How the World Works: The Story of Human Labor from Prehistory to the Modern Day
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How the World Works: The Story of Human Labor from Prehistory to the Modern Day is a book by Paul Cockshott that seeks to give a materialist introduction to history and an analysis of how the future would look like, through the same analysis. It describes the stages of economic and social development, following the approach pioneered by Adam Smith and Karl Marx in which history is seen as a series of different types of economies, further drawing upon the work of many other historians, economists, and social theorists, summarizing the results for the non-specialist audience. In particular, the book focuses on three themes in human history: the interaction of human reproduction with technology, social domination, and the division of labor. Though the book is intended to be simple, there is quite a bit of fairly complex math in it, such as probability theory and calculus.
- 1 Summary
- 1.1 Chapter 1: Introduction
- 1.2 Chapter 2: Pre-Class Economy
- 1.3 Chapter 3: Slave Economy
- 1.3.1 3.1: Technology Complex
- 1.3.2 3.2: Scheme of Reproduction
- 1.3.3 3.3: Contradictions and Development
- 1.3.4 3.4: Human Reproduction
- 1.3.5 3.5: Commodities and Prices
- 1.3.6 3.6: Labor and Price under Slavery
- 1.3.7 3.7: Money
- 1.4 Chapter 4: Peasant Economy
- 1.5 Chapter 5: Capitalist Economy
- 1.5.1 5.1: The Capitalist Price Mechanism
- 1.5.2 5.2: Recurrence Relations
- 1.5.3 5.3: Capitalist Surplus
- 1.5.4 5.4: Technology and Surplus
- 126.96.36.199 5.4.1: Vital Energy
- 188.8.131.52 5.4.2: Hero's Turbine Not Enough
- 184.108.40.206 5.4.3: Practical Turbines
- 220.127.116.11 5.4.4: Why Power Was Essential
- 18.104.22.168 5.4.5: An Iron Subjugation
- 22.214.171.124 5.4.6: Automation or Self-Action
- 126.96.36.199 5.4.7: Profit of First Use
- 188.8.131.52 5.4.8: Wage Levels and Innovation
- 184.108.40.206 5.4.9: Relative Exploitation
- 220.127.116.11 5.4.10: Summary
- 1.5.5 5.5: Capitalism and Population
- 1.5.6 5.6: Domestic and Capitalist Economy
- 1.5.7 5.7: Distribution of Wage Rates
- 1.5.8 5.8: The Next Generation
- 1.5.9 5.9: Long-Term Trend of Profitability
- 1.5.10 5.10: Productive and Unproductive Activities
- 1.6 Chapter 6: Socialist Economies
- 1.6.1 6.1: What Does Socialism Mean?
- 1.6.2 6.2: Power
- 1.6.3 6.3: Reproduction and Division of Labor
- 1.6.4 6.4: Determination of the Surplus Product
- 1.6.5 6.5: Socialist Economic Growth
- 1.6.6 6.6: Why the Socialist Economies Still Used Money
- 1.6.7 6.7: Socialism or State-Owned Capitalism
- 1.6.8 6.8: Why the Law of Value Applies in Socialist Economies
- 1.6.9 6.9: Crisis of Socialism and Effects of Capitalist Restoration
- 1.6.10 6.9.1: Long Term
- 1.6.11 6.9.2: Medium Term
- 1.6.12 6.9.3: Results
- 1.7 Chapter 7: Future Economies
Chapter 1: Introduction
Cockshott compares and contrasts human societies to those of animals, largely those of termites, particularly focusing on how the division of labor is structured. As termites have a simpler history and organizational structure than humans, he explains the comparison is necessary "because it is easier to recognize features of the familiar when contemplating the strange". He moves on to the particularities of humans; for one, that they have complex language which enables them to quickly teach each other, and especially young ones, skills that would otherwise have to be acquired genetically through the survival of the fittest over a very long time. This enables humans to develop their societies at a much faster pace than other species. Though animals such as primates and birds can teach skills to each other through example, humans can spread skills much faster by communicating with complex language. The particular sort of division of labor in humans thus changes very quickly in comparison to other species, among other social relations that organize labor, on top of what kind of relations of dominance, subordination, and rebellion exist at the time. Since humans have the most advanced language, among other advantages over other animals, their social structures also tend to be more complex, especially throughout time as human society progresses from one stage to the next.
Chapter 2: Pre-Class Economy
The analysis of the stages of human history begins, drawing largely from Adam Smith, Karl Marx, and Friedrich Engels. Though each stage follows another, they can coexist simultaneously by existing in different parts of the world, and can even coexist in the same country, such as in the United States in the mid-1800s, wherein there was slavery, small-scale commodity production, and capitalist industry — though the outcome of their contradictions was explosive. In this chapter Cockshott lays out his model of the stages of human societies throughout history: "hunting-gathering bands, nomad tribes, early agricultural communities, slave economies, landlord economies, capitalist economies, and industrial socialist economies".
Agriculture began about about 11,000 years ago in the Mesolithic period, allowing humans access to more food at lower trophic levels, since lower levels can support more biomass and thus generate more food than what can be obtained through foraging. With this, humans had to compete less with other species of their trophic level for food. Before agriculture, population densities tended to be low, meaning the complexity of social relations is thusly constrained. Hunter-gatherer societies, having come before this development, were not all egalitarian but the only egalitarian societies of prehistory were hunter-gatherer tribes; in particular nomadic ones, where there was basically no accumulation of resources, and where people moved between different groups frequently, undermining the establishment of authority structures. Most migration was done by men, as evidenced through tracing variety in DNA, with women instead tending to stay put and raising children with the aid of their own mothers; and they basically had to stay put, as raising children takes a long time and is easier without having to constantly migrate. Another factor which makes hunter-gatherer societies tend to be egalitarian is the universal accessibility of means of violence, used for hunting animals, but which could also be used against humans — if one man tries to dominate another, he could be taken revenge on easily. Means of sustenance are also basic, so no one has to depend on another for something they can just get themselves with a bit more effort. Sharing is also common, especially for things like the flesh of large animals which can't be entirely used up by a single person. Many societies also have lots of gambling, which has a tendency to distribute rarer resources more evenly.
