4.

Freedom Isn’t Free

If there is a Karl Marx of capitalism, it is probably Adam Smith, the Scottish philosopher and economist who in 1776 wrote The Wealth of Nations, which introduced the world to the concepts of the “free market” and the “invisible hand.” Smith meant these to be metaphors that could help people understand the complicated workings of this new social order he was trying to describe, but his metaphors have been transformed over the centuries into gods that modern economists believe really exist and need to be worshipped and appeased. But we shouldn’t blame Adam Smith for the stupidities of people who claim to be his disciples,1 and before we get into the weaknesses in his theories it is worth appreciating their positive contributions.

Smith didn’t invent capitalism. He observed it from his perch at the University of Glasgow, a Scottish city at the heart of the industrial revolution. Just a few generations before, most people in Scotland were peasants who farmed their own land, turned over part of their crop to their local lord, and kept whatever was left over to feed and clothe themselves. By Smith’s time, economic activity was increasingly based on the trade among merchants and manufacturers. More people were spending their days producing one particular product and using their wages from this work to buy food and clothing produced by others. Ironically for someone known today for his embrace of cutthroat capitalism, one of the things Smith appreciated most about his changing society was how it brought all sorts of people together in a shared economic project. In a famous passage from The Wealth of Nations, he marvels at the collaborative nature of this new economy:

The woolen coat, for example, which covers the day-labourer, as coarse and rough as it may appear, is the produce of the joint labour of a great multitude of workmen. The shepherd, the sorter of the wool, the wool-comber or carder, the dyer, the scribbler, the spinner, the weaver, the fuller, the dresser, with many others, must all join their different arts in order to complete even this homely production.

How many merchants and carriers, besides, must have been employed in transporting the materials from some of those workmen to others who often live in a very distant part of the country! . . . how many ship-builders, sailors, sail-makers, rope-makers, must have been employed in order to bring together the different drugs made use of by the dyer, which often come from the remotest corners of the world! . . .

[I]f we examine, I say, all these things, and consider what a variety of labour is employed about each of them, we shall be sensible that without the assistance and co-operation of many thousands, the very meanest person in a civilized country could not be provided, even according to, what we very falsely imagine, the easy and simple manner in which he is commonly accommodated.

This interconnectedness was only to increase over the next two centuries as capitalism spread to every corner of the globe, bringing horrors in its wake like sweatshops and pollution. Looking at this new system through Smith’s eyes, however, reminds us of the beautiful aspects of the ways it has tied humanity together through millions of daily productive relationships. Marx and others would build on this part of Smith’s vision. But we’re not there yet. In 1776 the working class had barely begun to exist in a few cities like Glasgow. It would be another thirty years until it began taking large-scale strike actions and putting forward its own ideas about how the world should be run.

The people who grabbed Smith’s attention were the capitalists, many of whom were his friends in Glasgow. This rising new class was starting to amass great wealth, but it was not the capitalist class in power that we know today. At the time Britain was still mostly ruled by the aristocratic landowning class, with its rigid feudal hierarchies based on whether you were born into the family of the Duke of Such and Such or the Earl of Whatever. In this context, The Wealth of Nations was a radical argument that the capitalist class had discovered a better way for society to be run.

This way was built upon three basic elements: self-interest, competition, and accumulation. Together these formed a potent synthesis: the first drives innovation, the second spreads the benefits of innovation across society, and the third produces more innovation. Self-interest leads a capitalist to invest in manufacturing woolen coats to make a profit. Competition from other coat manufacturers ensures that the capitalist cannot charge an “unfair” price. This competition also leads the coat maker to not simply pocket his profits but to accumulate them to reinvest in better machinery and new technology to get ahead of the other manufacturers.

