We have now situated our study of economic forces and relations within the wider context of social orders, within the structures of society. Economic forces and relations are always entangled with social, political, and cultural forces and relations. As discussed in the Introduction, “the economy” is not a thing. There is no domain where economic forces operate separately or on their own; they only ever operate with, through, against, and alongside a variety of other forces. Rather than start with a fictitious “economy,” we have to begin with a real society, with concrete social orders.
This means that our method inverts the standard method of modern economics: rather than begin with a simple, isolated individual who operates in a supposedly pure economic realm, and then build up systems and rules from that basis, we must start with a broad and complex social order, and then attempt to bore down into it—to locate the economic forces that operate within and across it. In Chapter 1 we worked at a very high level of abstraction to describe the concept of a social order and to make sense of how we could analyze and explain economic forces within societies. In Part II we will narrow our focus significantly by looking closely at three essential elements/components of economicus (money, commodities, and profit). In this chapter we will work in the intermediate space between those two, operating at the “meso level.” Our goal is to get a better sense of how to recognize economic forces and to distinguish them (which is not the same thing as separating them or rendering them distinct) from other types of forces.
To achieve this aim we can take a page out of the playbook of classical political economy. The classical political economists generally understood economics to be divisible into a few distinct realms, typically categorized as follows: production, distribution, exchange, and consumption. However, these four categories are easily reduced to two: first, by excluding “consumption” from economics since the consumption of a commodity goes on in “private” (it only occurs after the economic [trans]actions have been completed); second, by ignoring distribution as either a minor, technical matter (how goods are transported from their location of production to their site of sale) or a separate moral or political question (a question of why distribution always seems so unequal). This leaves us with production and exchange as the primary economic activities. In classical political economy (again, from the seventeenth through the nineteenth centuries) some authors focused more on production, while others emphasized exchange.
But with the transition to the neoclassical paradigm (toward the end of the nineteenth century), the realm of exchange (of the market) became the primary, central, and often exclusive locus of economics. During the “marginalist revolution” a number of economists attempted to use calculus equations (ones they had illicitly borrowed from abandoned physics models) in an attempt to model a state of “general equilibrium” in exchange, a static “moment.” In this moment of equilibrium, supply = demand, price is “given” by the market, and the market (for goods and services) “clears” in the sense that all sellers find buyers (and vice versa) at the market price. Put simply, neoclassical economics attempts to explain all economic forces and relations in terms of this singular model of equilibrium—an approach that makes exchange not just the primary but almost the exclusive domain of economics. With the modern economics of the neoclassical paradigm, economics is market exchange.
This is not to say that modern economics never discusses production; the point is, rather, that it explains even production through models based entirely on exchange. Exchange becomes the secret core of all economic forces and relations. Anyone who has taken an introductory economics course has encountered this as the first lesson of most textbooks, as it appears in the “guns and butter” chart (or “production possibility frontier”)—often the very first chart in the book. This simple chart presents societal production as itself a consumer choice. Just as a buyer in exchange must choose between spending a given income on clothes versus food, on entertainment versus necessities (on pizza or Coke), so a society—according to this lesson—has to choose how much of its overall resources to devote to the production of “butter” (metaphorically representing social welfare) or “guns” (representing security).
The guns and butter chart offers a simple and straightforward model of societal production, based on the concept of a “production function.” Such an approach has the advantage of rendering production and exchange isomorphic—hence all economic actions look just like the actions that a consumer makes in the marketplace. But the main problem with the idea of a production function is that it bears almost no relation to reality whatsoever. The actual concrete activity of production (under capitalism, but also under other social orders) looks nothing like the guns and butter chart. And the reason is simple: producing goods and services is not the same type of activity as buying and selling produced goods and services. Decisions about whether, when, and how to take up the process of producing a good or service cannot be understood or explained using the same logic as one might use to try to explain why a consumer buys one commodity rather than another. You cannot explain production through a model of exchange equilibrium.