Hunter-gatherer societies worked less hours than the agricultural ones afterward. Agriculture was adopted gradually, because it requires more time to sustain and initially had almost no increase in the standard of living. In terms of calorie yield per hour worked, hunting and agriculture are roughly the same. In the Mesolithic, people began settling down permanently in resource-rich areas, and as populations increased because of better hunting tools, megafauna such as mammoths began to go extinct, making people focus on methods of raising food that were more local, and at this time more substantial means of production such as boats were also developed. The establishment of agriculture further compelled tribes to settle down, increasing their populations also by not requiring mothers to carry children all the time and thus letting them produce more — with this, more children could be supported with animal milk and gruel made from crops. In these societies there was no more egalitarianism, however classes have still not arisen, although inequality between men and women and between parents and offspring were developing (children who were able to collect resources themselves had a larger degree of autonomy before this). Humans began improving their crop yields through selecting the more favorable seeds for the next generation of crops, and also began developing property in the form of things like stored grain reserves. In this humans have also began to change nature — seeds ordinarily fall from the ears of plants so that they may germinate in the ground, with plants whose seeds don't fall tending to generate much less progeny for the next generation. Humans, however, preferred for seeds to remain on their ears so that they may be harvested and stored easily, rather than being picked up off the ground, and so plants whose seeds did not fall came to be the ones that dominated many areas.
One theory for how agriculture came about was that people had to work longer and produce more in order to afford more specialized, non-agricultural products that were being developed. The book raises a counterpoint to this theory by stating that specialists would have to be first supported by farmers in order to make their products, however a counterpoint to this is that this process occurred gradually throughout thousands of years, so there was not indeed a solid non-agricultural profession at first. Another theory for the origin of agriculture is that hunting technology grew too advanced, and populations too large, so thus the carrying capacities of ecosystems were exceeded, and as a result more labor intensive measures had to be introduced, which produced more output per area. Eventually habitable land that wasn't already populated began to run out as well, so populations couldn't overflow elsewhere if the resources of a certain area were overexploited. The example of agricultural communities in Anatolia is brought up, where agriculture allowed the populations to get big and thus expand. As the inhabitants of that time spoke Proto-Indo-European, it's postulated that the people that migrated took that language with them and spread it to Iran, the Indian subcontinent, and Europe; and indeed, the spread of Proto-Indo-European does coincide historically with the Neolithic Revolution in Anatolia. In other places where agriculture was developed, like China and West Africa, there was a similar effect where people living in centers of plant domestication came to dominate the region through raising large numbers of people, who migrated elsewhere.
"A classless agricultural society can be divided into three groups: adults who are direct producers, children who in due course will replace them, and the elders and infirm unable to do the hard work of growing food." Cockshott points out that because of infant mortality, the dependent, non-working part of a population is greater than it otherwise would be, as there are some individuals who only live long enough to merely take resources but never pay them back, either in full or at all. Having this in mind, in order to maintain the reproduction of society, each adult worker would have to produce a certain amount of food in order to not only feed themselves, but also the elderly and children, on top of setting aside part of it for reserves in order to minimize mortality during bad harvests — part of which would be destroyed by pests. In addition to a minimum food production rate, social reproduction requires a minimum fertility rate which must furthermore factor in the child mortality rate. For the population to expand, the fertility rate must be above the replacement rate, which can occur either by increasing the number of births or by child mortality declining. The latter, being very sensitive to the supply of food, can be accomplished by improvements in agricultural productivity, which lets children be better fed and healthier, and thus more likely to survive to adulthood. A system of class exploitation, however, where the surplus of basic reproduction is instead confiscated tends to raise infant mortality rates, and with this stifle population growth.
As workers in spring depend on last year's reserves for food before the current crops can be harvested, there begins a social hierarchy where workers are dependent on the elders, who have provided that food to them with their own labor in the past; in exchange receiving possession of part of the current year's harvest. From this relation of ownership would stem the basis for exploitation by employers to lenders. These relationships of dependence are projected over into mythology, with the practice of worship and sacrifice to one's ancestors taking form. Later this would extend to the worship and sacrifice to more abstract "divine" "parents" in religion.
2.3: Class Formation
Between the development of agriculture between around 11,000 years ago and the rise of class 5,000 years ago, there was considerable expansion of agricultural populations, owing to the food surplus devoted to children which would have otherwise been seized by an exploiting class. Food surpluses by themselves are not preconditions for classes, since these surpluses could instead go to sustaining people in non-agricultural trades such as pottery or smithing. These trades, even if hereditary, are not classes since they exchange the products of their labor with others as equals, with no exploitation involved. Class formation, properly, requires that a food surplus goes to people who are not engaged in physical production, which is often a hereditary relationship. Besides food, an upper class also consumes the products of non-agricultural laborers, so thus farmers and non-farmers become a working class that are exploited by the upper class. The surplus of food necessary to establish both non-agricultural trades as well as an upper class can either come from making the other workers work harder or more efficiently, as those not working in agriculture are not contributing to food production yet still requiring sustenance. Smiths, for example, can aid in this by providing bronze or later iron tools for agricultural workers, who can work much more efficiently than workers with only stone tools. However, though work became more efficient, people did not work less — through other things such as war, patriarchy, and religion, on top of food surpluses, there arose an exploitative class that demanded the surplus for itself.
2.4: War. Patriarchy, Religion, and the Laws of Statistics
Warfare was rare in pure hunter-gatherer societies, though became common in societies with either herding or some form of agriculture, as finally people had possessions that could be stolen. Tribes which practice both hunting and agriculture do wage war for a different reason, being the capture of young women. The reproductive potential of a community depends on how many women are available for childbearing, and this is especially important to small communities, which still have not developed the means to fully support themselves through agriculture, particularly ones that remain small because their environment doesn't have that many natural resources to sustain large populations. The ratio of sexes in any given society tends to be even, but has small deviations, which in small societies are more pronounced (4 fewer women than men is a much bigger impact in a group of 16, where it represents a shrinkage of 25% for the next generation, than in a group of 40, where it is just 10%). A small percentage of communities, unlucky enough to have a significantly fewer amount of females than males, thus have their survival threatened as the next generation may not have enough workers to sustain their communities — this problem is compounded by the fact that some women may not be fertile, may die young, etc. The "surplus" men of such communities may indeed leave elsewhere to find mates, however in practice often raided neighboring communities to abduct young women. Around this time, the warrior role of men is solidified, who are able to both abduct women from other groups and who also are to protect their own women — here the patriarchal relation between the sexes arises, however the figure of the patriarch, who asserts exclusive control over "his" own women, does not quite exist. At this stage there is also no firm concept of paternity, and sexual relations are rather loose, as expressed also through orgiastic rituals. A peaceful method of accounting for a shortage of women is to adopt them from other tribes, in which it was often expected that the receiving community will at some time in the future repay this debt with an equivalent amount of brides.