All of this activity takes place in what Smith called the free market, which is not a real place but a way to understand the commercial realm in which buyers and sellers trade goods and services. They key word for Smith was free, meaning that these are voluntary transactions, unlike the obligatory relationships in previous societies between lords and peasants or slaves and slave owners. As socialist journalist Eric Ruder puts it:

For the economists who defend capitalism, the free market itself is a realm of freedom and equality, evaluating and rewarding—or not rewarding—individuals’ economic contributions on the basis of their worth. . . .

Why this single-minded faith in the powers of the free market? It goes back to economist Adam Smith’s 250-year-old proposition that the genius of the system is that exchanges in a capitalist free market are voluntary—we don’t have to work for a certain company, we’re not obligated to buy their products, they’re not required to deal with other companies, and so on. . . .

On the surface, the point seems legitimate. No one forces shoppers to buy a new toaster or an iPhone or an airline flight they don’t want or need. But the market doesn’t just facilitate exchanges between consumers and the corporations that produce the goods they buy. It also coordinates and regulates the exchange between capital and labor. In other words, the free market, with its mechanism of supply and demand, sets the rate at which workers are compensated. McDonald’s may pay less than $10 an hour, but that’s because there’s a supply of workers willing to take jobs at that wage.2

In other words, Smith’s theory is that the free market is, in the words of economist Robert Heilbroner, a “self-regulating system for society’s orderly provisioning.” Smith referred to this self-regulating system as an “invisible hand” that directs the millions of exchanges between buyers and sellers of goods and labor toward their most efficient and productive use for society. Smith believed that capitalists’ desire to make money and get ahead was a positive good for society, which has led many a modern executive to honor him as the patron saint of greed. But Smith was an intellectual, not a businessman—a true champion of freedom and individual rights at a time when society’s most cherished values were obedience and not challenging the destiny into which you were born. Smith’s point was that the economic choices of millions of merchants, manufacturers, workers, and consumers would create a more intelligent society than the edicts of even the noblest king. His argument that an economy based on unregulated trade and competition was better than one rigidly controlled by the monarchy was a progressive case for democracy.

The next two centuries were to prove him right. And wrong, since capitalism has led to more death and destruction than the most ruthless kings in history could ever have dreamed of causing: world wars, forced migrations across continents, and starvation in the midst of plenty. There have turned out to be some giant holes in Smith’s theories.

Tyranny: Exploitation and Oppression

Most participants in the “free market” are actually not at all free. Why is it that there is such a large supply of workers who are willing—eager even—to work for low pay at McDonald’s? Since many of us are or have been in that position ourselves, the answer is obvious: people have to take those jobs if they want to provide themselves or their families with the basic necessities. This means, as Ruder points out, that the decision to work for someone else—to sell our labor on the market—is only a voluntary or “free decision” for rich people who don’t have to work in order to survive. The rest of us are forced to labor for others just as much as the peasants and slaves throughout history. The only freedom that a worker has under capitalism—and it’s an important one—is that she doesn’t have to toil for a particular lord or slave owner for the rest of her life but can bounce around working for many different bosses—sometimes by her choice and sometimes by theirs.

You might think that supporters of the “free market” would want to guarantee that everyone has access to decent health care, housing, food, and transportation so that workers would have the same freedom to sell—or not sell—their labor as the One Percent. Instead, such proposals are viewed as socialist because protections for workers such as minimum wage laws, unemployment insurance, and unions interfere with the workings of the free market. But attacking these programs gives workers even less freedom to decide whether or not to take or stay in a dead-end or abusive job. Clearly, the definition of freedom changes depending on which side of the counter you’re standing on in the “free” market.

The irony of the free market concept is that capitalism would cease to function if most people had the true freedom of economic security. Nobody would work minimum wage jobs in fast food. In fact few people would work for anybody else, period—because to work for someone else under capitalism is to be exploited. All bosses—not just the mean ones—exploit their workers, by which I mean all bosses keep for themselves some of the value produced by workers. This theft is how businesses make profits.

