Hi everyone! Today we're going to be talking about capitalism. This is the third and final entry in my 'breadtube and economics' series. The first two are in the description if you'd like to take a look. Capitalism is something that a lot of people on breadtube don't really seem to like. "Oh yeah, here it comes baby! The generic 10-minute rant about how capitalism
is bad that I do at the end of every video now!" "Capitalism is just...it's so ingrained in us that we refuse to advance for the sake of a handful of huge wallets." "Bottom line I have to give capitalism the lowest score my editorial team allows me to give a game. 7 out of 10, limited recommendation." And you know what? I'm not a massive fan either. But there are few videos which really attempt to get to grips with the 'economics of capitalism'.
There's very little meat in these critiques of capitalism. The best and most viewed - which as we all know, are the same thing - is the two-part series by Contrapoints. As usual, Natalie's videos are entertaining and insightful. She repeatedly associates capitalism with evil reptiles who have all the money and power and aren't the Jews to be clear. She takes us through some of the paradoxes
and absurdities of contemporary capitalism, which she observes and critiques effectively, including: class conflict; shitty jobs; consumerism; and inequality. And yet...somehow, the whole thing feels like less than the sum of its parts. The issue, I think, is that ultimately the videos lack a coherent theory of what capitalism is and how it works. In fact, we don't even get a definition of capitalism. One thing I want to acknowledge early on is that as always Natalie definitely knows more than she lets on in the videos. she's simplifying because she wants to make things accessible and because the old white dudes who populate economics and philosophy piss her off. i also know that when
natalie says things like "I mean I'm not an economic theorist and honestly I don't really understand how the economy works" she's at least partly joking. But whatever the reason, I think there are elements of her videos that could be cleared up and developed. I'm going to mostly take her at her word because, you know, what else can I do? To that end I'm going to focus quite a lot on what she calls 'the argument': |"Capitalism as we know it is a defective economic system because although it's good at creating large amounts of wealth, it distributes that wealth in an incredibly inefficient way, where efficiency is understood not as the capacity to maximize total wealth but as the capacity to maximize human happiness." She presents this as her conclusion in the second video so it seems like a reasonable thing to focus on. Of course, this doesn't mean I'm going
to ignore the rest of what she says - especially the parts that are not properly accounted for, or are even in outright tension with, 'the argument'. To start with, despite her main conclusion revolving around wealth creation and distribution it's not clear to me from her videos how capitalism either creates wealth or distributes wealth. But this...presents us with an opportunity. To answer the age-old question of how wealth is created we will have to go back to the man many consider the founding father of economics, whose work has remained relevant for hundreds of years... That's right, the 14th century Islamic scholar Ibn Khaldun. Did you think I was going to say Adam Smith? Was it because I strongly implied it was him and even put a picture of him on the screen? You idiot. 400 years before Adam Smith, Ibn Khaldun observed that through specialiSation and cooperation, human beings can produce much more than they need: Thus, Khaldun identified very early on what we now call the 'technical division of labour'. When workers specialise in different tasks within production units such as farms or factories,
this is a source of surplus above and beyond what they need. Khaldun didn't stop there; he linked the technical division of labour to the gains from trade: Different production units, cities, or even countries have different specialisations and trade with each other in order to attain more wealth than they could manage alone. One way of thinking about this is to call it the 'social division of labour' - across rather than within production units. One city might specialize in food while another specializes in clothes, and by trading they can produce more clothes and food in total than they could if they worked alone. Both the technical and the social division of labor speak to wealth creation as a collective process, which is something we will return to later. This is all pretty straightforward so far and maybe some of you are familiar with these ideas.