In broader terms, we can locate a fundamental reason that it proves impossible to give a general account of economic forces and relations that centers on exchange: there is never anything to exchange (to buy or to sell) until after it has been produced. Here we see with more force why Robinsonades are so misleading. In a state-of-nature story, “economic actors” (i.e., human beings, who are naturally exchanging creatures) simply find “economic goods” lying around. One effect of the literary tale is to treat natural resources (apples growing on an apple tree, a deer running in the forest) as if they were nothing other than capitalist commodities. Starting with the myth of the state of nature leads mainstream economics, quite logically, to conclude that all economic activity boils down to exchange. But if we look to the world we live in, or if we turn to examples of concrete societies—located in specific times and places in history—we find that economic goods do not exist in nature: someone has to make them.
When focusing on exchange, it’s easy to conceive of the basic unit of society (and of economics) as a solitary, autonomous economic actor, often referred to as homo economicus—“economic man,” a human creature defined by her or his capacity to choose among scarce economic goods.1 But if we leave the domain of exchange and closely consider the basic problem of production, we cannot escape the immediate conclusion: individual human beings are not self-sufficient; they can never produce on their own. All production is social production. Production only comes about within a social order that has some system (however rough or tacit) of organizing production processes.
By insisting that economic forces and relations only exist within society, we make it plain to see that a society’s “commodity set” (the total amount of goods and services) does not exist naturally; it must be created, manufactured—produced economically. Moreover, production itself proves complex since to “produce” a commodity does not mean to “choose” it, but rather to initiate a complicated process that requires both time and money. In market exchange the decision to purchase is almost instantaneous with taking possession of the commodity. Here we can think of the “buy it now” button, patented by Amazon in 1999, which nicely expresses the way in which—within the terms of market exchange—“choosing” becomes equivalent to “having.” Indeed, if what I’m buying is a Kindle e-book or an Amazon music track, that single click includes not only decision and possession but also consumption, as the book will download to my Kindle and open immediately to the first page.
Time is not an issue (or only a minor issue, as I have to wait for shipping) within the realm of exchange. But in the realm of production we find a completely different story. In production, the decision to begin the process may come weeks, months, years, sometimes even decades before the commodity itself comes into existence and can then be offered for sale on the market. Production is neither instantaneous nor timeless; it has a very specific temporality. Production occurs over a particular period of time—known, simply enough, as a period of production.
Beyond this crucial temporal aspect, the logical structure and concrete practices of production turn out to be very much distinct from those of exchange. Most importantly, and contrary to the ambitions of the neoclassical model of “general equilibrium,” neither production nor exchange can be explained in terms of the other. Each depends on the other (we exchange what has been produced, and, at least under capitalism, we produce for exchange), so they must be understood relationally, but neither can be reduced to the other; each must be understood under its own terms as a unique process.
Here, and throughout this book, we seek to demonstrate a further point: production is not merely distinct from exchange, production is primary. Not only does production begin the economic cycle, not only does production come first, but also in the overall economic system of production, distribution, exchange, and consumption, the most important element is production. This is the case because when we look at the economic forces and relations that operate across a social order, what matters most, in the sense of distinguishing one economic order from another, is not how individuals trade, exchange, or buy/sell goods. Rather, the most important element of an economic order is how, and according to what system and rules and structures, those goods are produced in the first place.2
The “primacy of production” thesis points not merely to the fact that in a given economic timeline production always happens prior to exchange (goods can only be exchanged after they have been produced), but, much more significantly, that what distinguishes one socioeconomic order from another is the nature of production. In a general sense, any society has what we can call a mode of production. “Mode of production” names the broad structures, systems, techniques, and practices by which the overall societal output gets created. It is the answer to the question, “how does a (particular) society produce?” In the following chapters, this book will commonly refer to the overall “system of production” or to the process of production, both of which are synonyms for “mode of production.” All of these ideas help to underscore the primacy of production by highlighting production as the main marker of economic difference across societies; societies may share techniques for distribution, exchange, and consumption, but differ radically in how they produce.