As upper classes developed, they began to use religion and rituals to justify both patriarchy and class hierarchy, and in fact there is a correlation between the practice of human sacrifice to the stratification of society. Human sacrifice, for its part, combines "displays of ultimate authority—the taking of a life—with supernatural justifications that sanctify authority as divinely ordained". The establishment of war, patriarchy, religion, and hierarchy all together then facilitated the emergence of the institution of slavery.
Chapter 3: Slave Economy
Hunter-gatherer societies seldom have slaves, as in a simple subsistence economy there's not that much for them to do, and thus there isn't much impulse to acquire any. As an institution, slavery arises through war, and if slavery is to become a major aspect of an economy it must, for one, have a market of consumers who can't grow their own food, which usually implies an urban population. There must also be the means of transport to move the product from the farms to distant consumers, and with this there must be a market for slaves themselves.
3.1: Technology Complex
Technologies like boat sails and ox carts boost the efficiency of slave labor, with naval technologies being particularly useful because it costs less to move things by sea. Transport by land depends on road infrastructure on top of harness technology, as harnesses have to be designed so as to minimize choking of the carrying animal. Slavery employed other technologies like those based off wheels and cranks, which were quite sophisticated. Sails were far more important, however, as they allowed ships to go much faster than by oar power, allowing furthermore for a wider ship design that could accommodate cargo (wide ships aren't as navigable with oars). Shipping involved in the slave trade underwent some improvements since ancient times in the Mediterranean to the early modern age in the Atlantic, including better navigational instruments, sturdier ship construction, internal decks (particularly important for slave transport), and better sail rigs, an increased number of masts, and more fore and aft sails; improving sailing against the wind. Altogether, these advances allowed for the establishment of a slave economy that could span an ocean rather than merely a sea. As ships began to be more advanced they initiated capitalist relations — for being so expensive, they required partnerships that were the precursor to joint-stock companies, and besides this, in the modern capitalist fashion, they also replaced human oar power with the more efficient mechanical power of sails. In antiquity, improvements in shipping eventually made it so that shipping corn from Egypt was cheaper than growing it in Italy; as a result slaves cost less to feed and could make their masters more profits, on top of providing profits for the shipping industry.
3.2: Scheme of Reproduction
Slavery can dominate an economy even if slaves make up a minority of the population, since slavery has the highest rate of exploitation, generating the most surplus value. Normally slaves have to be given at least some good treatment, so that they'll be able to reproduce in order to yield the next generation of slaves, but the establishment of the slave trade eliminated this requirement. Thus, the profits generated by slaves would be sold in the town marketplace, acquiring money which in part is then used to buy more slaves. The slave-owning aristocracy spent other profits in urban centers, establishing a middle class of professionals and traders who themselves often have one or two slaves. The middle class, in turn, often got their money from slave merchants coming to town for supplies to exchange for slaves elsewhere, with the wealth in this cycle all ultimately coming from slaves.
3.3: Contradictions and Development
Slave economies depend on the maintenance of trade relationships between the aristocracy, towns, and merchants, and if there is a disruption here than large-scale slavery starts to become undone. In the Roman Empire, though technology helped establish slavery, it ended up being its demise as well; as provinces other than the main slaveholding ones began to produce their own products in abundance, ones that these provinces previously relied for on other lands. Slavery thus become unprofitable, and as it was unwinding, wage labor, sharecropping, and tenant farming took its place. For stability, a slave society should have also a substantial portion of its populace be armed, free citizens who could put down a potential slave revolt. However, there eventually developed class antagonisms between freemen and slave owners. Because slaves were such a large portion of the population, it was impossible for the proletariat to establish unions to achieve better conditions. Thus there began to form a sort of solidarity between freemen and slaves.
3.4: Human Reproduction
Slaves generally suffered from high levels of mortality due to overwork and ill treatment, and had few opportunities to form families, with males and females often being segregated and working different jobs. A perpetual deficit of slaves thus motivated the ruling classes to constantly seek war and conquest, and after this system reached its limits feudalism began to be introduced. Slavery is historically a patriarchal system, with the male masters often sexually exploiting their servants in such, for pleasure and for saleable slave children, with almost no legal recourse. There were alongside this prostitutes, who were mainly slaves. The import of slaves began to cease, eventually, for instance as subjugated states developed armored cavalry and stirrups to counter the professional infantry of slave states, this technology itself cementing feudalism until the late Middle Ages, until the invention of musketry. Furthermore, the social development of subjugated states into class society remove the organizational advantage that slave states had over them. Slavery, though losing its dominant position in many economies, did not cease completely however, and many millions of slaves were sold since the establishment of feudalism all the way to the modern age. Two thousand years of slave trade in Africa caused serious demographic problems, slowing down social and economic development. In both slavery and capitalism, there are well-developed commodity exchanges as well as dependence on external supplies of labor.
3.5: Commodities and Prices
In order to describe slave markets, there must be a proper theory of commodities, which is done using the classical theory of commodity circulation and price that posits labor as the source of value.
3.5.1: Neoclassical Prices
Neoclassical economics were developed in the late 19th century; arguably, to replace the position of classical economics which were "tainted" by their adoption by socialists. Neoclassical theory features supply and demand curves, which are inversely correlated to each other. High demand indicates that the price of a commodity is considered cheap and thus a good deal for the consumer, whereas high supply indicates surplus product that is in low demand (contrary to many real-world instances where as production ramps up, products can be made for cheaper as they are made in bulk, thus offering a more attractive price to consumers). The simplicity yet apparent scientificness of this diagram makes it appealing to those who don't know better. Using Occam's Razor, it is determined that the neoclassical model is superfluous for trying to explain two numbers, being price and quantity, with four parameters, being the slope and position of both the supply and demand curves. These four parameters can justify any kind of trend in price, however for being so general they lose their usefulness in being able to make specific, useful predictions. The neoclassical model with its supply and demand curves is with this not testable, so thus not scientific, as there is no actual claim made about how prices are derived. If the supply and demand curves are shown to not work, then more lines can be drawn (S2, D2, and so on) to fit the situation, thus leaving the theory with no solid position.