But the observant among you may have noticed something: I haven't mentioned capitalism yet. Surplus and the division of labour were common to settled civilizations long before capitalism, ever since the dawn of agriculture, which was Khaldun's example. He was writing in a time and place where what we recognize as capitalism hadn't really taken root - although I have put some interesting debates over the Islamic origins of capitalism in the description. Adam Smith - and that's not to be confused with the Leeds United player Alan Smith, there - wrote during the first industrial revolution so maybe we have more hope of understanding capitalism specifically with him? Smith certainly refined our observations on specialisation and the division of labour. For instance, he gave three
reasons the division of labour leads to higher productivity. Firstly, particular workers become more adept at particular tasks when they do them time and time again. Secondly, sticking to one task saves time in switching between them, which incurs both a practical and a psychological cost. Thirdly and probably most importantly, new technologies enabled workers to perform their tasks faster, with inventions like the Spinning Jenny increasing the production of cloth by an order of magnitude.
Smith also famously claimed that the division of labor and the prevalence of markets were intimately interconnected, with an expansion in opportunities for selling naturally expanding the possibilities for specialisation and vice-versa. It's fair to say that Smith was not afraid to confront the drawbacks of the division of labour, either. In one famous passage he wrote that: Wow, " as stupid and ignorant as it is possible for a human being to become"? Obviously, Smith had never watched a Steven Crowder video. And yes I had to look up martial virtues too and I still don't understand. Let's move on. The economist Stephen Marglin took issue with Adam Smith's account of the division of
labour, not because it was descriptively wrong but because it missed the role of the capitalist in organisation. Like Khaldun before him, Smith tended to assume that the division of labour was arrived at for reasons of technical efficiency: people somehow realised that through specialisation they could produce more and this specialisation resulted in greater skills and new technologies. Marglin points out, though, that there were many examples where the methods used in independent cottage industries were at least as productive as the methods used in early factories. For this reason, early Capitalism was filled with all sorts of legal restrictions on production which pushed workers into factories, including restrictions on how many looms could be held in a home. Rather than increasing efficiency - that is, getting more output for less input - capitalist firms aimed to increase the total work done by labourers and therefore total surplus. As capitalists had
ownership of what was produced and could sell it in ever-expanding markets, they were able to reinvest their profits and expand production further. This is what Marx famously called the 'M-C-M prime circuit'. Taking existing money M, investing it into the production of commodities C, selling those on markets and emerging with more money M prime - only to start the whole process again.
Although the division of labour existed before capitalism, the appropriation of the surplus by private capitalists, their sustained investment in productivity enhancing technologies, their expansion into new markets, and their continued reorganization of the division of labor to those ends are what gave rise to continued expansion in incomes. This all, I think, gives us an insight that Natalie missed into why jobs are so shitty under Capitalism: they require you to do a narrow range of tasks repetitively. for as long as capitalists can get you to do them. But more importantly, this leads us to our definition: It should be emphasised that the rise of capitalism was accompanied by a lot of misery for the workers, as well as by the subjugation of women, and by colonialism and slavery overseas. I don't want to gloss over any
of this and by the end of this video you'll see how they can be accounted for by our analysis. For now, we have a solid start on how wealth is created under Capitalism, so we need to talk about the other part of Contrapoints' argument: the unequal distribution of this wealth. And to do that, we need to turn to another thinker who has recently tried to make sense of Capitalism.
If you follow trends in economics, you may have heard of the best-selling 2014 book 'Capital in the 21st Century' by Thomas Piketty. Piketty sought to explain how inequality arises under capitalism, what problems this leads to, and crucially how it might be combatted. It may sound ridiculous but this is a question the modern economics profession hadn't paid much attention to before the book. Unfortunately, nobody, including Contrapoints, knows what Piketty said because his book was too damn long and the average Kindle user got to page 26 out of 700. Seriously, what kind of nerd is going to read all of that? Oh, me. Haha!. But I didn't read the new
one because it's almost twice as long and that's ridiculous. 1200 pages is longer than The Bible (probably). Following the success of Capital, Piketty's fame earned him the name 'the rockstar economist' which is a term nobody should use about any economist ever.
