Everyone knows that the noun “economics” names an academic discipline in the social sciences, as well as a general profession. Economics studies individual choices in relation to the efficient allocation of scarce resources. This is not a textbook in economics.
The word “economic” is a distinct, older term, which English borrowed from the French économique and the Latin economicus. Originally a noun, but used today only as an adjective, “economic” appears along with a noun that it modifies. Examples include economic forces, economic outcomes, economic relations, and economic events. This book will help you to make sense of economic forces and relations, to grasp the meaning of these events and outcomes as they occur in the world around you. Ultimately the goal of the book is to explain capitalist economics, because it turns out that the very nature of “economics” (in the fundamental sense of economic forces and relations) depends on the type of society in which we encounter it. Part I of the book will therefore focus on the question of “economics in history,” but before starting that work, we first need to familiarize ourselves with this general, older idea of economicus.
The basic point is straightforward: economic forces and relations are distinct from other types of relations; they operate according to their own specific mechanisms and rules. One primary aim of this book is to explain and analyze the specific conceptual structure of economicus as it operates in capitalist societies, but this means we must understand some simple economic mechanisms and we must make sense out of some straightforward economic forces. Ultimately we will need both to distinguish economic forces from other types—physical, social, cultural, or political—and also to show how they are linked. But first we will start with a few elementary examples of economic forces or relations. Some of these examples will be expanded upon in great detail in Part II, which devotes entire chapters to them. At that point we will analyze them as capitalist economic forces, but here we first get a more general sense of economicus by looking at them in the broadest sense.
No one can deny the force of hunger. When your stomach growls, when you have depleted your store of calories, your body’s physical need to eat is indisputable. However, hunger itself is not an economic force. Regardless of whether we call it biological, physiological, or simply a “natural” force, we need not invoke economic relations in order to make sense out of the human need to eat.
But how do we go about satisfying our hunger? If we happen to find food ready to hand, located in the pantry or the refrigerator, then all we have to do is prepare it and eat. And what if the pantry is bare and the fridge is empty? We could try to grow food in our backyard, but that is impractical at best and impossible at worst; in any case, it would take too long to satisfy our hunger now. Therefore the standard answer is obvious: we go to the store, or to a restaurant, or (if we live in a trendy place) to the nearby food truck.1 More obvious still, when we get there we will need to present the clerk or the waiter with money in order to obtain the food. To satisfy our need for food we must first acquire money; this means that before obtaining our ultimate goal (food), we have an intermediate goal (money).
Your need for money is not natural. You cannot eat money, so there is no way it can directly satisfy your hunger. Money is economic. The fact that you need money in order to overcome hunger explains nothing about you as an individual; it has nothing to do with the nature of your hunger or with the fact that calories from food will satisfy that hunger. Rather, the fact that you need money in order to eat tells you many significant things about the society you live in and the characterization of “food” in that society. It reveals that society as one in which relations to food are mediated by money. Most importantly, a relation mediated by money is always an economic relation. Therefore, given the society you live in, satisfying your hunger proves to be economic, not because eating is itself economic but because in the world you inhabit the process of acquiring food to eat depends on obtaining money to buy the food. A society in which food is bought and sold with money is one in which the satisfaction of human hunger can only be carried out through a specific set of economic relations.
We will return to the example of food numerous times throughout this book, and we will explore the nature and importance of money in much more detail, starting with Chapter 4. At this point you should focus on one key takeaway: hunger may be natural, but money is not; the presence or role of money always indicates an economic relation or force.
The economic is not only a type of relation, but also a force that acts on us from outside. We can attempt to alter or thwart this force, but we can never control it directly. We encounter this force (and feel it as external) whenever we buy and sell. If you decide to satisfy your hunger by going to the store to buy bread, peanut butter, and jelly, you will find when you get there that you have no say in the pricing of those items; the prices of all three are written on labels affixed to the items and the shelves. Your choices appear to be confined to the following: pay the price, pick another item to buy, or go home hungry.