3.5.2: The Classical Theory of Prices
The classical theory of prices is simple, testable, and correct, stating that prices tend to correlate to the labor used to make them. There is little deviation, manifesting through things like unusually fast workers or unusually efficient systems of production, which thereby make their workers' hours unusually productive. Market prices fluctuate slightly around the average cost of labor, but ultimately remain strongly gravitated towards it.
3.5.3: Evidence for the Theory
Price correlates with labor by 93%, as estimated by David Ricardo, with the general standard deviation of the price-to-labor ratio being about 1/6th of the average price, as predicted by Emmanuel Farjoun and Moshe Machover. Computer calculations have processed modern industrial output data, which includes data on direct and indirect labor, and have thus provided their own correlations in the range of 95-97%. Furthermore, the standard deviation is also tighter than that calculated by Farjoun and Machover, being around 1/10th the average price.
3.6: Labor and Price under Slavery
Even before modern data, the labor theory of value has been observed in practice. This theory became more apparent as slavery began to unwind, but even at the peak of slavery it was likely in effect. In such a time, slave masters were able to determine satisfactory prices to sell at by calculating time consumed by laborers to produce certain products.
Money is a means of exchange that simplifies trade by establishing a common denominator, such that there is one exchange ratio (that of product to currency, rather than having to mind many exchange ratios between different products). Money removes the need to calculate each exchange ratio between every single product out there as well as having to write this information down, distribute it, and reference it for use. Money itself acts as a record of entitlement to certain goods, removing the need for literate scribes to record transactions. However, keeping track of money on a large scale required banking, which itself was predicated upon the necessary time and resources, on top of a class of literate and numerate workers. Because of this, widespread debit accounts were not established until the generalization of literacy, with the advent of electronic record keeping further aiding in the adoption of banking for the masses. Money should be tough to forge, which was often done by making its design complicated or its material expensive. Marx said coins have value because of the labor used to mine their metals, with Ricardo agreeing but adding that money supply factors into money's value as well. In response, Marx argued that only a small portion of metals are in circulation, with the rest kept as reserves. Another theory states that money has value because the state accepts it as payment, in place of labor or its products (which would be harder to transport so conveniently).
The material base for money is a working class which can firstly produce a surplus to be expressed through money on top of having merchants, captains, and crew who could link provinces for taxation and trade. As the transport of wealth became much easier, states could thus afford to raise professional armies with taxes paid from across the land. This in turn allowed for empires to expand through massive, organized conquest.
Chapter 4: Peasant Economy
Peasant economies are the type of society which have lasted the longest since humans have settled down, being quite varied in that they may have different possible property and class relations, Marx himself having classified these societies under feudalism or Asiatic production. In contrast to a necessarily linear progression of history, there is often observed rather just a tendency for societies to progress through certain stages of development but in some instances reverting to a previous order for a while, much of this having to do with societies interacting with other kinds of economies.
4.1: Natural and Technical Conditions
Peasant economies are primarily agricultural and of limited technology; which particular technology a society has heavily depends where it is in the world. While peasant economies are essential to the character of feudalism, they may exist in other modes of production as well. Because stationary populations are the basis for exploitation, there must be several forces tying peasants to a particular land so that they will not be compelled to escape, these including an effective state that can return escapees, proximity to arable land, and being in an area with dense vegetation — since leaving for other settlements with cleared lands is more difficult. In peasant economies, there are three elements that cannot coexist: a landlord class, unoccupied land, and free peasants. Unoccupied land will compel peasants to move there rather than pay rent, so they must be put under serfdom to prevent this.
4.2: Forms of Surplus
The workers, not the land, are key to feudal economies, with monopolization of land only mattering once all land is developed for use. As land does become all used, there tends to be an economy with free peasants that have landlords, in contrast to systems in which peasants are serfs or where there are no landlords. Exploited peasants pay surplus labor by working on manorial estates, giving up a port of their own crop, or paying rent in money. This is enforced firstly through law and then physically by some sort of law officer or soldier. As a token gesture of equivalence, the lord offered armed protection and possibly aid in time of want. As production is small-scale and division of labor limited, the peasants clearly see how they are exploited, knowing the process of production from start to end and what they miss out on. As the state cannot afford a class of professional bureaucrats and soldiers, it is made to delegate some power to subordinate lords, who in peasant economies are the icon for the exploitation which is transparent, given the simplicity of the economies. This contrasts with capitalism, which is more obscured by different complexities.
4.3: Reproduction Structure
The rate of exploitation in early peasant economies was lower than in slavery, thus sustaining less of an urban population. Workers in feudalism also formed families and reproduced themselves, unlike in slavery which largely relied on continuously importing more slaves. Lords also began to demand some products of the machinery that arose in that time, such as mills. As the population grows available land decreases, however feudalism only begins to turn into capitalism as the rights of peasants to own land, along with the existence of communal lands, vanish.
4.4: Comparison with Capitalism
Capitalist theorists posit that only private property can be efficient, but this hasn't been true at any point in history. Communal lands in peasant economies, for one, were maintained through elaborate procedures and rules that ensured they would not get overused and that each peasant got fair access. Later, Soviet economists devised optimization calculations to find out how to most efficiently allocate goods. Using the linear optimization technique developed by the Soviets in order to maximize industrial output, it has been found that up until the industrial era, English estates in 1086 were as efficient if not more than many capitalist-era enterprises. Capitalism eventually became more efficient than these feudal estates because of advances in technology following the Second Industrial Revolution.
4.5: The Smithian Critique of Feudalism
Adam Smith criticized the excesses of landlords and rich merchants, who wasted resources by employing servants that weren't actually productive economically. He argues that the transition out of feudalism overall made resource allocation more efficient as more of it went to productive workers instead. In contrast Smith says capitalism is more costly and incentivizes investment, meaning capitalists are compelled to spend less on themselves. Cockshott criticizes this analysis, in turn, stating that circulation of commodities exaggerates the actual increase in production under capitalism. However, Smith is noted to be right in observing that cities which were political centers tended to be worse off, since much of their surplus was appropriated by the upper class.
