Capitalism is made up of institutions and economic activities that are organized around the principle of maximizing capital. That statement is simple enough, but it has broad implications.
First, we observe that capital is not exactly the same as wealth. Wealth is accumulated value. The value of a material good or a service is determined by the degree to which it is needed or desired.
More than a means of measuring value, capital is the commodification of value; that is, value itself has value and is tradeable. Wealth can in principle exist without trade, but trade is essential to capital.
Because capital is based upon but is not the same as value, capital can grow without increasing the amount of value, and so the central principle of capitalism, which is the maximizing of capital itself, is not necessarily dependent on creating value or wealth.
Capital can be easily exchanged for wealth and always has some underlying wealth, but capital and wealth are not identical.
On balance, capitalism creates much more wealth than it destroys, but because it is organized around maximizing capital rather than maximizing value, it can sometimes lead to wasted resources, or worse, to the destruction of value, as in environmental degradation.
Anything can be commodified. That's the crucial cognitive shift underlying the development of capitalism.
Commodification occurs whenever a richly-dimensional set of factors and transactions becomes substitutable or expressible in terms of a simple scalar quantity.
The process of commodifying depends on cognitive skills that allow complexity to be packaged as discrete, countable units, and those skills, like other similar skills, are enhanced and reinforced by cultural habits.
Commodification first means finding a unit with which to divide the commodity into measurable pieces. A unit, of course, is the abstraction that says that there can be one of something, and then one more, iteratively, to account for all that exists of that thing.
Two perceptions that we take for granted are 1) that the units are commensurate with what is being unitized, and 2) that all units are functionally uniform.
The practice of unitizing goods is obviously quite old, probably as old as writing. Evidently early written symbols were instances of counting and unitizing for purposes of trade and definition of ownership.
Commodification is a subtle but significant step further into abstraction than unitizing. Commodification accepts that if all units are identical to one another, then units taken in bulk constitute a substance that is distinct from the underlying goods. The aggregated units can be reified in themselves.
In fact, the aggregated units, or the commodity, become tradable, even if the underlying goods never change hands.
With that mental leap, capitalism is only one small step away. Capitalism at its root occurs when unitized value, or money, also becomes commodified.
Many people confuse capitalism with the institutions and customs that have developed to enable and support the commodification of money. Banks, equities markets, a legal system upholding private property, and so on, are all incidental to the mental construction at the heart of capitalism, which is that the measure of wealth itself can be traded and that commodified wealth has value independently of the underlying wealth.
"Money" is a linguistic construct that represents the relationship between scarcity and desire. The scarcer and more desireable a good or service is, the more money is needed to persuade a person to yield control of that good or service to someone else.
Money is like electricity. In the same way that electricity has electromotive force, money has psycho-motivational force. Money only works when scarcity exists in an economy, because money depends on a flow of power from one "pole" to another, just as electric current flows from polar charge to another.
If every participant in an economy were given a limitless supply of money, the money would instantly lose its psycho-motivational force and would become worthless.
Just as money cannot be created (of course, instances of a monetary unit may be) nor can it be destroyed.
When a stock market takes a tumble and equities lose billions in capital, the overall value of money in the economy remains the same, minus the loss of overall value due to a loss in confidence or productive urge.
Also distinct from capitalism and the institutions and customs that have arisen to support it are habits and cultural values that have emerged in societies that have had capitalism for a sustained period.
Industrialization is a close cousin to capitalism, because industrialization also derives from the mental trick of unitizing otherwise impractically complex materials.
The insight implicit in industrialization is that the effort needed to produce more than one of an identical unit is only marginally greater than the effort to produce only one. The difference between the effort needed to produce a given number of identical units and that needed to produce the same number of completely heterogeneous units is the advantage accrued to industrialization.
The point here is that both capitalism and industrialization are based on unitization and the understanding that complexity can be practically controlled by treating a messy substance in terms of a simple linear scale.
The unfortunate omission, of course, is the richness of the substance itself, in contrast to the stark simplicity of the linear scale, but the practical equivalence of the two becomes so deeply held that people tend to forget that the scale is only arbitrary.