Let’s say I own a company that makes CDs for a music label that specializes in mashups of German house music and late nineties slow jams.3 Not surprisingly, we’re a very small business with only one employee: you. You make $25 an hour, or $200 for an eight-hour day. Each day we make (okay, you make) fifty CDs of Bell Biv DeVolkswagen that sell for $10 each, for a total of $500. (For the purposes of this example, we’ll assume that every CD will be sold, although that’s not how it works in the real world, as we’ll get to later.) As a worker, you spend your days forced to listen to R. Kelley crooning over Bavarian electronica, acutely aware that you are receiving $25 for every hour that you don’t run screaming out of the building.

As the owner, I look at your day quite differently. My daily expenses are $200 for your salary plus another $200 for rent, machinery, and other materials. From my perspective, the first twenty CDs you make—which take you a little over three hours—pay off your wages. The next twenty pay for my other expenses. Now that I’ve made my $400 back, the final part of your day when you make the last ten CDs belongs completely to me. I keep that final $100 as a profit on my $400 investment. Whether or not you’re happy to be making $25 an hour, I have kept for myself some of the wealth that you created. If the business grows and I have ten employees, I’ll be making $1,000 a day, “earning” that profit not by making the CDs—and certainly not by providing the world with good music—but simply because I had the capital in the first place to rent the space and buy the materials. And chances are, the reason you are the one doing the work and not seeing the profit is because you didn’t.

This relationship between those who are forced to sell their labor and those who have the capital to use it to make a profit is what socialists call exploitation. All profits are based on exploitation, which is obvious to most people who have ever had a job, but also tricky to prove. In the daily workings of capitalism, a company’s profitability can depend on many changing factors, from the price of gas to current consumer tastes. This is supposed to be why we have a science called economics, since science can explain things that we can’t figure out through everyday observation, like germs and evolution. Unfortunately, most of what we know as economics isn’t based on scientific research into how capitalism works but propaganda promoting its wonders. You might think, for example, that economics textbooks would be interested in understanding the source of profits. After all, profit is the daily bread of capitalism, the first consideration in almost every major decision our society makes. Toothpaste manufacturers produce and market more than three hundred different types and sizes of toothpaste in the United States because doing so makes profits, and the health care system doesn’t allow a hundred million Americans to visit the dentist each year because that would not make a profit. Your daughter is taking more standardized tests and doing more homework in the hopes this will one day make her a more productive and profit-generating worker, and your father’s old factory has been moved a thousand miles to a rural area where it is hoped the workers will accept less pay and therefore the company will make more profits.

And yet most textbooks don’t even devote a single chapter to the question of where profit comes from. Instead they take its existence for granted and move right on to concepts like supply and demand, and efficiency and elasticity, to explain what makes profits rise for one company or industry and fall for others. This may be all that matters from the perspective of capitalists, but it doesn’t answer the question of what makes the total amount of society’s capital grow larger, as it does every year except during recessions. In effect, mainstream economics deals with profits the way any of us would regard a bank account that mysteriously added an extra thousand dollars each month that we couldn’t account for. We would certainly think a lot about what to do with that extra money, but we wouldn’t ask too many questions about where it came from, suspecting that we probably don’t want to know the answer.

When the question of profits is addressed in mainstream economics, it’s not to figure out where they came from but to justify why they should go to bosses who often did little to earn them. Thus, many economists claim that profits are a reward given to capitalists for the risk of investing in a business. Somehow, according to this theory, the Invisible Hand that allocates resources based on supply and demand actually belongs to a jolly Invisible Uncle who likes to slip a little something extra to capitalists as a show of gratitude for their bravery. The most laughable part is the idea that it’s rich people who are the major risk-takers in our society. If capitalism really awarded profits to those who took risks to add to the national wealth, bosses and investors would have to get far back in line behind construction workers, firefighters, and undocumented immigrants.