Chapter 5: Capitalist Economy
Capitalism is predicated on artificial energy sources, high-yield agriculture that supports large urban populations, widespread use of machinery, and applied science, with surplus product manifesting as monetary profit.
5.1: The Capitalist Price Mechanism
While feudal manors tended to be mostly self-sustaining, capitalist enterprises depend on importing various components in order to produce, with the cost of these components tending to significantly factor into the final price of the finished product. Capitalists also have to pay wages to employees at certain intervals, unlike feudal lords who basically owned their workers. However, both capitalism and feudalism plan their resources and calculate prices on the basis of labor time first and foremost. Though the prices of components fluctuate somewhat, they tend to be around the average. The markup on labor cost that companies apply in order to make profit when selling products generally has a smaller range as fewer companies operate at a loss. In capitalist economies there is a very high correlation of labor with price, with the labor-to-capital ratio becoming smaller over time, leading to a gradual decrease in profit that degrades capitalism over time.
5.2: Recurrence Relations
Capitalism exists because of resources from distant areas, which means that transport infrastructure and regular supply chains enable capitalism to exist on a continuous basis. As there is no overall plan for the economy, each enterprise's ability to plan only extends to its own private property. Though capitalism has a facade of equality and compromise between two parties, the wealthier one in fact has more bargaining power. Classical economists like Smith knew recognized this. At their time people wondered about using labor vouchers, however they weren't introduced because they didn't exactly correlate to price, besides the larger problem of exposing the inequality between worker and capitalist that was abstracted by money.
5.3: Capitalist Surplus
Capitalism obscures inequality in employment using the argument that if there really was inequality, then companies would hire lots of workers until they became burdensome. However, if workers really did get a wage equivalent to their labor under capitalism, making all businesses cooperatives, then many enterprises would fail to make a profit and eventually fail, as capitalism demands continuously increasing profits. Capitalism has its basis in property relations and property law.
5.4: Technology and Surplus
Capitalism is largely similar to previous modes of production, but has much more artificial energy and scientific knowledge.
5.4.1: Vital Energy
Capitalism depends on artificial power that was not very prevalent before it. Water mills were slowly providing a bigger share of the energy in feudalism, compared to human labor, and eventually these evolved into steam mills that produced more power than manual work, giving rise to a capitalist class.
5.4.2: Hero's Turbine Not Enough
Besides the social relations of the time, steam turbines did not catch on in feudalism because the kind that existed at the time were inefficient; by design, quite wasteful and thus outdone by other power sources.
5.4.3: Practical Turbines
Various technologies need to come together to enable powerful energy sources — for instance, high-tensile steel, on top of means for precise engineering and generating high-pressure steam. Scientific knowledge about atmospheric pressure and heat, themselves predicated on certain technologies and scientific knowledge, are vital for advanced machinery as well.
5.4.4: Why Power Was Essential
Increasing levels of artificial power enable for more to be produced. Capitalism oversaw the expansion of water mills which were later replaced with steam power, and in general such progress in energy sources are heavily based upon scientific knowledge. Not only were commodity relations and wage labor necessary for capitalism to arise, but also the scientific advancements made under previous systems. Science advancements are more plentiful if publicly funded by the state, however with capitalism there is less an incentive to innovate because patents don't last long and thus it is not as profitable.
5.4.5: An Iron Subjugation
Coal allowed for sufficient power to be produced for the mass production of iron. Part of this was the enabling of larger furnaces, which allowed for the temperatures necessary to smelt iron, on top of powering larger hammers to beat out the slag. To a lesser extent, water power and human labor provided energy in these enterprises, which required much capital and labor, thus tending towards capitalism and away from feudalism. The requirements for enterprises containing large machinery were prohibitive, and thus a capitalist class emerged that outcompeted smaller producers. Furnaces which took advantage of coal power produced iron faster and also allowed for casting, which let iron to be easily shaped into more diverse products, which in turn increased demand for fuel. However, this led to deforestation as more charcoal had to be acquired, so instead coke, a processed form of coal, was developed. Society became increasingly dependent on these capitalist products, which extended to products of other industries that made use of advanced machinery and fossil fuels.
5.4.6: Automation or Self-Action
The efficiency of machines was introduced into more complex processes by components such as the pinned cylinder and devices like the mule and the Jacquard loom. However, these could not do work that required decisions and judgements like modern computers may. Computers, for their part, have existed for a long time but depend on modern electronics to be able to make complex decisions. Early modern computers were purpose-built, but later ones became generalized in ability, giving rise to robots that could produce physical goods instead of just processing information. These robots are immobile and situationally unaware, but ones that are are possible.
5.4.7: Profit of First Use
Companies that bring in a new cost-saving technology into an industry have an advantage at first, as they can undercut their competitors, however as everyone adopts the technology this advantage is lost and profit margins are less than before. Patents are too short-lasting to prevent this, and incentivize development of different inventions to offset competitive advantages.
5.4.8: Wage Levels and Innovation
The innovativeness of capitalism begins to wane as monopolies arise and as wages fall, making labor cheaper than technology. Places that had high wages historically, like England, thus became centers of capitalist innovation. Feudalism and slavery are more efficient, on the other hand, in that workers are already a sunk cost, as opposed to having to be continuously paid, and thus can be made to perform labor when not sowing or harvesting merely for the cost of subsistence. Often slave-owning classes came into conflict with free citizens, since both wanted more land, with the former tending to dispossess the latter of land, proletarianizing it in the process. Both slavery and feudalism eventually gave way to capitalism, such as through banks foreclosing on farmers' land in economic crises or through the advent of advanced agricultural machinery. Wherever there is a caste system, slavery tends to linger as a non-dominant mode of production, being justified as a matter of hygiene or even through religion. Residual elements of slavery wither away through factors such as legislation and influence of nearby industrial societies. As economies industrialize and become capitalist, oppressed groups will often campaign for greater rights and receive some but still remain marginalized. Labor is more expensive when scarce, as was the case in the United States which had plenty of land following the expulsion of natives, and which imported slaves and encouraged immigration; in comparison to India.
5.4.9: Relative Exploitation
Marx recognized two kinds of exploitation: absolute, in which workers labor for longer, and relative, in which time spend working is the same but the proportion going to the capitalist increases because of technical advances. The latter manifests through the production of luxury products that only the bourgeoisie can afford, on top of advances in industries like agriculture making workers seek other jobs, such as being servants to the rich. The living standards of workers may also be decreased; overall, more labor is oriented for the ruling class and inequality rises.