The measure and the measured are as different as map is to territory, but people easily become bewitched by the convenience of the symbolism inherent in the scale.
The problem in blindly letting an abstract scale become a substitute for real substance is that pressure quickly mounts simply to increase the size of the numbers. Mere quantity begins to override a whole range of underlying characteristics.
Not all linear scales are numeric. A brand can be seen as another type of derived unitization.
As a brand develops, it becomes a proxy for a cluster of factors that would otherwise be too broad to conveniently grasp without using the brand as a mental or communicative tool.
Branding is closely related to commodification, because it also collapses unwieldy complexity into a more easily manipulable abstraction, and of course brands have meta-value beyond the value of the goods to which they are attached.
What is value-oriented capitalism, and how does it differ from capitalism today? How can today's capitalist societies transition to value-oriented capitalism without political persuasion or force?
Value-oriented capitalism vigorously enforces the link between capital and value by exposing areas where the casual market fails.
The distinction here is between the casual market and the more rigorous one. Market depth is apart from rigor, and generally refers to the liquidity of a market; that is, the spread between bid and asked prices, and the ease with which transactions can occur.
Consumerism is nearly always tied to casual markets, because mass consumers are driven by narrow tastes and are relatively easily influenced by commercial propaganda.
Publications providing consumers with information about products have given consumers sharper judgment but not broader tastes.
The chief factors limiting the rigor of markets have to do with typical human behavior. People generally tend to purchase what they desire ahead of what they need. They tend to purchase based on uncertainties about probable harm, which is fear, or about potential loss of opportunity, which is greed.
Since choices of purchase are what drive consumer markets, those markets achieve their dynamics from mass desire, not from need.
The economic problem in putting value ahead of capital is the same as the personal problem faced by individuals when they fail to choose what they know to be beneficial for themselves and choose instead what they impetuously desire. Urges motivate more strongly than does worth.
Likewise, the creation of value will not in itself be motivated. Humans lack the collective self-discipline and sense of sufficiently assured and immediate benefit needed to create value.
That's the crux.
Markets are efficient only to the extent that they have sufficient information about the value of what is being traded.
When markets operate in isolation or with incomplete information, they can become distorted and will often support destructive activity directly or indirectly. A market is isolated when it has limited access to important elements that determine value.
The clearest example of market isolation is global environmental degradation.
Markets have so far not been able to properly fix the value of a balanced and thriving ecosystem. As a result, economic entities that degrade the environment do not have to pay for that damage in many cases, because the parties who have suffered the damage and the cost of that damage cannot be precisely defined.
In an important sense, the defense of the environment is an accounting problem perhaps even more than a political one.
Markets are not yet sophisticated enough to assess the value of a healthy environment. Industries that are directly responsible for damaging the environment are isolated from the cost of those damages.
If markets knew how to determine the cost of damages for each individual who suffered that damage (presumably every citizen), then industries that contaminated or destroyed would be forced to pay the true cost of the destructive activities.
In a sense, we all subsidize environmentally destructive activities by forfeiting our unquantifiable claim to the environmental commonwealth.
A simplistic example is a driver of a polluting car who owes local homeowners for a share of the loss of value to their property due to poor air quality. Markets currently have no means of calculating and collecting that value.
Ironically, much of what humans value most, such as health, peace, freedom, and meaningful social ties, are largely invisible to most markets, which see those things as "intangibles" outside their domain.
Two urges stand balanced against each other. On one hand, there is the urge to seize opportunity, which can motivate value-creating economic activity. Strong or unreasonable fear of missing opportunity can lead to greed, however, which easily leads to activity that does not create value. In counter-balance to the urge to follow opportunity is the urge to avoid being economically parasitized.
Open Source software, and other related forms of collaborative production, could be a potentially dramatic force in shaping capitalism in the future. As Open Source-type production evolves, it may change the relationship of property to production, as many have observed already.
Naturally, we ought to be tentative in embracing any prophecy common as the one claiming that Open Source will revolutionize the world. The truth is rarely understood accurately in advance by so many -- if it's in a magazine, it's probably either too superficial or too late.