Anyway, Piketty's central claims in the book hinge on some basic maths which i'm afraid we're going to have to learn a little bit about. Piketty places great emphasis on the law of exponential growth'. Since technological improvements, the division of labour, and the expansion of markets took hold in a virtuous cycle, incomes have grown by a certain percentage every year, on average. As Piketty points out, initially small differences in the cumulative growth rate can lead to vast differences over the long term. With a growth rate of 0.1 percent a year it will
take almost a thousand years for the economy to double in size. The average growth rate of currently rich countries since the industrial revolution has probably been between 1 and 1.5 percent which results in a rough doubling of incomes every 100 years, but would multiply incomes by literally millions if sustained for a thousand years. There have been brief periods of even higher growth than this such as post-world war 2, where growth rates were closer to 4 percent. This more than doubles incomes in a single generation and if sustained for a century would increase incomes by 30 times. If sustained for a thousand years it...wouldn't be on the table and I'm not working it out myself, so I guess we'll never know. The net result of all this
growth is that rich countries now have market incomes which dwarf their incomes in the past. And to be clear we should not mistake this for the statement that people are better off in all respects now than they were. In fact, Piketty's main focus is not on growth but on one of the major problems associated with capitalism: inequality. Having established the power of exponential growth of incomes, Piketty turns his attention to capital and how it grows. He uses a few expressions to discuss how the wealth of capital owners evolves over time, chief among them being 'r greater than g', where r is the return to capital investment - a measure of the profits made by owners of capital - and g is the general rate of growth in incomes throughout the population . Owing to the power of exponential growth we just spoke about, if r is persistently
higher than g then the wealth of those who own capital will grow faster than incomes. As Piketty shows, capital ownership is highly concentrated so essentially this means the rich get richer. Piketty entertainingly details the history of inequality, not just with extensive quantitative data gathered by himself and his co-authors, but using literary examples such as Jane Austen, Honore de Balzac, and Henry James. All of whom I have of course read many, many times and whose names I can definitely pronounce. As an aside, i found it really interesting that the actual incomes of different characters in these novels seem to match up quite well with Piketty's historical data on inequality.
Based on his framework, where a small number of people own wealth which grows faster than incomes, Piketty goes on to predict increasing inequality in the future and is concerned about the political power that these owners will exert as their relative wealth increases. He recommends a whole bunch of left-egalitarian policies to combat the pernicious effects of this inequality: stronger unions; stakeholder capitalism; wealth taxes; increased social provisions, and so on. I agree with most of these policies but there's something unsatisfactory about Piketty's approach. His framework for understanding capital and inequality does not seem directly related to the policies he advocates. Anyone who has read the book in full will tell you that they feel like a bit of a non-sequitur, especially when he starts talking about climate change. Delving into this uneasy disconnect in Piketty's analysis turns out to give us some important insights into how Capitalism works. If you're new to economics, I'm going to let you in on a little secret: economists have a habit of using a lot of fancy mathematics to gain relatively little insight. Piketty himself
is no stranger to this tendency and had some choice words for the profession that I'd like to share with you: Unfortunately, despite his iconoclasm Piketty has a view of capital which echoes a tendency within mainstream economics: it is treated as a quantity of stuff - that's equipment, buildings, raw materials and so on - which when put into production, yields a stream of income for the capitalists. It's true that Piketty is deeply concerned about the inequality that results from this income but at its core this is quite a harmonious depiction of the production process. Labourers bring their labour; capitalists bring their capital, and everyone walks away with an income which is related to their contribution to production. The economist Josh Mason has pointed
out that a key assumption of this approach is that capital can be thought of both as actual physical stuff but also as a monetary value. What economists claim is that you can just take the price of all the different stuff that comprises capital and add it up to get its total money value. It turns out to be mathematically convenient to do this, but as Piketty knows that doesn't tell us much about whether it's right. Nevertheless, that Piketty follows this approach is revealed most clearly by the title of his book 'Capital in the 21st Century' since what he actually presents is data on the evolution of wealth. For him, though, capital and wealth are one and the same.