Powered machinery is essential to capitalism, which outcompeted smaller producers and established the dominance of capital, harnessed artificial power, and sought innovation because of profits and high-wage workers.
5.5: Capitalism and Population
Capitalism takes hold where a relative abundance of capital to labor, making the latter more expensive. Feudal lords often squandered surplus value on themselves instead of reinvesting, so capitalist revolutions made resource use more efficient.
5.5.1: Population, Food, and Empire
Capitalism requires a large urban population sustained by relatively few farmers with advanced technology. Places with lots of fertile soil tended to produce a large population, however left little land for horses and oxen — who could be used for agricultural work — to graze on, on top of leaving less land for crop rotation to replenish the soil. Agricultural efficiency mattered because it meant more laborers could work in industry. Large, advanced populations required expansion into new, uncultivated lands on top of infrastructure to transport food to cities, thus setting up imperialism. Countries like Germany and Japan engaged in inter-imperialist rivalry to attain greater food supplies and offset population pressure by emigration. Colonialism died out after World War II because of birth control, artificial fertilizer, and tractors, leading to a slowing in population growth and increase in agricultural efficiency.
5.5.2: Family and Population
Capitalism exists alongside and benefits from household economies, with families reproducing capitalism and settling colonies. Within families there was exploitation too, by the patriarchs onto the wives and children, with patriarchs typically working fewer hours per week than their wives yet owning all the produced commodities. Husbands sought from their wives children, whose labor was exploited as well; all this being reinforced by religion. Organized capital eventually outproduces households and urban areas, and for some time in history, can draw upon rural workers for cheap labor, but afterwards must increase wages to reproduce the population that no longer has its own means of sustenance.
5.6: Domestic and Capitalist Economy
Capitalism soon required an educated workforce, meaning children would cost more to their parents for longer. Especially given new birth control methods, this leads to a decrease in the fertility rate. Men tend to work at their job more while women tend to work more at home; on average, half of work done is at home, which serves the state by maintaining the reproduction of workers, for which no profit is generated.
5.6.1: Gender Pay Inequality
Women often have lower wages than men because their professions are typically low-wage ones, on top of being seen as low-skilled professions. Women are also more likely to work part-time or temporary jobs, thus receiving less promotions and training, since they often have to also take care of children due to a lack of affordable child care and family leave policies, along with social pressure to also perform most domestic responsibilities. Furthermore, 10-15% of the wage gap is due to gender-based discrimination. The wage gap is slowly decreasing, mostly due to union membership, educational status, and occupation, besides marital status and tenure of job. Most of the gender wage gap is explained by total hours worked, however.
5.6.2: Narrowing the Wage Gap
To narrow the wage gap, men can do more housework, household labor has to become more productive, or the tasks have to move out of the domestic economy.
5.6.3: Division of Domestic Labor
Though men are indeed doing a larger share of housework recently, the benefits are offset by increased working hours at people's jobs. Both men and women are also doing more housework, with women doing more paid work as well.
5.6.4: Reducing Overall Housework
There is a correlation between time spent by both sexes in the domestic economy with the share of unpaid labor done by men. Machinery however does little to reduce household labor and thus reduce the typically female burden of such. Some machines like dishwashers by themselves are not much faster than manual washing, while otherwise the machine advantage is offset by a greater load. For instance washing machines appeared in coincidence with people owning more clothes.
5.6.5: Moving Tasks Out of the Domestic Economy
Improvements in labor productivity depend on technology and economies of scale, the latter allowing for greater division of labor and specialization. By this, people can outsource domestic tasks like childcare and housekeeping, however this is mostly worthwhile only for the rich. As women can't afford childcare, they have to take on part-time jobs that pay less, ensuring they can't afford childcare. Free or subsidized services of such a kind would elimination of the gender wage gap.
5.7: Distribution of Wage Rates
Due to wages being non-negative, and due to general wealth inequality, the average wage is well above the median. Furthermore, the gender gap is greater among high-income individuals (the percentage difference between the top 10% of male earners and the 10% of female earners is greater than the respective amounts for the bottom 10%). Data extends quite far to the lower end since despite the wealth of developed countries like the US, many people go hungry due to a lack of money, however minimum wage does help establish a lower bound. Wide differences in the rate of surplus value bound wealth inequality on the upper end, with firms that have less surplus value tending to lay off workers, with this in turn increasing competition, thus lowering wages and as a result inequality. As more of the cheap labor is employed, it becomes more scarce, increasing wages and increasing differences in wages; after which high wages lead to layoffs again. An increase in the median wage leads to greater differences in wage, and with this a reduction in surplus value. For this to be true, factors such as a reserve army of labor must be kept low.
5.8: The Next Generation
Families require more wages to be sustained than individuals, and since more men work paid labor fewer of them can be employed below the family subsistence level. Men's wages thus have more distribution, a greater standard deviation, and a greater median. With this, the next generation is reproduced with less labor, as much food is semi-prepared before appearance in supermarkets and clothes are ready-made by specialized work. This frees up more domestic workers to work for a profit, however raising children, an inherently domestic activity, suffers by this transition and thus the working population shrinks as raising children is seen to be a burden; ultimately culminating in declining profitability. For this reason migrants are imported, particularly single ones, as they don't have families to provide for and can thus be paid lower.
5.9: Long-Term Trend of Profitability
The value of money changes over time, so capitalist profits are ultimately concerned with labor supply instead. As profits are reinvested into capital, by which the national income (derived from labor) is then divided by, it is seen that the profit rate in capitalism decreases over time. The rate of profit increased when the population growth rate did, as in the Agricultural Revolution and with medical advances that decreased infant mortality. Profits decreased when women's social status rose and when child labor was abolished, on top of education becoming more costly. A country like Japan that invests plenty but which has no population growth ends up with little profit, as the ratio of capital to labor is very high. Immigration increases profits since most are of working age and tend to have more children then the settled population. Prior to capitalism, population and wages were inversely correlated because of demand. Under capitalism however a higher population increases competition, and thereby exploitation, on top of lowering the labor-to-capital ratio. Developing countries often have comparatively low capital and a high population growth rate, leading to a comparatively high growth rate. As the poorest countries' population growth slows, capitalism faces serious trouble as it no longer has a continuous source of new labor.
