De-naturalizing Capitalism
Today I was reminded of British Prime Minister Margaret Thatcher’s infamous slogan when describing free-market capitalism: “There is no other option.” So much of the argument for capitalism is embedded in that phrase — that it is a natural outgrowth of human rights principles of freedom and free association, that the alternative is autocracy, that every pragmatic person has to come to the conclusion that capitalism is the only way. Thirtysome years later, and we’re still living in Thatcher’s world. Capitalism is hegemonic, and in most circles, any person who objects is met with polite eye-rolls at best, accusations of Maoism at worst. My goal here in this series is to undo some of that knee-jerk reaction. There are serious problems with capitalism, both conceptually and functionally, and addressing those problems should be taken seriously, not dismissed as utopianism.
Today we’re going to look at one of the keystone claims of capitalist philosophy: that capitalism is a natural outgrowth of human rights and basic freedoms, and that any other arrangement requires interfering in individual choices and preferences. Again and again I see it put forward that Capitalism is freedom, anything else is oppression. But just how “natural” is the capitalist arrangement?
Building a house
Let’s imagine a popular capitalist trope: the maker. We’ll call him Zach. Zach, in this case, makes houses. He draws the blueprints, he cuts down the trees, he hammers the boards, and at the end of all his hard work, he has a house. Now should Zach own that house, or should the government come in and take that house away from him and give it to someone else? Ignore for the sake of argument any consideration of need or productivity (those are questions for another time). Instead focus on the moral question. Zach should be rewarded for his hard work. He put in all the effort, he should get a house at the end, right?
Zach is a very common imaginary for ideological capitalists (think “We Built It,”the RNC slogan in 2012). They seem to assume that all of capitalism can be derived from Zach and people like him — makers who bring forth their own prosperity, and who are constantly under attack from that horror of horrors, the nanny state. This despite the obvious fact that “Zach” in our current economy is a tiny fraction of workers. Somehow, in lionizing the “Zachs” of the world, we ended up with a system where very few people have ownership of the space in which they labor. Nurses don’t have ownership of hospitals, retail workers don’t have ownership of shops, etc.
Let’s then imagine a slightly more modern economic arrangement. Alice and Bob decide to build a house together. Alice cuts down all the trees and provides all the material, and Bob does all the actual construction. At the end they realize that they forgot to agree on who should get to live in the house. They come to you, the mayor of their little hamlet, and ask you to decide who gets the house. Well, who should it be? What is the natural law that respects human freedom and self-determination? I suspect your decision is that there should be some measure of shared ownership. Maybe Alice should get it for half the year, and Bob for the other half or some such arrangement. Both put in effort, after all, so both should be rewarded for their labor. As a “natural” principle, ownership interests should be distributed among everyone who contributed to the completion of a project. The idea of “contribution” is a very complicated principle, however. Perhaps after you decide Alice and Bob should co-own the house, Carli visits you angrily. It turns out that while Alice and Bob were busy building a house, they relied on Carli to take care of their kids and provide their meals. Does she have an ownership interest in the house they built? “Natural” ownership rights are complicated and can quickly spiral out into communalism. Capitalism has a quicker, dirtier way out of our predicament, however. Under capitalism whomever of Alice, Bob, and Carli is rich enough should buy out the ownership interests of the other two and get full ownership of the house. Huh, this doesn’t seem like a natural principle at all.
Capital, Money, and Ownership
Money and capital are not the same thing, despite how they are taught in intro economics. It is instead more accurate to think of capital as the work Alice did in building the house: providing the materials required for a project. One can as easily conceive of Bob paying Alice for her materials as Alice paying Bob for his work; money is the key to their transaction, not capital. Carli’s work is capital, too. She is also providing the undergirding economic activity that makes the construction of the house possible. Oftentimes, we think of capital and labor as the two different inputs required for economic activity, but drawing a hard line is not nearly as easy as you might think. Capital is often just abstracted past labor — the clearing of a field, the construction of an excavator, the invention of the axe.
So what is money if not capital? For our purposes today, we can consider money as a mediating step between labor and ownership. Work gets you money (through wages), and money gets you ownership (although not usually of the thing you were working on). This is very different from the “natural” cycle in which work gets you ownership directly. Here’s another way of putting it: under capitalism, you do not own the fruits of your labor but only the labor itself, which is what you “sell” to your employer.¹ Whether this is a good economic arrangement or a bad economic arrangement is a discussion for another time. The important takeaway is that it is in no way a natural arrangement.
Ownership is the key concept here, and it’s unequal distribution drives the disparities in outcome. Ownership gives you control over how something is used. After buying Bob’s share, Alice could live in the house, or she could rent it out to her friends. She could even burn it down if she wanted. Ownership also confers some measure of risk. If the house gets washed out in a flood, Alice is left penniless, while Bob still gets his money. But critically, ownership also garners the owner future economic production over the project. If Alice does decide to rent it out, she doesn’t have to give Bob any of the proceeds. This is how, under capitalism, Alice and Bob can end up with very divergent outcomes despite having put in similar amounts of work. Alice gets all the future profits while Bob owned only his labor, which was ephemeral. Once again, the fruits of labor are “unnaturally” distributed.
