer job openings means employers can hold wages down while cherry-picking the most suitable candidates for a position out of a larger field of applicants, all while pocketing the increased surplus value.

So this is the true nature of capitalist relations of production. They are antagonistic and exploitative. To speak of post-capitalism is to speak of the time when these relations are no longer compatible with our new methods of production. Rising technological unemployment, the by-product of incessant capitalist innovation, will eventually strain these relations to the breaking point. (In a future post we will discuss why this technological revolution will not create sufficient new job opportunities in the long run.)

When the proletariat class no longer feeds the capitalist class but must instead be fed by it, the old capitalist relations of production will no longer serve the needs of either class.  Post-capitalist relations of production, and with them the post-capitalist society, must be encouraged to emerge.