Capitalist mode of production (Marxist theory)


In Karl Marx's critique of political economy and subsequent Marxian analyses, the capitalist mode of production refers to the systems of organizing production and distribution within capitalist societies. Private money-making in various forms preceded the development of the capitalist mode of production as such. The capitalist mode of production proper, based on wage-labour and private ownership of the means of production and on industrial technology, began to grow rapidly in Western Europe from the Industrial Revolution, later extending to most of the world.
The capitalist mode of production is characterized by private ownership of the means of production, extraction of surplus value by the owning class for the purpose of capital accumulation, wage-based labour and—at least as far as commodities are concerned—being market-based.

Synopsis

A "mode of production" means simply "the distinctive way of producing", which could be defined in terms of how it is socially organized and what kinds of technologies and tools are used. Under the capitalist mode of production:
  • Both the inputs and outputs of production are privately owned, priced goods and services purchased in the market.
  • Production is carried out for exchange and circulation in the market, aiming to obtain a net profit income from it.
  • The owners of the means of production constitute the dominant class who derive its income from the exploitation of the surplus value. Surplus value is a term within the Marxian theory which reveals the workers' unpaid work.
  • A defining feature of capitalism is the dependency on wage-labor for a large segment of the population; specifically, the working class, that is a segment of the proletariat, which does not own means of production and are compelled to sell to the owners of the means of production their labour power in order to produce and thus have an income to provide for themselves and their families the necessities of life.
The capitalist mode of production may exist within societies with differing political systems and alongside different social structures such as tribalism, the caste system, an agrarian-based peasant society, urban industrial society and post-industrialism. Although capitalism has existed in the form of merchant activity, banking, renting land and small-scale manufactures in previous stages of history, it was usually a relatively minor activity and secondary to the dominant forms of social organization and production with the prevailing property system keeping commerce within clear limits.

Distinguishing characteristics

Capitalist society is epitomized by the so-called circuit of commodity production, M-C-M' and by renting money for that purpose where the aggregate of market actors determine the money price M, of the input labor and commodities and M' the struck price of C, the produced market commodity. It is centered on the process M → M', "making money" and the exchange of value that occurs at that point. M' > M is the condition of rationality in the capitalist system and a necessary condition for the next cycle of accumulation/production. For this reason, Capitalism is "production for exchange" driven by the desire for personal accumulation of money receipts in such exchanges, mediated by free markets. The markets themselves are driven by the needs and wants of consumers and those of society as a whole in the form of the bourgeois state. These wants and needs would be the driving force; this would be "production for use". Contemporary mainstream economics, particularly that associated with the right, holds that an "invisible hand", through little more than the freedom of the market, is able to match social production to these needs and desires.
"Capitalism" as this money-making activity has existed in the shape of merchants and money-lenders who acted as intermediaries between consumers and producers engaging in simple commodity production since the beginnings of civilization. What is specific about the “capitalist mode of production” is that most of the inputs and outputs of production are supplied through the market and essentially all production is in this mode. For example, in flourishing feudalism most or all of the factors of production including labor are owned by the feudal ruling class outright and the products may also be consumed without a market of any kind, it is production for use within the feudal social unit and for limited trade.
This has the important consequence that the whole organization of the production process is reshaped and reorganized to conform with economic rationality as bounded by capitalism, which is expressed in price relationships between inputs and outputs rather than the larger rational context faced by society overall. That is, the whole process is organized and reshaped in order to conform to "commercial logic". Another way of saying this is that capital accumulation defines economic rationality in capitalist production. In the flourishing period of capitalism, these are not operating at cross purposes and thus capitalism acts as a progressive force. In the final stages, capitalism as a mode of production achieves complete domination on a planetary basis and has nothing to overcome but itself, the final negating of the negation posited by orthodox Marxism.
In this context, Marx refers to a transition from the “formal subsumption”, the formal turning of workers into wage-laborers, to the “real subsumption” of production under the power of capital. In what he calls the "specifically capitalist mode of production", both the technology worked with and the social organization of labour have been completely refashioned and reshaped in a commercial way—the "old ways of producing" had been completely displaced by the then new industrialism. Some historians, such as Jairus Banaji and Nicholas Vrousalis have argued that capitalist relations of production predate the capitalist mode of production.

Summary of basic distinctions

In general, capitalism as an economic system and mode of production can be summarized by the following:
  • Capital accumulation: production for profit and accumulation as the implicit purpose of all or most of production, constriction or elimination of production formerly carried out on a common social or private household basis.
  • Commodity production: production for exchange on a market; to maximize exchange-value instead of use-value.
  • Private ownership of the means of production: ownership of the means of production by a class of capital owners, either individually, collectively or through a state that serves the interests of the capitalist class.
  • Primacy of wage labor: near universality of wage labor, whether so-called or not, with coerced work for the masses in excess of what they would need to sustain themselves and a complete saturation of bourgeois values at all levels of society from the base reshaping and reorganization described above.

