A People's Guide to Capitalism
A study guide of Hadas Thier’s 2018 book ‘A People's Guide to Capitalism.’
Summary, part 2
Chapter 3: Money
“Money is so woven into the fabric of our daily lives that we rarely stop to wonder how it got to be that these pieces of paper have come to dominate our lives.” (p. 53)
In chapter three, Hadas Thier delves into the inner workings of money: where it comes from, what it represents, and how it has changed forms over the years. She begins with the following statement:
“Pieces of paper (or computerized electronic bits in our bank accounts) representing currency seem to have limitless control over our lives. Whether you have it, and how much of it you have, determines whether you eat or go hungry; whether you’re entitled to the finest health care money can buy, or are left bleeding to death at the hospital’s door; whether your children will be treated to an elite educational facility, or patted down routinely by the cops for living in a ‘high-crime neighborhood’; whether you are politically connected and taken care of in the halls of Washington, or whether you have to fight to even have your vote be counted.” (p. 53)
Money, according to Thier, is a universal measure of value vital for any society based on trade and exchange, and her above words demonstrate how far capitalism has taken that statement. While most agree with the definition of money as a universal measure of value, there are differing views among economists regarding how that value is determined.
Mainstream economists assume that money determines the value of commodities and that it generates an exchange of its own power and volition, but Marx believed that this relationship was in reverse. He believed that the existence of money was determined by the value of commodities and that all commodities were objectified representations of human labor.
Marx referred to money as a “universal equivalent” against which to measure all other goods and commodities. The same was true when money did not serve as our universal equivalent; in earlier trade economies, it was still easier to carry around metal coins that carried value rather than an entire cow for trading, and they carried all of the common characteristics that are important in a currency: transportability, durability, divisibility, and recognizability.
The move from gold as a currency to money as a currency is also an important theme in this chapter. Gold’s value was apparent early on in human civilization because of the socially necessary labor-time it took to mine it, but it was difficult to carry around. In the 17th century, however, the Bank of England began issuing banknotes as receipts for gold deposits, and these became accepted—even encouraged—as payments. Linking banknotes to a bank’s gold reserves became standard in the 19th century, and by the end of the late 19th century, most countries had this Gold Standard. The Gold Standard would eventually crumble, though, after the Great Depression, and it was replaced after World War II, when the International Monetary Fund (IMF) required that all currencies be tied to the U.S. dollar at fixed exchange rates, with each dollar linked to gold. This solidified the U.S.’s position as having the world’s premier currency, and the U.S. finally discarded the Gold Standard for good in 1971.
All of these advances were important because they increased the fluidity of money and revolutionized the way in which we trade. Unlike bartering, where one has to give something away in order to receive something else, money allows us to hold onto our earnings until we are ready to spend them, which means that money also makes it possible for capitalists to hold onto their profits rather than invest in something that is not profitable.
Thier concludes by reminding us that, while mainstream economists focus on fluctuations in currencies and its impact on prices, the deeper question is that of the value of commodities, which prices only reflect but are not always completely synonymous with. The only way to change the actual innate value of an item is to adjust the amount of socially necessary labor-time put into producing the item.
We do not always think about or question the authority of money in our own lives, and it is easy to miss the social relationships that determine the underlying values of money and commodities. For instance, inflation plays a social role in how we make money. Employers often do not pay their workers wages in keeping with inflation rates, meaning that they can get away with paying lower wages without doing so outrightly. In addition, we often forget that an item’s price does not necessarily dictate the value of an item; the living labor and dead labor that went into producing that item is a complex social network that determines the item’s value. According to Thier, money, labor, and social relationships are far more interconnected than one would think upon first glance.
Chapter 4: Where Do Profits Come From?
“Capitalism uses our ingenuity to further immiserate us.” p. 104
In chapter four, Thier examines how money and laborers relate to capitalism. In pre-capitalist societies, people exchanged their wealth in different forms, but labor plays a special role of exploitation under capitalism where wealth can be expanded.
Modern capitalism is characterized by the massive expansion of wealth, and any economy that is not constantly expanding is considered to be in recession. Mercantilism was cunning in the market by selling things for more than they were bought for, and while capitalists can and often do this, they also generate surplus wealth even when taking all of the “lawful” or “honest” measures through the use of a production process that generates more wealth than it began with. In this way, wealth is not generated in the realm of exchange, but in the realm of production.
To do this, according to Marx’s General Formula of Capital, one must first already have money. This differs from bartering and mercantilism, where one must first have something to sell. Under capitalism, capitalists must first have enough money to invest in two things: the means of production and labor-power. The capitalist employs both in the production process to create commodities worth more than all of the original inputs combined, and that is where the capitalist’s profit comes from. Because one must first have enough money to invest in means of production and laborers, money is not merely an intermediary under capitalism, but its driving force. Marx refers to capitalist profits as surplus value, which capitalists seek throughout the entire exchange and production process.
The secret to attaining and squeezing out the most possible surplus value lies in a special commodity under capitalism: labor-power. The ability to work, which, according to Marx, has become a commodity in and of itself, is exchanged for a wage, its exchange-value. Since most workers do not have anything else to exchange except for our labor, it is commodified. The actual value of our labor and the wage which we are paid are two very different things, though. Workers are paid one thing, but they usually generate far more value in one shift than what they are actually paid. In this way, bosses can pay you for a fraction of what your labor is worth and reap the full benefits of your labor.
For instance, let’s say that it was socially determined that someone needs $120 for the day to survive. If you work as a Starbucks barista and they pay you $120 for an 8-hour shift, you can still make that entire shift’s wage’s worth of coffee in under an hour. In this way, Starbucks is not paying you near the value of what you’ve created but rather the bare minimum of the cost of your labor-power. This labor that you perform after you have made the amount of your subsistence is called surplus labor, when you are virtually working for free. Through this system, capitalists are able to appropriate mass surpluses through disguising their exploitation under the facade of “a fair day’s wage for a fair day’s work” (p. 80).