Still, Open Source may be a portent of broader patterns at work. For example, it demonstrates that commerce and value are not equivalent, and that other factors than commercial markets can motivate production.
The most remarkable feature of Open Source is its extraordinarily high overall quality -- so high, in fact, that it has become competitive with commercial products on the basis or quality as well as cost.
Open Source may be the clearest example yet of value-oriented production. What does it say about value-oriented capitalism, however?
One of the best-known problems in economics is the freeloader dilemma. Only if the risk of being parasitized does not outweigh the benefits of production can industrial innovation thrive, because industry requires such great investment of effort and resources before any benefit accrues.
An interesting note is that even Open Source has crucial safeguards against parasitism. The prowess of the main software developers is known among the peers who created the six million or more lines of the Linux operating system, for example.
If a developer falsely claimed someone else's code contribution as his or her own, and profited thereby either through enhanced reputation or through remuneration, that would not be lauded.
Because the practice of commodification can naturally be extended to apply to anything for which a unit can be assigned, nearly every aspect of life eventually becomes a commodifiable transaction as an industrial/capitalist society develops.
Consumerism lies at the convergence of efficient industrialization and capitalism. In a consumerist society, anything at all can be commodified and acquired, not to hold as property per se, but to use until its value has been used up and lost.
As consumerism progresses, every social interaction can be expressed as a commercial transaction and a means of defining relationships. All the world becomes a marketplace.
The consumption reflex becomes the default psychological position for individuals, as consumerism continues to advance in a society.
Political preferences, social alliances, and personal choices about how to lead one's life are all processed in terms of brand identity. Consumerism is a habit of mind so deeply engrained that it becomes invisible.
Any consumer takes for granted that one instance of a commodity is functionally identical to any other. Consumers typically would not spend time comparing identically branded and labeled jars of spaghetti sauce, for example, before buying. The assumption of uniformity is an extraordinary mental habit obviously taken for granted in consumer societies but very rare historically.
One could not, in contrast, have assumed that all head of cattle were uniform. (The word capitalism, by the way, comes from Latin for "head", referring to head of cattle.)
Likewise, the tendency to respond to life as a stream of consumer choices about how to vote, where to live, how to dress, whom to associate with, how to establish social identity, and of course which goods to purchase, is a habit of mind never seen in history.
That raises the question of what might emerge after hyper-consumerism. Will people return to more usual patterns of thought and behavior? If so, how? If not, how will hyper-consumerism change?
As consumerism progresses, commodification will eventually begin to give way to a sharpened interest in value.
We should first notice that depth of commodification varies by country, region, and socioeconomic layer. The very poorest in the world see little commodification. Interestingly, neither do the very wealthiest. The poorest because they live in pre-industrialized economies, and the wealthiest because they enjoy the means with which to demand uniquely designed products.
The principle of industrialization is to divide the cost of designing the development and production of goods by many units of those goods.
While the strength of industrialization is that it makes products cheaper and therefore more widely available, its weakness is its way of projecting homogeneity and ubiquity, overwhelming and extinguishing the particular flavors of regions and smaller enterprises.
New trends are afoot, however. The toniest post-suburban villages at the edges of metropolitan areas or in the poshest city centers often regulate quite strictly against vulgar fast-food facades, gaudy filling stations, and so on.
Those who can afford to do so often pay high premium for clothes with limited production runs and unique designs by talented fashion designers.
As computer-aided design continues to advance and manufacturing techniques become more flexibly automated, we can imagine that in many cases mass production will move toward a kind of smart production where the cost of design and production will be cheaper and can therefore be divided across smaller runs.
Bespoke production may become more affordable, and as it does, more people will shun the sameness of industrialized consumerism and demand what look and feel like individually crafted goods. Having acquired high-value goods that so carefully match their tastes, consumers may perhaps be less willing to dispose of them quickly.
In general, as hyper-consumerism advances it seems to lead to greater demand for value and to greater sophistication in distinguishing quality from brute quantity.
Michael Webb, 2003
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