Piketty's 'r greater than g' depicts holders of wealth gradually accruing more and more. If accumulation and exponential growth explains the rise of incomes under capitalism - the reasoning goes - then perhaps they explain the rise of inequality too? But actually Piketty's evidence for this happening is pretty thin. Mason shows that changes in wealth are not driven mostly by changes in the quantity of stuff but instead are driven by changes in the value of existing assets. At first glance, this puts lie to an argument you often hear: that capital is just the reward for patience and hard work, with diligent capitalists putting money away and reaping the rewards down the line while the short-termist poors splurge it all on bread or whatever poor people buy. But there's also a deeper point here. What if, instead of capital representing an accumulated quantity which produces a stream of income for capitalists, capital is the claim on the total income of the economy - collectively produced, as we saw earlier - but divided through distributional conflict? As Mason puts it: what if "it's bargaining power, it's politics, all the way down"? Another illustration of this point pertains to slavery in the USA. Piketty's own data show that when slavery was
abolished there was a concomitant reduction in the wealth ratio and capital share. But nothing concrete had actually happened to capital as stuff, or even to the slaves themselves. All that had happened was that a property claim held by slave owners had ceased to be recognized by society. I've found this point is probably best illustrated by the ownership of land, which entitles the bearer to an income without them actually having to do anything. Money from ownership of land is money you
can earn in your sleep, without even taking part in the wealth creation process. "Well, my work is done here." "What do you mean your work is done? You didn't do anything!" "Didn't I"? If you've followed this whole series you'll know that I am now three for three in highlighting land as a key issue in economics so I guess that makes me a Georgist. But where I differ from Georgists is that for me, land is the
thin end of the wedge for understanding capital more generally. And now I want to show you a video that caught my eye a short while ago. As usual, the police are being antagonistic towards the crowd. There's some shoving and kettling going on but it's far from the worst video of police brutality you will see and that's really the point. This is a tenants' strike in Brooklyn, New York during the pandemic, a period in which for obvious reasons many tenants have struggled to pay rent. But if you
decide not to pay rent you will be forcibly evicted. If you organise to protest that decision, you will face off directly with armed employees of the state. This is the dull but brutal reality of the power of capital to insist on obtaining its share of resources. Of course, things can be much more dramatic. In 1954, when the democratically elected President of Guatemala, Jacobo Arbenz, tried to forcibly purchase unused land from the United Fruit Company, they pressured the US Government into staging a military coup and removing Arbenz from power. In the past, this type of military power is what allowed colonial empires to explicitly lay claim to a share of their colonies' resources. This perspective also starts to make sense of some of
Piketty's policy recommendations. Worker presence on boards, as is the case in Germany, is one way to reduce the claims of capital on national income and increase the claims of labour. Other examples might be patent laws; corporate law; and financial assets. In every case the power to enforce property rights of one sort or another translates into a claim on the wealth generated by society. In every case the rights could be reconfigured or even eliminated to favour other groups.
In summary, the political power that certain groups use to exercise control over resources is not a consequence of capital, as Piketty fears. It is capital. Perhaps this is what Natalie was getting at when she said "the lizards are capital itself". Oh yeah, remember - this is a response to Contrapoints! One of the interesting things about the Contrapoints videos is that despite starting with a broadly Marxist analysis, the conclusion is pretty moderate and could have been arrived at by a mainstream economist. This might seem like a strange thing to admit in a video entitled 'breadtube versus economics'. Maybe it should be 'breadtube and economics versus unlearning economics'? Look, whatever, the point is I'm right. In Natalie's first video, we
get an eloquent and entertaining account of issues with capitalism like alienation, exploitation, and advertising - before she pivots into some political analysis aimed at first the rich, then at the left. To be clear, I have no problem with the latter. Ppolitics and economics are intertwined and she was deliberately trying to appeal to people from the alt-right, with some success it seems. In the second video, though, production takes a back seat as she focuses on commodity fetishism and inequalities of consumption, illustrated by the expensive but disgusting golden pizza, a brilliant example which would surely make even the most ardent capitalist slightly uncomfortable.