It’s important to note that bosses also benefit from a great deal of unpaid labor from their workers, which is predominantly performed by women. This labor includes childbirth, childcare, food preparation, laundry, grocery shopping, household cleaning. This reproduces the working class with very low costs to the system:
“And so it is no coincidence that sexist ideologies that relegate women to second-class citizens emphasize women’s nurturing capacity, which make us “naturally suited” to prioritizing husbands and children over our own lives.” (p. 86)
Mainstream economists, however, have a different take on how capitalists make their profits, and it stays in keeping with the aforementioned neoclassical theory of marginalism. Mainstream economists suggest that profits are derived from the markets, rather than from production. They believe that capital has a “high marginal product” when demand for goods generates higher incomes per unit than the cost of producing those goods and that labor has a “high marginal product” when wages rise and profits are low. This model, according to Thier, clearly pits workers against bosses and, unlike the Labor Theory of Value, treats workers as parasitic drains on capitalists’ profits “when they become too expensive” (p. 80).
Mainstream economists also argue for this theory that capitalist bosses are simply shrewd buyers and sellers who invest well, pay workers minimally, and mark up prices of products bought cheaply in the early stages of production. This lens is a very convenient narrative for capitalists because it paints them as geniuses who simply know how to invest well, excusing them for paying themselves astronomical amounts at the expense of workers.
This theory, however, neglects to mention that, if capitalists buy something at a cheaper price and sell it more expensively, they are only stealing profits from someone else, such as the supplier who had to sell their product more cheaply. The neoclassical model only accounts for the transfer of wealth, but not for the expansion of it which is characteristic of capitalism. If this model were correct, when one industry flourished, another industry would always be in recession, but in actuality, when one industry begins to flourish under capitalism, it has been found that others begin to flourish as well, and we are declared to have a “miracle economy.”
The Marxist understanding of capitalism, on the other hand, shows that a surplus value still comes about when capitalists buy and sell commodities for their true value and that the surplus value of profits is rooted in the process of production and the differences between paid and unpaid labor.
This discussion leads Thier to answer a crucial question: what exactly is capital?
We must first understand that there are, according to Marx, two different kinds of capital: constant capital and variable capital. Constant capital is money that was previously invested in equipment and facilities, which carries on its value into the newly created goods without any change in its worth, but rather which appears in a new form. Using our Starbucks analogy, espresso grinders would be an example of constant capital.
Variable capital, on the other hand, is defined by Marx as the capital invested in labor-power because labor has a use-value that expands throughout its use, so how much extra value can be created is variable. This would include laborers like baristas.
Capital itself is defined as money invested in variable and constant capital in order to produce commodities whose sales yield greater amounts of money than the investment.
By investing in both variable and constant capital, capitalists set up a productive process where, by the end of the process, both values will have replicated and exceeded their values. In this way, they are generating what Marx calls a rate of surplus value, also known as a rate of exploitation. The rate of surplus value measures the rate at which we are exploited, which is the ratio between the part of the day that creates your wages and the part of the day in which your labor is unpaid.
Capitalists care most about their rate of profit, which is the ratio of surplus value (exploitation) to variable and constant capital (the total amount of capital that was invested). This tells the capitalist how much profit they have generated in comparison to the amount of capital they have invested.
The working class’ lack of control over the means of production leaves them dependent on this capital, and they are coerced by the threat of poverty to sell their only commodity: labor-power. The things that modern economists associate with capital, such as money, machinery, and labor, only take the material into account and thus do not account for the social process of the exploitation of labor that is essential in generating capital.
There are two primary kinds of exploitation used under capitalism, according to Marx. The first consists of raising the Absolute Surplus Value, or how much total surplus is created in a day, by lengthening the workday without providing any extra wages. This is not as commonly done in the modern-day because capitalists are concerned with workers being physically able to work. The more commonly used method, called increasing the Relative Surplus Value, or altering the ratio of value produced so that less goes towards wages and more goes towards capitalists in the form of surplus value, is done by increasing the intensity of the work being done by laborers. This way, capitalists don’t have to add time to the workday, but laborers are making the value of their paycheck in far less time.
This exploitation diverges even further under capitalism, though, and costs of labor reflect this perfectly. In 2019, women were paid 79 cents to a man’s dollar, Black men were paid 60 cents to the white man’s dollar, Black women were paid 61 cents to the white woman’s dollar, Latinx women earned 53 cents to the white man’s dollar, and increased education does little to nothing to increase these numbers (p. 88). Black people, Latinx people, and women all earn less than white men regardless of education level, and American capitalism relies on these groups to occupy permanent low wage sectors of the workforce, showing that those “socially determined” costs of subsistence and reproduction of the workforce are based upon historic and institutional systems of injustice and oppression. People of color also face workforce discrimination in the hiring process and the lay-off/firing process, which leads to higher unemployment rates and desperation within the workforce. This paves the way for bosses to lower wages for people of color when they are performing an equal amount of work.
Capitalism also depends on the exploitation of immigrants, specifically undocumented immigrants, who are often disenfranchised and face the risk of deportation. This leads to employers allowing egregious working conditions and paying their workers poverty wages.
Inequality has long been baked into the American economic system and has been used to pit marginalized workers against one another, reducing the wages for both and benefitting bosses. This discussion of discrimination and exploitation does not even take into account the experiences of gay, trans, disabled, Native, and elderly people and how they are discriminated against under U.S. capitalism.