There is of course one other very significant option: steal the food. This alternative is usually ruled out in our heads—and is therefore excluded from the choices listed in the previous paragraph—because there are laws against theft, laws that establish and protect rights of property. We often think of these laws as separate from economic forces and relations, but even this seemingly silly example demonstrates just the opposite: such laws are crucial preconditions for economic relations. Market prices and market transactions are not fixed or given (not forces of nature), but rather contingent and dependent on a social order that establishes, and defends through force, contractual and legal relations.
If we restrict ourselves for heuristic purposes to the analysis of price as an economic force, we see that the price is given to us. We have no choice about it. This logic applies to the case of selling just as much as to buying. It does not matter how much you paid for (or how much you love) your PlayStation console and the many games you are selling with it; when it comes time to list it on eBay or craigslist, the price you receive for it is only as high as someone is willing to pay. It may have taken you months of work to grow tomatoes in your backyard, but if you decide to sell them, the price is the price. People living in the US and much of Europe who tried to sell their houses after the Great Recession had to confront this reality directly and in painful terms: the fact that they paid $400,000 for their house in 2006 and then spent $75,000 to update it in 2007 meant nothing whatsoever when they tried to sell it in 2010—it was only worth $250,000.
Prices are determined not by individuals, and not even by groups of individuals acting consciously to set prices; rather, prices are determined by multiple economic forces that are beyond the control of any individual or group. We can call these “market forces” or the “laws” of supply and demand; all that matters at this point is that we see those forces as external, as powerful, and as beyond the realm of direct human choice. Prices are economic.
Questions about profit—where it comes from, how it is generated, how it is distributed—are the most important economic questions within a capitalist society. You will grapple and engage with these questions in depth in Chapter 6. For now, the point is to see that even when looking at the simplest cases of economic relations in everyday life, the question of profit is never far away.
In our first example, we described how money became our first goal, because we required money before we could satisfy other specific needs or wants. This applies not just to food but to almost everything. Shelter, transportation, clothing, and entertainment can be obtained almost exclusively with money. This means that if we live in a society structured by money, most of our relations will also be economic relations because they will be interwoven with the driving concern of how we get access to money. Fundamental questions about how we live our life, from our career to our various pursuits of happiness, can be traced back to this first question: How do we acquire consistent streams of money? We emphasize “streams” because “getting money” is not a one-time act: the money we get today will be spent tomorrow or the next day, and therefore we will soon find ourselves once again needing to get more money. How do we do this?
There are basically two options: get a job or inherit a fortune. If we get a job, then an employer pays us wages. If we inherit a fortune, then we have all the money we need. What does any of this have to do with profit?
Perhaps surprisingly, in both cases our continued flows of money turn out to depend fundamentally on profit. In the case of working a job for a wage, we need the company we work for to remain profitable. If our company stops making a profit, then it may decide to lay us off; worse still (but with the same effect), it may go out of business. In either case, we will no longer receive the stream of money that we depend on in order to live.
And even if we inherit money, we still cannot ignore profit. This is because no one truly “lives off their inheritance” in the sense of directly spending down the money in their inheritance account. No, anyone who inherits or saves up a sum of money will always want to allocate the money in investments that protect the principal balance while adding to it a flow of interest, dividends, and principal growth. But this means that the person who does not work for a wage is even more concerned about profit: they need the businesses they invest in (stocks) or the companies they loan money to (bonds) to continue to earn a profit, because their flow of money depends entirely on those companies’ profits.
Whether we work for a wage at McDonald’s or on Wall Street, whether we inherit $100 million or borrow a much smaller sum of money to start a business, in every case our future streams of money (and all that they make possible) will be powerfully dependent on the possibility of profit. At its core, profit is the idea that we start with a certain sum of money and turn it into a larger sum of money. Profit is an important economic phenomenon, and within capitalist societies it is the essential economic phenomenon. You will learn in this book how profit comes about, and you will discover that, like a complex chemical reaction, profit is only possible under very precise conditions and with highly specified variables. For now we emphasize the following root point: no matter where you find yourself in society, profit will matter to you because it will directly affect your ability to acquire the sums of money that you need to live.