She then settles on 'the argument' which to remind you states that: Strangely, this maps quite well onto a famous set of theorems in economics called 'the welfare theorems', which separate questions of distribution from questions of efficiency. I'll spare you the details but it does draw on the capital-as-stuff approach we saw earlier. The irony is that this view is actually pretty close to what I would call "[ __ ] neoliberalism" - or at least to the left-leaning variety of neoliberalism you find on the internet. In this view, capitalist wealth creation is a positive thing and we should allow it to continue, but redistribute the wealth that it generates. This is especially odd as a conclusion since even in part two of her videos Natalie talks about the profit motive ruining Hollywood. She even explicitly says "that's why I don't really agree with the philosopher Peter Singer, who has this idea that many of the world's problems could be solved if privileged american college students would just become hedge fund managers and donate most of their income to buying mosquito nets in the Congo." But she then claims that she's "talking about redistributing the goddamn champagne". She
goes into detail on this point by drawing on literature about which income level maximises happiness. While I agree with most of her points, there is nothing in here about how changing wealth is produced and indeed that would not be implied by her argument. More hedge fund managers would result in a lot of champagne to redistribute, sweaty. Did I do that right? I shouldn't do that. When I set out to make this video, I just wanted to explain more about how capitalism works.
I wasn't looking to catch anyone out. But now I've watched natalie's videos a few times I can see quite clearly what made me uncomfortable to begin with: there's some confusion here. If I had to guess, I'd say that she's not guilty of a genuine intellectual inconsistency. She's just left with an inconsistency because she lacks a framework with which to make full sense of capitalism and her observations about it. Our view of capital as political power over resources, I'm hoping, does a better job of making sense of Capitalism. We've seen that through the division of labour, wealth is
created collectively. This cooperation happens both within and between the productive units of society. Through its bargaining power over labour, capital makes claims on this wealth and even reorganises production to its own ends and to those of the market. Capital's primary aim is to get ahold of as much of society's surplus as possible and to reinvest in order to expand. As an aside, it's worth pointing out that if the role of capital is to continually reinvest surplus it's failing at even that task these days. You had one job, capital! But capital is not some physical
entity; it's not politically neutral. Capital enacts ownership claims on national income and these claims are ultimately defended by the state. Over time, the claims are even extended to new domains, like ideas and the environment - and these are political choices. Wealth creation and wealth
distribution should therefore not be disentangled in our analysis of capitalism: the power of capital determines not only what proportion of wealth it receives but how and what type of wealth is created in the first place. Only by changing this arrangement - by reconfiguring claims on our collectively produced wealth - can we hope to address issues such as inequality, exploitation, imperialism, and environmental degradation. More in-depth ideas about how exactly to do this are something I want to cover in the future. "Say the line, YouTuber!" "That's a topic for another video". "Yayy!"
So...what's my conclusion here? Well it's that Piketty and Contrapoints are the same, because even though they're both insightful and entertaining, their frameworks lack coherence. The end! Thanks for listening guys. I hope you enjoyed my video on capitalism which somehow managed to avoid theories of value and what started the industrial revolution and also how to build alternatives to capitalism. This marks the end of the 'criticising left YouTubers' arc of my channel. Hopefully from now on I'll just be talking about
economics; criticising right-wingers, economists; and also talking about how to build alternatives to Capitalism. Like all good YouTubers i now have a Patreon. I've actually started posting exclusive videos to my Patreon. They're a little bit more casual than these videos - it's just me talking to a topic. The first one is on Modern Monetary Theory so if you're interested in that then please join up. Thanks to all my current patrons whose names have been scrolling through the screen as you've been hearing this and please like and subscribe. See you next time, buddies!
2021-02-08