Even when economists hassle to “name” the economy they’re learning, they typically use a euphemism rather than the “C-word.” They don’t call it capitalism. They call it a “market economy.” This implies that what is unique about capitalism is its reliance on markets and market signals (like supply, demand, and prices) to organize the economy. But that is wrong, too.
But capitalism is not the only economic system that relies on markets. Pre-capitalist economies also had markets – where producers could sell excess supplies of agricultural goods or handicrafts, and where exotic commodities (like spices or fabrics) from far-off lands could be purchased. Most varieties of socialism conjointly believe heavily on markets to distribute finish products and even, in some cases, to arrange investment and production. Thus markets don’t seem to be distinctive to capitalism, and there’s nothing inherently capitalist about a market.
Markets sometimes (but not always) imply some reasonable competition, during which completely different patrons and sellers contend with one another to induce the most effective deal.
But capitalism is not the only economic system that relies on markets. Pre-capitalist economies also had markets – where producers could sell excess supplies of agricultural goods or handicrafts, and where exotic commodities (like spices or fabrics) from far-off lands could be purchased. Most forms of socialism also rely heavily on markets to distribute end products and even, in some cases, to organize investment and production. So markets are not unique to capitalism, and there is nothing inherently capitalist about a market.
Just as necessary, there are several aspects of contemporary capitalism that don’t have anything to try and do with markets. Among giant firms, as an example, only a few choices are created through market mechanisms. Instead, relationships of command, control, and plan reign supreme. (Remember, some corporations are economically larger than many
countries, so these internal non-market relationships are important.) And there are other ways in which capitalism reflects powerful non-market forces and motivations – like tradition, habit, politeness, reciprocity, altruism, coercion, even (sometimes) brute force.
By pretending that capitalism is a system of “markets,” economists imply that it is based on relationships between essentially equal parties. Neoclassical economists study two main kinds of markets: markets for FACTORS OF PRODUCTION (things that are used in production, like labor, land, and natural resources), and markets for the final GOODS and SERVICES produced with those factors. Neoclassical economists even describe the relationship between a large company and its workers as a form of market exchange. Everyone comes to the “market” with something to sell, and in theory, they’re all better off (than they were in the first place) as a result of trading in that marketplace.
Imagine a bustling bazaar, to represent the whole economy. In one corner of the hall is General Electric, which brings US$500 billion worth of capital assets to the market. In the other corner are some workers, with only their brains and brawn – their intelligence and their physical strength – to sell. Will a trade between these two sides be equal or voluntary, in any meaningful sense of those words? Not at all. And neoclassical economics doesn’t bother explaining the historical process by which one stall at the bazaar is stocked with US$500 billion in the capital, while another is stocked with just hard-working human bodies.
By pretending that capitalism is just a system of “markets,” neoclassical economics deliberately blurs the real power relationships, and the often-violent historical processes, which explain the economic system we actually live in. Yes, we must study markets when we study capitalism – their flaws, as well as their virtues. But markets don’t seem to be the perfect establishments portrayed in economics textbooks. And capitalism is equally formed by different, non-market forces and structures, too.
So capitalism is not a “market economy.” Capitalism is a system in which most production occurs for private profit, and most work is performed by wage labor.
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