There's a moral flaw in the process of capitalist economics
"Socialism" on the Agenda
The presidential campaigns of Senator Bernie Sanders opened up a serious discussion of the word “socialism.” In fact, it tore a band aid off a festering historical sore that those in power and privilege seek to maintain. Can’t blame them for that. When working folks begin articulating about a “democratic economy,” all that power and privilege can be up for grabs.
That discussion continues today replete with a relentless descant of misinformation by those at the top of the economic ladder who wish to preserve the structure of the economy. That never seems to change. However, it is quite remarkable today that a candidate identifies himself as a “democratic socialist” in the United States and is still being taken seriously-very seriously.
Prior to the Sanders phenomenon, the various “Occupy” movements beginning in Sept. 2011 initiated the discussion in terms that gave much publicity to the phrase “The One Percent.” It was the first time in a long time that the dominant economic group in our country was identified as pejoratively distinct from the rest of us.
"The One Percent"
The identifier "The One Percent" asked Americans to consider that there was an "us" and a "them" in our economy. There was a whole lot of "us" and a tiny group of "them" that made it starker in contrast.
Moreover, the sparse but ubiquitous “them” appeared to be responsible for an economy that was dramatically increasing the economic burdens of the overwhelming majority of Americans.
Concomitantly, polls also showed attitudes toward “socialism” were changing.
A Pew Center poll in December 2011 reported that younger people were more favorable toward socialism than capitalism.
Even CBS conducted a poll also in 2011 that reported 43% of Americans “agreed with the views of the Occupy Movement.
Fast forward to 2019 and a Harris poll for Axios reported a favorable change in attitudes toward “socialism.”
Unsurprisingly, “socialism” means different things to different people along the political spectrum whether secular or spiritual.
Confucian socialist theologies.
Pope John XXIII wrote:
“ We therefore consider it Our duty to reaffirm that the remuneration of work is not something that can be left to the laws of the marketplace; nor should it be a decision left to the will of the more powerful. It must be determined in accordance with justice and equity; which means that workers must be paid a wage which allows them to live a truly human life and to fulfill their family obligations in a worthy manner.” Mater et Magistra May 15, 1961
Martin Luther King asserted:
“We are saying that something is wrong … with capitalism…. There must be better distribution of wealth and maybe America must move toward a democratic socialism. Call it what you may, call it democracy, or call it democratic socialism, but there must be a better distribution of wealth within this country for all of God’s children”-1966
One has to ask what is it about capitalist economics that would cause many people of faith to question it.
For this review, I define “socialism” as a form of “economic democracy;” It is a generic challenge to the prevailing capitalist economic processes.
The conversation of the economic conditions of working folks rarely presents an explanation of what is inherent in the capitalist process that results in chronic crises for many millions of Americans approximately every four to seven years. Jobs disappear or are replaced by lower paying ones with no benefits.
Moreover, there are the grimly increasing disparities in wealth and income between “the one percent” and the overwhelming majority of Americans. There is considerable evidence documenting those worsening economic conditions of all working peoples in the United States. We should determine if there a component in the basic capitalist economic process that contributes to these unfair burdens.
The following is a simplified model that may offer some light on the hidden process in basic capitalist economics.
The primary purpose of capitalist economics is to return a private profit to the business owner.
This is what drives each business.
There are two primary types of capital:
We begin with “constant” capital. Constant capital is the amount of resources which the business owner spends on plant, machinery, tools, hardware, software, technological advances, raw materials or anything similar. Constant capital is often inherited by a business owner.
Next is “variable” capital. Variable capital is that which is spent by the business owner to purchase the physical or mental efforts of the employees. It is simply the wages and salaries paid to the employees who create the products that the owner sells on the market. Wages and salaries enable them and their families to maintain their lifestyles. It is usually a paycheck.
It is important to note here that it is the employees alone who create the products that the business owner sells in the market. It takes considerable social effort of many employees to create the products offered by the business owner. Some employees will be more skilled or efficient at producing the products. It averages out to what is defined as “socially necessary labor time’ to produce the products.
In spite of the delusional grandiloquence on the part of some business owners, no one business owner creates those products alone.
Here, though, the process pivots. If the business owner paid the employees in salary and wages the amount equal to the value of the products the employees created, there would be no profit.
That would mean there would be no reason to continue with the business. Moreover, the business owner must compete with other business owners to sell as much product as possible and minimize costs.
In order to obtain the essential profits, the business owner must sell the products created by the employees at a price or value above the amount spent on wages and salaries that maintain those employees in their lifestyles.
Because of this fact, it appears that the products now being sold by the business owner have somehow increased in value i.e. a new value. How can that be? Actually it cannot.
The "new value" is not new at all. It’s there, we just have to peel back the layers to find it.
For example, suppose we have a male employee who works a typical nine to five work day with an hour lunch break. Parenthetically, it doesn’t hurt to have a strong union with contract provisions guaranteeing healthy work conditions like a full hour lunch break. Regardless, this is the workday for the employee in this example.
Here it becomes very serious for both the business owner and the employee.
In that seven hours of work, this fellow will work for the amount of wages or salary that will allow him to maintain his family. That amount of pay will vary primarily according to the cost of living in different regions of the country.
However, inside that seven-hour work day is the key to the exploitation and moral flaw in this fundamental economic process.
While it appears that the employee is being paid for working seven hours, this is not really the case.
The business owner must calculate the amount he pays to the employee based on how much is required for a private profit.
In effect, the employee is working some hours to maintain his family by receiving wages or a salary, and some hours to provide a profit for the owner. However, the value the employee is creating by his labor is for the full seven-hour work day.
It is strictly the business owner who decides how to divide up the value of the product of the seven—hour day created by the employee into how much the employee will be paid and how much he puts in his own pocket. Again, competition with other business owners largely determines this calculation.
In our example, say in one work day the business owner totals $50.00 an hour for the building, the materials, machinery and technology to create one product. This would be “constant” capital mentioned above. Then the employee must be paid to create the product. By the calculation of the business owner, it is say $10.00 an hour. That would be the ‘variable” capital also mentioned above.
Now the business owner must sell the product on the market. He must charge an amount above what has been spent already to produce the product. The product was created for $50.00 plus $10.00 equals $60.00. Now, though the business owner must sell the product each for $70.00 to obtain a profit of $10.00 on each product. The “new” value is $70.00
Clearly if the employee created a product that is worth $70.00 it is inescapable logic that the employee is not being compensated for the value he has created in the seven-hour day he is working. This is simple exploitation and in most spiritual belief systems-immoral.
It is the sine qua non fundamental work relationship of the basic capitalist work process. More importantly, the business owner must continually try to reduce the amount paid to the employee in order to compete with other business owners.
Some prominent historical leaders, secular and spiritual have commented on the process.
Abraham Lincoln stated:
"Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration."- First Annual Message to Congress, December 3, 1861.
Surely, if we cherish political democracy as a fundamental principle in our country, then we must adhere to a form of economic democracy as well.
Bruce T. Boccardy serves as an Economics & Labor Advisor for Small Planet Institute, was president of the Massachusetts Service Employees International Union (SEIU) Local 888, represented labor on the Massachusetts Joint Labor-Management Committee (JLMC), serving firefighters and police and consulted to the National Association of Government Employees (NAGE).