5.10: Productive and Unproductive Activities
Though feudal lords were criticized for their profligacy, capitalists soon became as wasteful in personal expense. A productive worker is considered by Smith and Marx to be one that is "employed out of capital not revenue" and whose work produces a physical, vendible commodity. The unproductive sector depends on the surplus of the productive, with the expansion of the former reducing the amount of surplus for reinvestment, thus decreasing capital accumulation.
Weapons manufacture, though technically qualifying as "productive", draws from the productive sectors of society and thus reduces the accumulation of capital, besides being used for economic destruction. Private military manufacturing companies typically didn't have much of an advantage over state-owned enterprises as they competed with them, and so made most of their profits selling to foreign powers without such means of production. Privatization of such allows companies to manufacture military components at a markup. By being subsidized by taxes, or otherwise selling to a state which purchases with taxes, military manufacturers are unproductive as they are employed by revenue, as Smith and Marx would put it. Things that are unproductive are so naturally, regardless of whether they are state-owned or privatized.
Unproductive "industries" like gambling and "sex work" are made to seem productive because of monetary transactions; they are not, however, and this view is due to commodity fetishism, which obscures the actual social relations in cash transactions. Brothels, on their part, are heavily based in human trafficking and are entirely dependent on monetary inflows to survive; producing nothing themselves. Not only are these kinds of institutions ruinous, socially, but they also leach resources from legitimate ends.
Banks and other financial institutions sustain themselves almost entirely off the profits of financial contracts. Other services like providing credit lines are not productive, creating no physical resources, instead just granting some sort of permission. The only relation to real wealth is in manipulating the exchange of money, which entitles the holder to labor or its product.
5.10.4: Modern Rents
Rent is unproductive, whether applied to developed land or in appreciating the price of apartments that are closer to the city center. There is also unproductive speculation occurring on rented properties, which, when their prices collapse during economic crises, must be compensated by the tax payer as enforced by the state. Investing in rent is incentivized in late capitalist economies, whose labor supply stagnates and thus doesn't produce as much exchange value in productive capital as rent interest does.
Chapter 6: Socialist Economies
6.1: What Does Socialism Mean?
Socialism started as a philosophical movement by Robert Owen and Charles Fourier in the early nineteenth century; firstly utopian, and later pursuing social justice. Socialism was still theoretical in Marx's time, who thus only made broad predictions about it, such as production being planned and money not existing. Socialism in the USSR built upon Marx's thought, however a growing number of western socialists and social democrats considered Soviet communism too repressive. Trotskyists and social democrats both criticized the USSR for trying to build socialism in one country, related to another common critique that socialism can only be built in conditions of abundance and that being isolated undermines this. Socialism in one country is more stable however since separate socialist states are weaker and more vulnerable; the USSR was not as much a nation-state as it was an international organization, with things like planning being more efficient when economies are coordinated. Socialism in one country eventually did provide for Soviet citizens their basic needs which previously were unmet, whereas trying to obtain an abundance of luxuries on the other hand would be impractical. Left communists agree with Trotskyists in the view that the USSR was too short of abundance to be socialist, and rather that it was in fact state capitalist for having things like money, however money in the USSR was mostly a tool of accounting and could not be used like in capitalism. The People's Republic of China also accused the USSR of being capitalist, on top of social imperialist, however without much evidence. It is true the USSR never had all the qualities of socialism, but just about no society has all the qualities of its dominant mode of production either. Modes of production also need time to set in — France, for one, had a capitalist revolution in 1789 that was beaten down, and capitalism would not in fact begin to thrive in a more proper form until about a century later.
Electricity, as Marx predicted and as Lenin remarked on, are a cornerstone of a socialist economy, being applicable in virtually any context and providing lots of productive force. Electricity requires a large network and standardization of specifications, as the state can conveniently do. Private firms, however, often lack the massive amounts of capital necessary to coordinate energy on a national level, and so socialist states had an advantage in adopting this technology. As the energy industry also has much capital investment but a rather low level of labor, it is not that profitable, disincentivizing private firms from taking part. Socialist states like the USSR thus were a few decades ahead in power production and consumption, per capita, than even the most advanced capitalist states. Electricity depends upon reserves of coal and gas, for instance, to be generated, but these will run out soon; therefore, new sources of power have to be developed, such as fast neutron reactor technology.
6.3: Reproduction and Division of Labor
Private property heavily characterizes the family under capitalism, however under socialism would remove any such aspect but mutual love. Arranged marriages, hoards of wealth passed on as inheritance, and the notion of having children just so they would serve one in old age would dematerialize. Though first allowing abortion, the USSR later restricted it and instead provided subsidies to those with children, reflecting Engels's idea that the cost of raising children should be collective. Economic security and medical advances helped Soviet populations rise, however were significantly stunted by World War II. The dissolution of the USSR decreased birth rates and sharply increased death rates, with demographic decline continuing well into the modern capitalist period. East Germany afforded many programs to mothers which boosted fertility, however population growth fell rapidly after German reunification; after which East Germany slowly trended to the national average, but which was still below replacement level. Capitalist states, in contrast, sought to increase profits by introducing women into the workforce, which along with a lack of affordable childcare led to plummeting population growth rates. Both socialist and capitalist societies soon had a rising share of elderly to working-age people, which created stagnation. China's population grew quickly as it industrialized, decreasing infant mortality rates and increasing life spans. The one-child policy was introduced out of fears the arable land would no longer be able to support the population, however this policy was abandoned following demographic problems. In order to avoid a lack of workers relative to the non-working population, it is likely China will have to adopt mother-friendly reforms and undo the low culturally perceived worth of girls. The one-child policy, combined with a rapid rate of reinvestment, played into the rise in wages following China's market reforms, as fewer workers increased competition. Beyond human reproduction, the economy as a whole must reproduce by planning ahead. In wartime, planning resources as to maximize their use values becomes an absolute necessity, which socialist states take inspiration from.
6.4: Determination of the Surplus Product
In wartime, materials are rationed according to an economic plan, with a lack of consumption goods tending to result in inflation, however this was countered by increased taxation. A shortage of labor during wartime doesn't result in increased wages, only more inflation, as consumer good production is fixed, however to merely counter this with taxes would disincentivize workers, so some system of differed wages, such as war bonds, began to arise in need.