Let’s look at an example: a very general comparison between the economic systems of early fifteenth-century France and late nineteenth-century America. How did each of these societies produce? In 1454 France, production was mainly the production of basic necessities (especially food), and the primary agents of that production were serfs. Serfs worked the land of lords. Serfs were bonded to the lords in a relation of unfreedom and servitude, as they were required by both law and social custom to produce for their lords. The lords’ titles to the land and to its produce were themselves established by law, by political power, and by moral custom. Most significantly, the lords’ rights were granted by monarchs (kings and queens) who held sovereign power over all the land. This means that there was no such thing as “private property” as we understand it today. The land was ruled by the king, who delegated rights to the land (but not ownership of it) to lords. In this general “mode of production,” serfs produced food and basic necessities directly; they did so not only for themselves and their families but also for their lords and their lords’ families. The bulk of production was therefore internal to the fiefdoms of lords. Distribution was merely distribution from the serf to the lord, and within the lordly estate there was no exchange. While there were also external trading markets for luxuries and certain other specialty goods, the vast majority of goods were produced for direct consumption, not for the market. We can call this a feudal mode of production.
In contrast, in America in 1877, the subject positions of “lord” and “serf” simply did not exist. There were no fiefdoms, no manors, no royal titles, and thus no estates. The social, legal, and political relations that established feudal estates, lordly rights, and serf bondage had all been obliterated. Property was now owned privately, that is individually, and the individual right to property was itself the first principle (property was not a privilege granted by the political sovereign but itself a prior claim against the political sovereign). These legal and property relations radically changed the nature of production. Small farmers could produce for themselves directly, and in the early history of America this was more common. But by 1877, most production was production for exchange. That is, almost all production was production for the market; goods were not produced to be consumed by the producer (or his lord) but produced with the primary intention of being sold on the market—and sold at a profit. The key categories in this mode of production were thus totally different from the categories in the feudal mode of production. Rather than lords and serfs, we find at this place and time “workers” and “enterprise owners.” Workers were actively and directly involved in production, yet they did not create goods for themselves or for those they were linked to within society. Enterprise owners planned and oversaw the production process but did not produce directly themselves, nor did they have direct political or legal powers over workers. Rather, the law established a certain rough equality between workers and owners.3 That is, workers were not legally bound (as were serfs) to work for owners but were instead allowed to enter into wage contracts freely as they saw fit.
The fifteenth-century French serf produced goods for himself and his lord; that is, the goods were never exchanged, but instead went directly to consumption by people who lived on the same land. The nineteenth-century American worker produced goods for strangers, for people she did not know and would never even meet. The goods produced by this worker could only reach their destination by way of market exchange. Indeed, the goods were directly produced for that market; they were produced in order to be sold. The French serf worked the land as a matter of legal obligation, and those social and legal relations also entailed that part of the serf’s production went directly to him and his family. The American worker freely contracted to work for an owner and to be paid an hourly wage; the product of her labor was, by contractual definition, immediately owned by the enterprise owner or entrepreneur who paid the worker’s wages.
Production within the French feudal system was organized and executed both outside of market exchange and with very little regard for market forces or mechanisms. In contrast, in the American enterprise system almost everything was mediated, constrained, or driven by the market; all production depended on the market, and all production was oriented to the market.
This basic example calls our attention to a crucial point: the existence of a “market” to exchange goods tells us very little about a social order’s economic system. Markets for the trade of economic goods have existed for thousands and thousands of years, and markets appear in (or, usually, at the edges of) a wide variety of dramatically different social orders and economic systems. This draws us to a powerful, if for many, counterintuitive, conclusion: if we want to locate the specificity of a capitalist social order (to find the elements of that order that make it distinct from others), markets will not do us any good. Capitalist societies are not at all unique in having markets for the free exchange of goods and services. Put simply, capitalism cannot be adequately described as a “free market system,” because many noncapitalist societies also had free markets.
In the next chapter we will trace the history of the first emergence of a capitalist social order. And in Part II we will analyze in detail the mechanisms, structures, and forces that make up a capitalist social order. For now we only need to cover a more elementary point, which is that what distinguishes a capitalist society from a noncapitalist one is not the existence of markets but the use and function of marketsand their relation to the mode of production. Capitalist societies prove unique not because of how they exchange but because of how they structure and orient production toward the goal of exchange. To think this point through, let us return to the rough example of 1454 France.