Defenders of capitalism reach for these and other outlandish theories because it’s awkward to acknowledge that the real source of profit is the workers who don’t see any of it. But if you’re not in the business of apologizing for the system, you can actually recognize that there is some good news here. We are an intelligent and creative species that has figured out how to produce far more than we need to personally consume. This productivity should be fantastic news: no more hunger and homelessness, and no coming back to work after lunch!

But no, under capitalism workers don’t get to decide what to do with the surplus they create. Instead that money goes into profits, which owners use partly on nice suits and luxury homes but mostly plow back into production—often to exploit us more or even replace us. Technological advancements that we are promised will make our jobs easier are used to exploit us further. That incredible new software program that you thought would save you some time entering data is now causing the person in the next cubicle to be laid off—and you’re expected to pick up half his work.

Many workers are not exploited in the strict economic sense of the word because they don’t work for a private company, but they have a similar relationship to capitalism. Government employees such as teachers, mail carriers, and highway workers don’t produce profit for private companies, and their salaries come from taxes paid by the entire population. But the decisions about how, where, and for how much they do their jobs are still determined by the needs of business—specifically its desire to spend the least amount of tax dollars required to have an adequately educated labor force that can make it to work on time. Protests for more funding for schools and post offices are therefore fights over the use of capitalists’ profits, just as much as strikes in corporate-owned factories.

Then there are the millions of people who don’t get paid a dime for working countless hours caring for children, parents, and other family members. They often don’t even think of themselves as exploited workers, but their labor saves capitalism untold amounts of money in feeding, clothing, and educating its workforce. The United Nations estimates that across the world if unpaid domestic work—two-thirds of which is done by women—were paid at market rates, it would be worth $16 trillion, which is 70 percent of the world’s total economic output.4

All told, workers make up the majority of people, which is a potential problem for bosses who depend on their labor to keep generating profits. In the early 1800s the poet Percy Shelley wrote these inspiring lines:

Rise, like lions after slumber

In unvanquishable number!

Shake your chains to earth like dew

Which in sleep had fallen on you:

Ye are many—they are few!

Today ye are many more than ye were in Shelley’s day, while they are still pretty few. In order to avoid getting overthrown by a mob of unvanquishable lions, much less keep us at our jobs every day making their profits, capitalists need ways to keep us in our place. This is where oppression comes in. Oppression refers to the systemic mistreatment of some group of people on the basis of their ethnicity, gender, disability, sexual identity, or some other factor. It both weakens specific groups of people and keeps them divided from others with whom they could potentially unite.

Note the word systemic—as in something rooted in societal institutions, not unpleasant individual interactions. Men are not oppressed by women, no matter how many angst-ridden songs they write about having their hearts broken. Sexism, racism, and other oppressions are often thought of as individual prejudices—stupid or mean ideas passed down from one generation to the next. This often shifts the focus onto ordinary people—especially poor and working-class ones who aren’t trained to subtly disguise their prejudice the way some with better educations are. But oppression comes straight from the top of society. It’s about some people getting worse educations, job and housing opportunities, and health care than others, and being made to feel through advertising, schools, and interactions with police and other authorities that they are second-class citizens.

Exploitation and oppression are partners. It’s impossible to imagine the exploitation of African Americans through slavery and sharecropping without the racism that held them to be subhuman, just as there is no way that women could be paid less than their male counterparts without a sexist framework that they should be expected to prioritize family over work. More indirectly, the oppression of people with disabilities allows employers to not spend some of their profits on creating workplaces that are widely accessible.

One group whose oppression is often not talked about is the working class—including its straight white men. Workers go to inferior schools, receive substandard health care, and are often treated with contempt by societal institutions. When workers protest or strike, they can be handled roughly by the police and courts in ways that would never fly for those in the middle or upper classes. But the core of workers’ oppression takes place, unsurprisingly, at work, where laws meant to be universal simply don’t apply. There is no freedom of speech or assembly on company time, and a business’s legally binding contracts—like pension agreements—with its workers are somehow less legally binding than its contracts—like loans—with bank executives.

