FPE - Capitalism

Lecture 2

What is capitalism?

There is not a single way of defining capitalism, but it is a system that is based around the idea of maximizing profi (profit driven)

Explain the basis of neoclassical (mainstream) economics:

• Capitalism is the most efficient allocator of resources and money.

• Humans sell their labour on the market.

• The price of exchange is the main cost.

• Externalities are considered as a market failure.

• Humans as self-seeking and rational choice.

• Capitalism and private property are a prerequisite for democracy. (all democracies are capitalists).

What are the two schools of neolassical economics?

Monetarist school and keynesian school.

Summarize the Monetarist school of neoclassical economics.

It is right-wing, believes that state intervention to markets is detrimental, and that there should be a small government.

Believe that the amount of money is key to the good going of the market

(also known as the Austrian school, or freshwater economics).

Summarize the Keynesian school of neoclassical economics.

It is left-wing, believes that the state has to intervene into markets in order to regulate and restimulate the economy in order to regulate and restimulate the economy in relation to prices. It believes that there should be a big and active government.

(also known as saltwater school of neoclassical economics).

How was capitalism born?

It was created out of specific historical and social conditions in England. Non-capitalism modes of production such as feudalism depended on extra-economic forces to extract surplus, such as the power of the lord, or the state. It changed to capitalism since it depends on economic needs and forces to extract surplus.

Did markets exist before capitalism? If so, how did they work back then?

In 14th century England peasants were living in land, they grew food on it and kept a portion of it but gave the rest to the lord (static system). The labour had to be separated from the means of production. Labour started to be sold.

What were enclosures?

When lords decided to close the common areas so peasants couldn’t use it.

What does capitalism depend on?

Compound growth, competition and capital creation.

Neoclassical econ and the state:

Assumes that there is a division between the state and capital (business).

Monetarist econ and the state:

Consideres that state interference with markets is detrimental to growth and prosperity.

Keynesians econ and the state:

They consider that the state is necessary to stabilise and regulate capitalism.

Marxism and the state:

Consider that the state articulates class interests and that there is no division between them.

What are the different types of capitalists? Describe them.

Merchants: they buy cheap and sell expensive.

Finance: they make more money through interest after lending.

Asset traders: stocks and shares.

The State: uses tax revenue to invest in infrastructures that stimulate growth and generate more tax revenue.

State-finance nexus:

Confluence (coming or flowing) of state and financial pwoer that distribued the ideal that state and capital were separate. It extracts interest and taxes in return for its services.

State-finance nexus in relation to the circulation of capital:

Allows it to extract monopoly rents from those who need its services.

Circulation of capital:

Commodities are sold at a marketplace for profit, then part of the profit is used to start the process again.

What is needed for money to be back in circulation?

It needs to either offer security and transactional efficiency to its depositor clients, or a rate of return. (relies on the gap between the cost of its services and the interest rate offered to savers).

What is the central nervous system for capital accumulation?

The state-finance nexus.

What shape how the state-finance sector works?

Social forces.

What are the conditions necessary for capital accumulation to flourish?

• Continuity of flow in the circulation of capital → the process cannot be interrupted.

• Interruption in the process → loss or devaluation of the capital involved.

• Spatial movement → money, resources and commodities travel.

• Capitalists reinvest in expansion rather than consume away their profits in pleasures.

What happens when the continuity of flow of capital is interrupted? How can this be avoided?

It leads to loss, but this can be avoided with higher profits.

What has been done to increase the spatial movement of money, resources and commodities?

Geographical networks have been constructed to facilitate global capital financial flows that connect zone of capital surplus with regions of capital scarcity. This reduces the friction of distance and barriers to movement.

What are the coercive laws of competition?

If I don’t, my competition will (only applicable in a competitive market, not in a monopoly).

What is the capital surplus absorption problem?

In the absence of any limits, there is a need to reinvest to expand in a compound way.

What are some potential barriers to perpetual growth?

• Scarcities of, or political difficulties with, labour supply.

• Inadequate means of production, including the ‘natural limits.’

• inappropriate technologies and organisational forms.

• resistance or inefficiencies in the labour process.

• Lack of demand backed by money to pay in the market.

  (Blockages in any of these points will disrupt the continuity of capital flow and eventually produce a devaluation).

Devaluation of capital:

When the surplus commodities cannot be sold, and when money sits without earning no rate of return, declining asset values in stocks and shares, etc.

What are the principle blockages of capital continuity flow nowadays?

• Inadequate configuration of the credit system or some crisis.

• centralisation of money power by the credit system because it endows a priviledge class of financers with potential social power over producers, etc.

  (Trust in banks is fundamental)

The market system according to Heilbroner:

It is not simple a market to exchange goods and services. It is a mechanism for sustaining and maintaining an entire society. They are political and social, as well as economic.

It is the commercialization of land, labour, and money.

It is a system organized on the basis of gain/profit motive.

When does Heilbroner believe that capitalism came to be?

13th-16th century.

How does Heilbroner believe that capitalism came to be?

• gradual emergence of national political unions: centralized monarchies.

• Change from private to national explorations, where they did not look for private gain, but instead there was a gov wanting their national profit.

• Decay of religious spirit, renaissance and protestan ethic.

• Slow monetization during Feudalism, development od rational money accounting.

What are the roles of ideas and visions that Heilbroner believes went into the formation of capitalism?

• How to create even more wealth.

• How to keep the poor poor.

• Is poverty essential to wealth, or is it a social evil?

What is capitalism according to Wood?

The dominant mode of surplus appropriation based on the dispossession of the direct producers whose surplus labour ir appropriated by purely “economic” means. (other words: system where what the producers make is taken from them by the economy itself).

What does Wood believe about commodities?

She believes that everything in a capitalist society is a commodity produced for the market.

What does Wood think the principal determinant and regulator of social reproduction is?

Market dependences.

What is market dependence?

The fact that everything society needs to reproduce itself relies on the market.

How does Wood think capitalism emerged?

She believes it emerged as a determinant of social reproduction, it was the result of changing social property relation in the English countryside, not driven by merchants or manufacturers, not inevitable or spontaneous.

Doesn’t believe it is a natural expansion of trade, or a natural consequence of human nature.

What would a liberal critique of Heilbroner be?

• Emphasizing structure over individual agency (such as entrepreneurship and innovation).

• Misrepresentation of Capitalism’s benefits.

  • Lifting billions out of poverty

  • Higher living standards + social mobility.

• Underestimating Capitalism’s stability.

• Downplaying the role of political institutions in shaping history and creating conditions for capitalism to flourish (primacy of politics over mode of production).

What would a liberal critique of Wood be?

• Overemphasis on class struggle tather than political/legal evolution because property rights are more instrumental than class struggle in shaping capitalism.

• Underplays tenant rationality; transition to capitalism was not purely forced.

• Underestimates the rationalist profit seeking nature of tenants.

• Ignores trade and global context; capitalism also rose in places like the Netherlands.

• Downplays individual agency; farmers acted rationally, not just as victims of structure.