In late medieval, feudal France, the aim of the overall system of production had very little to do with markets. The system of production was set up to provide direct sustenance for serfs, and to provide both sustenance, and a surplus, for lords. Put differently, since lords did not engage in productive activities directly, the feudal system was built on a system of overt and explicit political and economic domination, in the form of the extraction of surplus product distributed from the serf to the lord. In certain manifestations of feudalism, this fact of surplus extraction was expressed quite clearly in that specific days of the week were set aside for the serf to work the land for his own benefit, with other days specifically designated for him to work the land for the benefit of his lord. Overall, the aim of production under feudalism had little to do with markets. This does not mean markets did not exist, nor that they were not important to society, but it helps us to understand something crucial about the basic function of markets in a noncapitalist society.
In a word, markets in such societies did exactly what economics textbooks tell us markets are supposed to do. They allowed individuals to trade goods: to sell good A (which they had too much of) and buy good B (which they had too little of). Markets therefore allow for a redistribution of economic goods, and this may lead to a more “optimal allocation” of resources across the society because multiple parties may improve their individual positions through market exchange. But it proves crucial to understand fully the nature of this type of market exchange. Let’s try to map it out in clear terms.
When we come to a market to trade, to swap one commodity for another, we are looking to trade equivalents. If I have lots of oats that I’ve harvested but would prefer to eat something more than oats for dinner tonight, I could seek out someone with lots of peas. When we agree to trade, I am hoping to get an equivalent amount of peas for my oats, while my trading partner is hoping to get an equivalent amount of oats for her peas. For me the transaction looks like this: 
. I give the oats commodity for the peas commodity, or as the symbols suggest, I seem to transform oats into peas. For her it looks like this: 
. But if we take one step back we can clearly see that neither of these transformations would be possible unless somehow (a particular amount of) oats are equal to (a particular amount of) peas. In symbols: 
.4
If our trade of oats for peas is a fair one, if no one cheats the other, then at the completion of the transaction each of us has received an equal amount of what was given. This means obviously—but as we will see, quite importantly—no one has increased their overall stock of commodities; each of us has merely changed the composition. No one has gotten more. And this means it would be impossible to grow the total value of our commodities merely through basic market exchange, 
. Finally, there are two important amendments to this conclusion about the exchange of equivalents.
First, and more straightforwardly, even if the exchange is not equal, even if one party does get the better of the other on the trade (or if one party cheats outright), this doesn’t change the fundamental fact that the trade itself does not increase total value. Let’s say I have 20 pounds of oats and you have 40 pounds of peas, and that 1 pound of oats is worth twice as much as 1 pound of peas. This means that the total values of each of our “commodity sets” (my oats and your peas) are equal, and it also indicates that a fair trade between us would require you to give me peas for oats at a two-to-one ratio (i.e., you give me 2 pounds of peas for every 1 pound of oats I give you). But let’s say you are very smart and trick me into trading you 10 pounds of oats for 10 pounds of peas. The result is that your total commodity set (30 pounds of peas and 10 pounds of oats) has gone up in value (by 25 percent) and my total commodity set (10 pounds of oats and 10 pounds of peas) has gone down in value (by 25 percent). But the cumulative value of our two commodity sets has not changed at all. The unfair trade is zero-sum; my loss is your gain. Total value does not increase (or decrease).
Second, and more portentously, the introduction of money does not alter the type of market exchange we have been describing here, but it does make possible a radically different use of the market.5 In the basic market exchange we have been describing, money is nothing more than a technical invention that facilitates the same basic form of exchange. Here again we repeat what standard economic textbooks all tell us: crude barter of one commodity for another proves highly cumbersome. If I come to the market with only oats but desire to leave it with not only peas but also rice, bread, and socks, then I am forced to haul my oats around the market hoping to find sellers of all of those commodities—sellers who just happen to want oats. It would obviously be more convenient if the first step I made at the market were to find someone who would give me money for my oats,6 which I could then use as a currency to purchase all the other commodities I need and want. Money changes our basic formula as follows: rather than 
, we will have 
. Money mediates the exchange of basic commodities. The starting point and end point are the same: I began with only oats and finished up with oats and peas, but in between I transformed my oats first into money and then into peas.