But oppression is also an entirely separate thing from exploitation, with very different characteristics. Not only that, but each form of oppression has its own unique features and history that have to be understood on their own. The oppression of women, as we have seen, has existed for thousands of years, while the oppression of ethnic groups like the Italians and Irish in the United States only lasted a couple of generations. Exploitation remains a constant fact of life, but oppressions can rise and fall in intensity. Homophobia is still a major problem, but it has been wonderfully weakened in recent decades, thanks to the movement for LGBT equality. The oppression of Muslims, on the other hand, has grown horribly worse in the age of the “war on terror.” The fact that each oppression is unique is the reason that it is such an effective tool for dividing people against each other and getting them to buy into other people’s oppressions even as they suffer their own. It’s also true, however, that people’s shared experience of some sort of oppression can be a powerful basis for coming together. But that’s a subject for the next section. We’re still in the gloomy part of the book.

The point here is that the much-hyped freedoms of capitalism are mostly limited to a tiny minority that has the resources to make truly free choices. Emperors and slave-owners from centuries past would not be totally unfamiliar with this variety of freedom.

Anarchy: Competition and Crisis

Yet even the richest straight white men are not immune to capitalism’s destructive ways. After all, they do live on this planet, and unless our wildest paranoid suspicions that they are secretly building a moon colony for themselves turn out to be true, they and their children are going to face the consequences of climate change just like the rest of us. Rich people with multiple homes can of course ride out natural disasters a lot more easily than poor people with nowhere to go, but as Hurricane Sandy showed when it submerged the actual Wall Street, there really is nowhere to hide from a planetary problem. But despite the hopes of many environmentalists, capitalism is doing almost nothing to address global warming even as it has started to hit close to the most expensive homes.

Emphasis on the word doing. There’s plenty of talk about stopping climate change coming from corporate and government leaders. Every year there are high-profile conferences where brilliant scientists are invited to desperately plead for a change in energy policy while business and government leaders politely listen and then do nothing. They know what the scientists are saying is true, but they are incapable of thinking outside the logic of capitalism. This was best captured by a New York Times article following the announcement that the United States would soon surpass Saudi Arabia as the world’s leading oil producer, which was described as “good news for the United States,” but “more sobering for the planet”—as if both could be true at the same time. This is the most extreme possible version of “American exceptionalism” imaginable—as if the United States could build a border fence high enough to block out rising levels of carbon dioxide.

The people running this country aren’t idiots, with some obvious exceptions. The problem is that as powerful as they are compared with us, they are not the true masters of society. Capitalism is run not by capitalists but by capital itself. Marx quotes an English union leader about how this relationship works:

Capital eschews no profit, or very small profit, just as Nature was formerly said to abhor a vacuum. With adequate profit, capital is very bold. A certain 10 percent will ensure its employment anywhere; 20 percent certain will produce eagerness; 50 percent, positive audacity; 100 percent will make it ready to trample on all human laws; 300 percent, and there is not a crime at which it will scruple, nor a risk it will not run, even to the chance of its owner being hanged.

If it seems I’m making capital sound like some mysterious evil force that gets inside people’s heads like Sauron in Lord of the Rings, that’s because I am.5 Only I prefer an image from The Fifth Element, a movie in which you can tell someone has been taken over by “The Great Evil” when a dark ooze (which happens to look like crude oil) starts to run down his forehead. A bit over the top? Possibly, but when I think about oil company executives pressuring governments to let them build more pipelines and sink more wells, even as they know that they might be sealing the planet’s fate, I can’t help but imagine black liquid slowly trickling down from their hundred-dollar haircuts.