    Origins

Marx argued that capital existed incipiently on a small scale for centuries in the form of merchant, renting and lending activities and occasionally also as small-scale industry with some wage labour. Simple commodity exchange and consequently simple commodity production, which form the initial basis for the growth of capital from trade, have a very long history. The "capitalistic era" according to Marx dates from the 16th century, i.e. it began with merchant capitalism and relatively small urban workshops.
For the capitalist mode of production to emerge as a distinctive mode of production dominating the whole production process of society, many different social, economic, cultural, technical and legal-political conditions had to come together.
For most of human history, these did not come together. Capital existed and commercial trade existed, but it did not lead to industrialisation and large-scale capitalist industry. That required a whole series of new conditions, namely specific technologies of mass production, the ability to independently and privately own and trade in means of production, a class of workers compelled to sell their labor power for a living, a legal framework promoting commerce, a physical infrastructure making the circulation of goods on a large scale possible, security for private accumulation and so on. In many Third World countries, many of these conditions do not exist even today even though there is plenty of capital and labour available—the obstacles for the development of capitalist markets are less a technical matter and more a social, cultural and political problem.
A society, a region or nation is “capitalist” if the predominant source of incomes and products being distributed is capitalist activity—even so, this does not yet mean necessarily that the capitalist mode of production is dominant in that society.

Defining structural criteria

Marx never provided a complete definition of the capitalist mode of production as a short summary, although in his manuscripts he sometimes attempted one.
In a sense, it is Marx's three-volume work Capital, as a whole that provides his "definition" of the capitalist mode of production. Nevertheless, it is possible to summarise the essential defining characteristics of the capitalist mode of production as follows:
  • The means of production and the means of consumption are mainly produced for market sale; output is produced with the intention of sale in an open market; and only through sale of output can the owner of capital claim part of the surplus-product of human labour and realize profits. Equally, the inputs of production are supplied through the market as commodities. The prices of both inputs and outputs are mainly governed by the market laws of supply and demand. In short, a capitalist must use money to fuel both the means of production and labor in order to make commodities. These commodities are then sold to the market for a profit. The profit once again becomes part of a larger amount of capital which the capitalist reinvests to make more commodities and ultimately more and more capital.
  • Private ownership of the means of production as effective private control and/or legally enforced ownership, with the consequence that investment and management decisions are made by private owners of capital who act autonomously from each other and—because of business secrecy and the constraints of competition—do not co-ordinate their activities according to collective, conscious planning. Enterprises are able to set their own output prices within the framework of the forces of supply and demand manifested through the market and the development of production technology is guided by profitability criteria.
  • The corollary of that is wage labour by the direct producers, who are compelled to sell their labour power because they lack access to alternative means of subsistence and can obtain means of consumption only through market transactions. These wage earners are mostly "free" in a double sense: they are “freed” from ownership of productive assets and they are free to choose their employer.
  • Being carried out for market on the basis of a proliferation of fragmented decision-making processes by owners and managers of private capital, social production is mediated by competition for asset-ownership, political or economic influence, costs, sales, prices and profits. Competition occurs between owners of capital for profits, assets and markets; between owners of capital and workers over wages and conditions; and between workers themselves over employment opportunities and civil rights.
  • The overall aim of capitalist production under competitive pressure is to maximise net profit income as much as possible through cutting production costs, increasing sales and monopolisation of markets and supply; capital accumulation, to acquire productive and non-productive assets; and to privatize both the supply of goods and services and their consumption. The larger portion of the surplus product of labor must usually be reinvested in production since output growth and accumulation of capital mutually depend on each other.
  • Out of preceding characteristics of the capitalist mode of production, the basic class structure of this mode of production society emerges: a class of owners and managers of private capital assets in industries and on the land, a class of wage and salary earners, a permanent reserve army of labour consisting of unemployed people and various intermediate classes such as the self-employed and the “new middle classes”.
  • The finance of the capitalist state is heavily dependent on levying taxes from the population and on credit—that is, the capitalist state normally lacks any autonomous economic basis that would guarantee sufficient income to sustain state activities. The capitalist state defines a legal framework for commerce, civil society and politics, which specifies public and private rights and duties as well as legitimate property relations.
  • Capitalist development, occurring on private initiative in a socially unco-ordinated and unplanned way, features periodic crises of over-production. This means that a critical fraction of output cannot be sold at all, or cannot be sold at prices realising the previously ruling rate of profit. The other side of over-production is the over-accumulation of productive capital: more capital is invested in production than can obtain a normal profit. The consequence is a recession or in severe cases, a depression. As a corollary, mass unemployment occurs. In the history of capitalist development since 1820, there have been more than 20 of such crises—nowadays the under-utilisation of installed productive capacity is a permanent characteristic of capitalist production.
In examining particular manifestations of the capitalist mode of production in particular regions and epochs, it is possible to find exceptions to these main defining criteria, but the exceptions prove the rule in the sense that over time the exceptional circumstances tend to disappear.