This leads us to both a general conclusion about market exchange and a specific conclusion about its relation to production. In broad terms, markets merely facilitate the exchange of equivalent commodities, 
. This sort of system of exchange could potentially play some (small or large) part in any economic order, regardless of the mode of production. The existence of exchange markets is not sufficient to tell us anything definitive about the mode of production or to determine the overall socioeconomic order. Thus, we have seen in the specific case of fifteenth-century French feudalism that the primary mode of production did not involve exchange at all. Nevertheless, the feudal mode of production does not preclude the existence of markets for exchange, particularly of luxury or rare goods. Here we clarify and sharpen our earlier point about the primacy of production: in comparing and contrasting 1454 France with 1877 America, the existence of markets does not tell us much at all. But the nature of production, and particularly the relation of production to exchange, can tell us a great deal indeed.7
This brings us back to an essential point about production in 1877 America, where, quite unlike the economic system in fifteenth-century France, production itself is mainly production for the market. Before we can even try to understand the nature of this type of production, and the revolution that it entails in the nature of exchange, we first have to try to make sense of how such a changed relation between production and exchange could come about in the first place. In short, how is it possible to organize a social order such that (almost) all production is not direct production for the producer (like the serf) or someone the producer is directly linked to (like the lord), but production for strangers—production for “the market,” for exchange in general? More specifically, what changes must be made to a social order so as to bring about this new form of production? Here it is essential to grasp an important historical point: it is not just that France in 1454 did not have a system of production oriented toward market exchange. Rather, the more radical point is that prior to the sixteenth century, no social order had ever been based on a mode of production oriented primarily toward market exchange.
Starting with Chapter 4, and throughout Parts II and III we will analyze, explain, and decipher the particular elements and relations, along with the general forces and tendencies in such a social order. But before we begin that project we must first try to explain the historical appearance of such a social order. How does a capitalist mode of production emerge in history?
1.Here we again see the untenable equation of “limited natural resources,” which will indeed be found in nature, with “scarce economic goods,” which can only be produced in society.
2.This essential point raises important questions about what it would mean to transform an economic order; it may suggest that attempts to change society by intervening in the realm of exchange are futile, or at least significantly limited.
3.We must emphasize that the rough de jure equality between workers and owners does not tell us anything definitive about the overall equality in the society, nor does it indicate what the de facto relations of power were between workers and owners. In 1877, America was still a deeply unequal society: the end of Reconstruction the year before meant the abandonment of the project to uphold racial equality and the reestablishment of a racial order of domination across the South; and it was still almost half a century before women would win the right to vote. The point here is not to make any absolute evaluations of the state of equality in American society across its history but to compare directly 1877 America with 1454 France and therefore to highlight the stark differences between a mode of production based on legal relations of bondage (serf to lord) versus a mode of production based on legal relations of equality (worker and owner).
4.The more complete formula, as indicated in the parenthetical phrase “a particular amount of,” would be better expressed as 
That is, the peas commodity and the oats commodity are equal only so long as we have the right proportions of each. X and Y represent those proportions, or, in algebraic terms, the coefficients. We will return to this basic formula in detail in Chapter 5.
5.We will return to this possibility in Chapter 3.
6.This hypothetical person who would pay me for my oats is always excluded from textbook accounts of the supposed transition from barter to a money economy. This person is a dealer, who holds inventories of both goods and money so that she can trade in both (she pays me for my oats not because she wants to eat them but so she can trade them). The textbooks follow a functionalist logic, which assumes that because money makes economic transactions more convenient, we must have introduced money historically in order to overcome the inconveniences of barter. But the logic proves faulty: in order for money to be introduced to markets someone must introduce it, and they will not do so for free. The oat dealer will only buy my oats if she thinks she can make a profit in doing so. We will return to these ideas in the next two chapters; here they provide a hint of what is to come.
7.This relation will prove central to Part III, particularly as we consider the links between the actions and choices of entrepreneurs and the role of investment, a link that will come to define and partially determine the conditions of a capitalist economic order.