The Nature of Capitalism
If capitalism is not simply the natural operations of a free market, what exactly is it? Ideological capitalists like to talk about a system of voluntary exchanges, from which modern capitalism emerged like Venus from a freedom-loving clam shell. The word “voluntary” is doing a lot of work there, and many anti-capitalists have examined how truly “voluntary” arrangements are when the alternative is starvation or homelessness. But I would like to add that capitalism is actually two types of exchanges layered on top of each other. The top layer is a series of negotiated exchanges: you talk to your employer about your salary, maybe you negotiate a raise because your labor has proven valuable. But underneath that layer is a series of structural pre-negotiations. You do not discuss with your employer whether you should instead gain a share of the profits your labors have garnered (i.e., ownership of the firm). Your ownership claims have been structurally pre-negotiated away from you.
Another way to think of structural pre-negotiations is as the list of all the things you can take or leave when you enter in a negotiation. You might want your employer to be more environmentally conscious and you are free to say so (an ownership decision, implying you ought to have control over your own labor), but if you insist, your employer will probably tell you that you are also free to quit. Capitalism is both sets of exchanges. It is simultaneously the things you have the freedom to do and all the things that have been pre-decided for you. Let me give an example. Let’s say Bob is really incensed that Alice bought ownership rights from him. He is convinced that house-builders are owed an ownership stake in the houses they build. He decides that he should include a partial ownership clause in all his future construction projects. All of a sudden, no one wants to build houses with Bob. Instead, they all go across town and hire Don for their construction needs. This is because Bob is not just involved in voluntary exchanges with individuals; he is also participating in an implicit framework of rights and claims that are socially determined. He cannot singlehandedly declare that he has an economic right to ownership. That right also has to be socially recognized, and entire economic structures have to be built to support it. At the very least, he has to get Don on board (maybe start a union). The point here is that the space of negotiation is not simply between two rationally self-interested individuals, it is also socially constructed (which can have historic artifacts, ideological positions, and can, with effort, be changed). The social structure for negotiation we have built is capitalism. It is not just freedom but a series of pre-negotiations that determine what claims will be open for negotiation and which ones will be shown the door.
Actually, structural pre-negotiation is really important. Imagine Bob is a modern worker. He is in the middle of building a high-rise when he takes a lunch break, and goes down and gets a hotdog from Carli’s corner stand. Carli says, “Hey Bob, how ‘bout we forgo the 5 bucks today and instead you pay me in partial ownership of the new luxury apartments you’re building?” Then Carli and Bob share a good laugh because the high-rise is obviously owned by Alice Development Corp, and they are working for pennies. But still, structural pre-negotiation makes exchanges much easier.² You don’t have to decide exactly how much your ownership stake is worth to you, or how much you care about the environment, or how much you object to sweatshop labor. Those things are pre-negotiated! How wonderful! No but seriously, I am all for structural pre-negotiations. Without them, every single transaction would be a tedious laundry list of competing claims. You shouldn’t have to ask how much your ownership stake is worth, it should be structurally pre-negotiated to be part of all employment contracts that you get an ownership stake. That would just be a different type of free market. There are actually many such socially constructed “free markets,” with completely different sets of structural pre-negotiations. Maybe some of those would be better, maybe some would be worse. But all would be equally “natural.”
Conclusion
In the future, I hope to look with some skepticism at how some of the structural pre-negotiations of capitalism emerged, how many of the most important theoretical assumptions of capitalism are on very unstable ground indeed, and perhaps most importantly, how capitalism is a deeply unfair and exploitative system that stands in the way of true economic growth. But all of that is a discussion for another time. Here, the important thing is that capitalism is not strongly related to a natural conception of ownership rights, nor is it the only type of free-market arrangement. Imagining a better system is not just the purview of utopians, it behooves anyone who takes economic arrangements seriously, both morally and materially. There is, in fact, no other option.
[1] Those canny readers who notice the fingerprints of Marx here are not wrong. Marx had a lot to say about labor and alienation. I hesitate to fully expound on his theories here because A. they are quite technical, and B. he has a whole other ideological theory of how labor should work. I personally find myself more attracted to Peter Kropotkin’s theory of ownership allocation, with less focus on the worker, and more focus on society writ large. Suffice to say that many theorists have found something suspicious in how capitalism treats labor.
[2] Capitalist theorists love to talk about transaction costs — the amount of effort that goes into making sure an exchange occurs. Lowering transaction costs is really good for economic activity. Think of how much easier it is to order unusual consumer goods from the internet than finding some shop miles away that might carry what you’re looking for. But how transaction costs (and who profits) are lowered is just as critical as lowering them willy-nilly.