When the ooze of capital enters a capitalist’s brain, the main emotion that it manipulates is not greed—although there’s plenty of that too—but fear. Capitalists are driven by the fear that if they don’t increase profits, someone else will who could eventually put them out of business. Here is the second great flaw of Adam Smith’s understanding of capitalism. Blind competition between capitalists really does produce an Invisible Hand of sorts, but this hand can destroy just as easily as it can create. A society that rewards selfishness and punishes sharing does not work very well even for some of those at the top of the capitalist food chain—and it’s a disaster for the rest of us. Far from being a reflection of human nature, pure individualism is violently alien to the human experience. We have always depended upon one another, as well as other species, for survival and happiness.

The failure of blind competition is just as evident economically as it is ecologically. Capitalists don’t automatically profit from exploiting their workers. The product has to be sold in order to make a return on their investment, which means it’s important to not produce too much. But overproduction is just what inevitably occurs in any profitable industry, not because individual capitalists can’t control themselves but because they can’t control their competition. If one company is making a killing on smartphones, other companies will jump in the market, and then others, until there are many more smartphones being made than people willing and able to buy them. The problem is exacerbated by the drive to pay workers as little as possible, which leads to most consumers not having enough money to buy all the extra crap created by capitalism. The system tries to get around this problem for a time by allowing people and businesses to go into debt to keep buying products with money that they don’t really have. Eventually, however, the bills come due, consumers stop buying, companies start laying off workers who themselves stop buying, and the economy goes into a downward spiral known as a recession.

Engels wrote that capitalism combines the tyranny of each boss over his workers with the anarchy of all the bosses’ blind competition with one another on the market. This has been a regular feature of capitalism since its inception. Economics textbooks feature lots of charts showing a perfect harmony of supply and demand, but the real thing has instead been a wild ride of booms and recessions that even the most powerful industrialists have been unable to predict, much less control—although most of them are able to get through the stormy times okay by tossing some of us overboard.

Every recession brings about the ironic combination of empty foreclosed houses and abandoned shuttered factories with increased rates of homelessness and unemployment. Many of us have become so accustomed to capital’s way of seeing the world that this doesn’t strike us as immoral and illogical. Capitalism imposes the alien values of capital on human beings. Education is transformed from the ability to think for ourselves about the world around us into test results measuring the basic literacy and ability to sit still necessary to be good future employees. Neighborhoods are no longer communities who look after one another but blocks of property values that are meant to relentlessly rise even if that gentrification will force many of the people we’ve known for years to have to leave.

In recent years, the Supreme Court has helpfully spelled out for anyone who didn’t already know it that human beings are second-class citizens in a world run by capital. Its Citizens United v. FEC ruling infamously declared that “corporations are people,” and therefore have a constitutionally protected right to free speech, which for a corporation means throwing tons of money at politicians. At the same time, the court has been regularly restricting the rights of actual people to protest in many locations or be protected from being detained by police and spied on by the government for virtually any reason. It raises the question of whether the court will soon add a corollary to Citizens United: “corporations are people, but people aren’t people.” It isn’t just in the United States that capital outranks humans. Capital is a global citizen, able to move freely across borders, even as country after country builds walls and cracks down on people who try to do the same.

What Adam Smith brilliantly understood was that capitalism created a world of freedom. The part he got wrong was that the citizens of this world would not be people but capital, a parasite that uses humanity as a host body to multiply itself even as it weakens our own natural instincts for love, compassion, and possibly even self-preservation.

 

1. The same is true for Marx, who disagreed so strongly with many of his followers that he once declared, “If anything is certain, it is that I myself am not a Marxist.”

2. This is from Eric’s article “Inequality and the Unfree Market” at SocialistWorker.org. There are many great articles at that site, and I’m only partly saying that because some of them are mine.

3. Don’t judge me. I’m entitled to outside interests.

4. I’m trying to avoid giving citations, but I have to for this one because it’s so staggering: “Unpaid Work and Policy-Making: Towards a Broader Perspective of Work and Employment.” It’s a United Nations report from 1999, which actually means the numbers would be even higher today because of inflation.

5. Let Adam Smith have his free market and invisible hand. I’ll take the description of bosses clutching profit reports and hissing, “yessss, my precious.”