This book will continually emphasize and illustrate the following central point: economic forces and relations do not, and cannot, exist separately or independently of other forces and relations in society. This means we cannot build up a study of economicus as if we were in a laboratory, sealed off from the outside world. Perhaps the study of mathematics and chemistry can begin with elemental particles (numbers and elements). But the elemental particles of economic forces and relations do not exist in nature or in a vacuum; they only exist in a concrete society. Economic relations are not natural relations: they are historical relations that can never be excised or isolated from social, political, cultural, and many other relations.
In searching for their own elemental particle—something to rival chemical elements, or the biological cell—economics textbooks typically begin with some combination of three main notions: economic goods (commodities), scarcity, and choice. The standard story then goes like this: the world is naturally populated with scarce commodities, and economics is the scientific study of how those commodities are allocated efficiently through individual choice.
To repeat: this is not a textbook in economics. Nor is it a point-by-point internal critique of the discipline of economics, which is not to say that it is not critical of mainstream economics, but that the main point of this book is to help you understand the world (not to tell you what’s wrong with an academic field of study). For these reasons, our exploration of and engagement with economicus will mostly ignore the tenets of twenty-first-century economics, either in textbook cases or more sophisticated forms. However, in order to clarify the nature of the journey you will take in the course of this book, it is worth briefly specifying the problems with such attempts to place economics on the foundation of natural or universal “elemental particles.” This will help us to distinguish a universal study of “economics” from our grounded engagement with economicus as it appears in today’s societies—that is, a study of capitalist economics.
1. Commodities (economic goods) are not natural.
The earth we inhabit is filled with natural resources: air, water, land, food (from plants and animals), materials for shelter, and numerous energy sources. But natural resources are not immediately economic goods (commodities). In order to become a commodity, a natural resource must enter into economic relations: the material of nature must be transformed (in various ways) in order to produce a commodity. Commodities are not found in nature in the same way that chemical elements or biological cells are presumed to be.2 We will explore production in Chapter 2 and later analyze the nature of commodities in great detail, especially in Chapter 5.
2. Scarcity is an economic relation, not a natural condition.
Scarcity is a relative, not an absolute term. To say a resource is “scarce” means that there is not enough of it, given how much is currently needed or desired. This implies a crucial distinction between “limited” and “scarce” resources. Sometimes a limited resource may not be scarce: for example, coal prior to the eighteenth century; pizza, if you order two larges and only you and your roommate show up to eat it. The textbooks that make scarcity the defining starting point of the science of economics are saying not just that resources are finite (that the supply is limited), but that there are not enough resources relative to needs/wants. However, while resources are limited in nature, they are only scarce (or not) within society. In other words, scarcity is a real condition, but it is an economic condition—one that can only be understood in terms of economic relations and forces—not a natural condition that would provide the foundation for economics. Scarcity is not a universal starting point.
3. “Efficiency” is a non sequitur.
Standard textbooks often assert that economics seeks the most “efficient” allocation of scarce resources. Yet a system can only be judged as efficient or not relative to a set of predefined ends or goals. Economics long ago borrowed the term efficiency from the discipline of physics, wherein efficiency is a simple formula: energy output/energy input. For example, we can easily compare the efficiency of two light bulbs: whichever one has the highest ratio of output (light) relative to input (electricity)—easily measured in lumens per watt—is the most efficient. In economics, the general idea of “efficiency” is that we could compare two different “economies” on the basis of which one produced the most output (commodities) relative to its inputs (natural resources, technical capacities, labor-hours, etc.). And more than this, the economics textbooks claim that economics is the science of maximizing this type of efficiency. But there are at least two huge problems with this approach, both of which you will learn about in detail in this book. First, it is not at all clear how “maximizing economic output” would be a good goal for a society to pursue; do we really want to produce “as many shoes as possible” regardless of the number of people in the country? Second, any measure of efficiency requires consistent, standardized measures of input and output, but economic output is often quantified in terms of money, which is not a fixed standard (5 watts is always 5 watts, but $5 can buy more or less at various times). Finally, even if we could solve these problems, we would have to deal with the fact that there is nothing inherent to economic relations or economic forces that necessarily leads to maximizing output or minimizing input. Quite to the contrary, as you will see, not all economic forces and relations are the same: economic forces under feudalism were radically different than those under capitalism. And under capitalism the inherent trajectory of capitalist economic forces is to maximize profits, not “efficiency.” Moreover, there is absolutely no reason to believe that more profit creates more efficiency. Overall, given the difficulty of even defining what an “efficient” economic system would be, it turns out that the standard texts are not really saying anything when they say the word “efficiency.”