6.5: Socialist Economic Growth
One advantage of socialist economic planning is ease in suppressing inflation through controlling manufacturing output and price. Planning with real material resources requires measuring things with labor time, as the value of money tends to deviate from the value of labor and its products over time. A higher population allows for more labor to be allocated, with the sources of this being natural population growth, foreign immigration, and internal migration. A relatively low growth rate in socialist countries only supported a modest rate of economic growth. However, as the urbanization rate stops growing the economy slows its rate of growth as well.
GDP is derived from the movement between domestic and industrial modes of production, population growth, and the productivity increase of new technology. Though the Soviet economy didn't reach the level of the most advanced capitalist countries, its rate of growth was indeed faster, even than that of economies that had a similar GDP per capita to begin with. In terms of food, the USSR actually grew its food supply a little faster than the United States, this being measured in grain, meat, milk, and eggs. Many home appliances were also produced in abundance, however cars were rare, with the scarcity of such being attributed to the view of cars being a bourgeois method of transport.
6.6: Why the Socialist Economies Still Used Money
Money was used to standardize accounting, both in individual factories and nationally, on top of serving as a means to distribute income to workers. Labor vouchers would not have been as appropriate because they did not fit into the capitalist aspects of foreign trade or the remaining private enterprises within the state. Labor vouchers would also have difficulty preventing a black market, and in the time of Stalin would have exposed the forced selling of agricultural products to the state as unfair, as the growth of the industrial sector was prioritized over proper compensation to farmers. Other systems like ledgers would have been too costly to maintain. Developments in commerce were low in the USSR, largely because enterprises tended to hoard workers in case they needed them to meet future demand from planning authorities. This stifled industrial expansion, and was facilitated by low money wages and readily-available credit from state banks.
6.7: Socialism or State-Owned Capitalism
The surplus in the USSR was allocated to the needs of the workers, with planning of labor being dominant over other factors such as changes in wages. Money does not command labor like in capitalism, and private employment was prohibited.
6.8: Why the Law of Value Applies in Socialist Economies
As individual households have different needs, part of people's income can be distributed in money, to be spent at discretion. If not money, then some other method like credit accounts or labor accounts.
6.8.1: Intersectoral Relations
Tax revenue and profit on consumer goods is used to pay for public services and the accumulation of new machinery. A turnover tax like that implemented in the USSR encouraged hoarding of labor since the true cost of it was hidden by low wages and subsidization of services and essentials. This made labor appear cheap and machinery expensive, which to planners made new machinery look unworthwhile. Labor value calculation and an income tax would have been a better basis for rational economic calculation.
6.8.2: Intrasectional Constraints
Generally, if prices do not correspond to values, there will be shortages that can only be dealt with by rationing if demand cannot be met. In accounting, goods are to be charged based on average labor content, rather than the minimum. Socialist planning with the law of value can be done by accounting for all products using embodied social labor and ensuring prices are proportional to this, on top of using labor time as the general unit of accounting, charging factories for labor used, setting goals for output of consumer goods, and limiting labor budgets of factory collectives. Digital labor vouchers would furthermore eliminate the possibility of a black market.
6.9: Crisis of Socialism and Effects of Capitalist Restoration
Economic planning can be made much more efficient with computerization, which can quickly fetch and compute various kinds of data. This was not really available in the USSR and so it collapsed, with industrial production, living standards, life expectancy, and other economic factors of well-being collapsing with it.
6.9.1: Long Term
The USSR grew quickly at first because labor becomes industrialized, but afterwards relies on improvements in labor productivity, which is slower. Much input was furthermore devoted to defense, and the USSR had embargoes placed upon it concerning advanced technological equipment. Much of the intelligentsia began to fall for neoliberal ideology, believing that removing economic planning and introducing a "free market" would improve economic efficiency.
6.9.2: Medium Term
Gorbachev's policies bankrupted the state and ruined the value of currency. The banning of alcohol also produced a black market that established a criminal underworld, which siphoned tax revenues, which, because these revenues were not compensated, resulted in inflation. Gorbachev also allowed enterprises to keep a large part of tax revenue, as per neoliberal ideology, the main effect of which was a catastrophic revenue crisis. Public confidence in the economy faltered, but Gorbachev's government went on to make another error: to legalized worker cooperatives which allowed criminals to launder money and engage in corruption.
Socialist economies relied on scheduled transactions as per the state plan, however after the fall of socialism only collapsed in a domino process — there was no "magic" of the market to reorganize society. Different countries which relied on resources from each other suddenly had their supply chains abruptly cut, with industries remaining crippled well into the 21st century.
Chapter 7: Future Economies
Fossil fuel use is unsustainable, both because it's a limited resource and because it leads to global warming. A future economy will have to be more energy efficient, use more renewables, use more nuclear power, and employ bioenergy with carbon capture and storage.
7.1: Technology Complex
The USSR had long-term plans for nuclear, thermonuclear, and solar power stations in orbit that would beam power to Earth using microwaves. Capital-intensive investments such as these, however, tend to have low profits and are thus not developed much in capitalism. Solar and wind power, on their part, are becoming cheaper and thus more viable as energy sources.
Many common materials like concrete and steel cause lots of pollution during production. They can either be replaced by different materials or be made with different methods.
The end of fossil fuels will likely increase shipping costs, and ships will cost more to build, operate, and will probably be slower. There may have to be investments into trains, which will likely require much state coordination. Personal vehicles may use lithium-based batteries, and the aviation industry could possibly use liquid hydrogen, which has a better energy-to-weight ratio however requires more volume. Though there is hype in capitalism about new technologies, the rate of new developments actually slows as the rate of profit falls to zero, with many technologies promised even in the 20th century not materializing today.
Much of what Google and Facebook do, for instance, is processing data to advertise more efficiently, however their resources could instead go to improving services for end users. What people do on the Internet is essentially "communism in action", or work done for self-realization that is unalienated and uncommodified: writing blogs, posting news, music, etc.
World population growth rates are shrinking, and this means capitalism will no longer be able to draw on a cheap source of labor.
Climate change has implications that directly threaten the lives of hundreds of millions, which requires political unity in applying policies that would, for instance, limit the amount of coal mined or oil pumped. In this, private property will have a tendency to be undone. A vast computer network could be the infrastructure which helps to manage all this, and will require large capital investment.