How does capitalism work?

Marx and Engels famously wrote in The Communist Manifesto: “The history of all hitherto existing society is the history of class struggles”. They paved the way in arguing that in order to understand any society, we need to begin by stripping away all the ideological fluff and getting to the heart of what makes it tick – how things are produced.

Capitalism is a system defined by two main features – the division between capitalists and workers, with the former exploiting the latter, and competition between the capitalists. These are not just narrow economic concepts; they are the fundamental social relations that explain why the world is in the terrible state it is today.

Different types of exploitative societies have been made up of various classes: “freeman and slave, patrician and plebeian, lord and serf, guild-master and journeyman, in a word, oppressor and oppressed”, as Marx and Engels wrote. What they have all had in common is the existence of a parasitic minority ruling class that did not work but lived off the surplus produced by the rest of the population. This is no different today.

Production under modern capitalism is carried out by the working class, the majority of the world’s population. What defines it as a class is the lack of ownership or control of the means of production that they use – machinery, land, buildings and the like – which are held in the hands of a small number of capitalists. This fact compels workers to sell their labour to the capitalists for a wage, or else face poverty or starvation. The capitalists exploit this labour, paying the workers for only a fraction of what they produce. The rest is profit, which the capitalists aim to accumulate over time into greater and greater quantities of capital, the corporate empires that dominate the market today.

Exploitation, therefore, is not just something that goes on in the sweatshops of poorer countries. Every worker in the world is exploited, because we are all making the wealth that ends up either in the pockets of the CEOs to fund their millionaire lifestyles, or reinvested into corporate empires for the next round of production and accumulation. Why would any boss ever hire a worker if they weren’t going to make a profit from them?

The first feature of capitalism, in other words, is the division and the struggle between the two main classes: the capitalists and the workers. The material interests of these classes are in complete opposition to one another. This is why we never get anything without a fight. Wages and working conditions can be won only at the expense of the bosses’ profits. Capitalists want workers to pay for health care, child care and education via a privatised “user-pays” system, rather than a publicly funded system paid for by taxes on company profits and the rich. When war breaks out, workers are sent to die and kill while the owners of companies benefit.

The second defining feature of capitalism is the competition between the capitalists. Capitalism is not a planned or rational system; it is made up of different blocks of capital, whether small businesses or giant corporations, all trying to outdo each other. This contest means that capital can never afford to stand still, but must be constantly expanding, making more and more profits, or risk being taken over or driven out of business. If one business can increase the rate of exploitation of its workers – by introducing some new technology or by forcing them to work harder, longer or for less money – then this puts increased pressure on other bosses to follow suit.

Competition drives the ruling class to act like the ruthless monsters they are, the drive for profit outweighing all other concerns. Just think of the thousands killed by James Hardie, which kept producing asbestos for decades after they knew it caused cancer, because there was money to be made. Think of the thousands who get injured or killed every year at work because profits come before job safety. Meanwhile, a world run for profit means nothing gets spent in areas where no profits can be found, such as feeding the poor or preventing catastrophic climate change. For the capitalists, the bottom line is far more pressing than the fate of the planet or those who live on it.

Competition for profit causes economic crisis as well. A rational society would plan its production and allocate its resources according to human needs and desires. Instead, the capitalist market is anarchic and wracked by instability. Contrary to the utopian theories found in economics textbooks, this does not result in “equilibrium”, but in chaos and repeated recessions. The 21st century alone proves this in spades, as capital rushed to invest in speculative bubble after bubble, from the dot-com debacle to the sub-prime housing catastrophe.

The resulting global financial crisis cast millions around the world out of work. In the US, newly built houses sat empty or were even demolished, while the numbers of homeless skyrocketed, because no profit could be made from putting people in homes. Trillions of dollars were wasted on construction projects and factories that now lie unfinished, empty or idle; trillions more were thrown away to bail out the rich. And it will happen again and again because it is the inevitable result of the way capitalism works.

Competition between the world’s capitalists takes another form as well: imperialism. Screwing their workers as much as possible is one thing, but capital also competes for control of natural resources, for markets, for trading routes and for more workers to exploit. During the 19th century, the European capitalist powers raced to colonise the world, carve it up between them and reshape colonial production to suit the needs of the capitalists back home – especially the need for raw materials and slaves. All the brutality of colonialism and slavery was the precondition for the development of modern capitalism. By the turn of the 20th century, the world had been divided and the wars became even bloodier as the great powers turned their sights on each other.

Today, the United States is the world’s only superpower, but the dynamic of imperialism remains. The US reign of terror in the Middle East is the expression of the needs of the US ruling class in its competition with its rivals in Europe and Asia. Control of the Middle East and its oil is central to US plans for staying on top of the imperialist pecking order. The exploitation at the heart of capitalism also gives rise to a wholly oppressive system that is not simply economic. Exploitation cannot function without an accompanying ideological and legal apparatus backed up by the armed might of the police and the military.

At its heart, capitalism is an exploitative system driven by competition for profit. These features cannot be reformed away. They can be overthrown only by the working class collectively taking control of the means of production and wielding them to create a society in which profit and competition are no longer our masters.