4. Choice is not uniquely economic.
Some textbooks simplify the definition of economics by skipping the idea of scarce commodities and just saying “economics is the science of choice.” Clearly economic relations are dependent on, and in turn help to constrain or enable, various choices made by individuals or groups. If large numbers of Apple customers who previously upgraded their iPhones yearly start choosing to delay their upgrade cycle, it will obviously decrease the overall demand for iPhones. This will lower Apple’s sales numbers, which will in turn lower Apple’s own purchases from its suppliers, which will then lead Apple to cut back on factory output. If those suppliers then choose to lay off workers, this could impact tens of thousands of workers across the world. If owners of Apple stock choose to sell, this will lower the stock price, which will have an effect not only on the millions of people and organizations that own Apple stock but also on the stock market itself (since Apple makes up roughly 10 percent of the NASDAQ composite index). Choice is surely important to understanding economic forces and relations. However, choices occur everywhere—in politics, in nature, in culture, in families, in society in general—and choices are made according to complex and variegated reasons or logics. Economics has no monopoly on understanding choice, and not all choices are made according to narrow economic reasoning. It would be wrong (and a bit hubristic) to presume that all choices were economic choices, and it would be arrogant to think that there could be a “science” that would explain all choices in all domains. To study economicus as we will do in this book means to consider a wide range of choices, made according to distinct and changing metrics, and it also means to consider outcomes and distributions that are beyond “choice.” Not all economic results can be grasped as the product of individual choice.
In rejecting the economics textbooks’ efforts to ground a separate science on elemental particles we are simultaneously affirming the fact that economic forces and relations are always bound up with, intertwined with, inextricably connected to other sets of relations. We can look at this point from a different perspective: there is no distinct domain or isolated location in which economic activity takes place. Access any newsfeed and you will see constant references to “the economy,” along with apparently limitless data meant to describe the relative health of “the economy.” In truth, however, there is no such thing as “the economy.” Economic activity occurs not within an “economic domain” but only within society, which means it operates directly alongside and in interaction with other forms of societal activity.
This fact has two important implications. First, we can only study economics within a particular society or set of societies. Economic forces in ancient India looked utterly different from economic forces in medieval Italy, which themselves look almost nothing like economic forces in nineteenth-century Britain. Second, we can say in broader terms that economic forces differ from physical forces: gravity operates the same way in all times and places (although its effects may be very different), but economic relations can only be understood or explained fully for a specific time and place.
This second point leads to an important conclusion of this introductory chapter. This chapter has tried to familiarize you with a much broader concept of “economics” than one usually finds in textbooks within the discipline of economics. The aim is to explain how economic relations, processes, and forces operate, and to suggest ways to analyze economic events or outcomes. In this introductory chapter we have consciously chosen to use the term economicus in order to underscore our sense of economics as constituted by an historically specific set of relations. For the remainder of the book, aside from a few uses to remind us, we will refer simply to “economics” rather than economicus, but our understanding of economics will always be informed by these arguments.
This means that for us there simply is no general science of economics because there are no universal (in the sense of transhistorical) economic laws. Furthermore, to study economics as economicus means to study it in a particular society or set of societies, at a specific moment in history. In this book then, we will not be studying economics as a general or universal science. Nor will we study economicus during the Roman Empire, or in Tang dynasty China. We will be studying economic forces and relations as they have come to exist in modern capitalist societies. As its title makes clear, this book is about capitalist economics.
The book is organized and structured so as to build your understanding and knowledge of economic forces, relations, processes, and results. The ultimate goal is to provide you with the tools to understand how economics functions in the society you live in, which means that by the end you should be able to look at everyday practices and events and discern the economic relations that run through and help to explain them.
This leads us to a multipronged approach. First, in Part I we will analyze some of the historical developments that brought about the particular type of economic relations and forces that exist in and across modern capitalist societies today. In other words, we will start with a broader theoretical framework that situates economics within the context of other forces in society as a whole. This conceptual apparatus will be complemented by a brief historical overview that gives the reader a sense of the dramatically different and divergent ways that economic forces have manifested in history. The economic relations that we understand intuitively today, and that we often take for granted, are not universal; those relations only came into existence through a relatively recent process of historical transformation. Put differently, economic forces that we might assume to be natural turn out to be the result of history, and they remain contingent on other social and political relations that were instituted at specific times and places in history.
Next, Part II zooms in on those economic relations in great detail so as to grasp their conceptual nature—to analyze the relations they establish with each other and through which they operate. Each chapter in this section pivots on detailed analysis of one of the key components of economicus today: money, commodities, and profit. Part I develops a sense of how economic forces come to operate in the world, and Part II builds on this ground by studying the conceptual structure of the primary elements of capitalism. The aim is to work out a more sophisticated analysis of those economic forces and relations from Part I. Indeed, the ultimate goal of Part II will be to grasp the structure and mechanisms of the most important economic forces operative in the world today: the exchange of commodities, the nature of money, and the key elements of capitalist profit.
Finally, Part III pans out to understand those economic relations in their dynamic interplay with social, cultural, and especially political relations and forces. A rigorous understanding of the fundamental actors within capitalism will make possible a much deeper account of capitalist processes and their broader effects on (and within) a capitalist social order. We will consider the specific mechanisms by which a capitalist society decides to produce a certain set of commodities. This will, in turn, give us some sense of how economic growth or decline occurs for a society as a whole. Part III also strives to offer a clearer sense of some contemporary economic phenomena that often seem bewildering to many people (and which are rarely even addressed in economics textbooks)—particularly financial assets and instruments.
One final note before you dive into the text: unlike some introductory books in the natural and social sciences, where it is possible to skip around from chapter to chapter, this book is not meant to be read out of order. So even if you are most interested in money (Chapter 4) or entrepreneurship (Chapter 7), you will want to start with a careful study of Part I. The commodity (Chapter 5) can only be grasped as a result of the historical development and first emergence of a capitalist system of production; the choices and actions of bankers and central bankers (Chapter 8) can only be explained and unraveled after you have studied money and commodities in Part II. Everything starts with the idea of economics in historical context, so we begin there.
1.Here and throughout, the “we” refers to the twenty-first-century human beings reading this book, living in modern societies. This “we” is not a generic or universal we that refers to all human beings throughout history. What “we” do to satisfy our hunger is something utterly different than what most humans have done throughout history.
2.Arguably even the most elemental particles of natural science must themselves be understood as imbricated with other types of forces. This issue lies far beyond the scope of this book, but it raises an important point of emphasis: in rejecting the idea that the economic is “natural,” we are not by any means claiming that it is somehow unnatural or separate from material or physical realities. Indeed, as we will see most clearly in Chapter 2, relations of production and distribution can only be grasped as material, physical relations, and they are thus utterly bound up with nature—and in that sense thoroughly “natural.” But in the history of economic thought, the idea of a “natural force” has often been used to distinguish forces and relations within a social order from those that putatively lie beyond it—forces that are thought somehow to completely and necessarily determine all societal outcomes. It is this final idea that we will reject thoroughly and resist consistently.