Where did capitalism come from?

PEOPLE MAKE deals all the time--in markets, in politicians' offices, in alleyways. Our president established himself in the business world as the master of the deal, and now he's bringing those skills to the White House to "re-deal" the United States back to greatness.

Making deals, and the whole gamut of business and trade that goes with it, is just part of life. Commercial activity is an essential component of all human culture, and the business mindset an inherent aspect of human nature.

Or so the story goes.

The cheerleaders of the free market have come up with a story about the past that makes capitalism seem natural--the culmination of a long evolution of this innate deal-making instinct, growing in complexity until, with the rise of international trade and the Industrial Revolution, it finally took its rightful place as "the way we do things."

Trade has gone on for millennia, according to this narrative, and with it, that most important of human processes: profit. Ancient and feudal societies didn't understand that profit and the all-important accomplice of deal-making, free trade, had to be the unhindered center of the system, so they eventually failed, giving way to capitalism.

And there's the other part of this tall tale: Only with the rise of business, profit and free trade do we have democracy, freedom and human rights. After all, didn't the great revolutions of the 17th and 18th centuries, establishing democratic republics in England, the U.S. and France, coincide with the spread of global capitalism? Isn't there an essential connection between the art of the deal and the project of human freedom?

LET'S SUSPEND this story for a moment, and look back at the past without green-tinted glasses. Instead, we'll take the Marxist view of history. Frederick Engels laid out Marx's historical materialist approach succinctly:

The materialist conception of history starts from the proposition that the production of the means to support human life and, next to production, the exchange of things produced, is the basis of all social structure; that in every society that has appeared in history, the manner in which wealth is distributed and society divided into classes is dependent on what is produced, how it is produced and how the products are exchanged.

For Marxists, history changes on the basis of the way humans transform their world to meet their needs, how they turn natural objects into human products and then distribute those products through exchange--not on the basis of some innate instinct to barter or profit.

For the vast bulk of the time that humans have existed as a distinct species, there were no classes. Like most of the Indigenous cultures of North America prior to European colonization, work and the products of work were shared in common by small bands of people, which operated democratically.

Starting around 10,000 years or so, settled societies emerged in a number of places on the planet, and class distinctions developed for the first time in human history--with a small minority of people ruling over the majority.

Eventually, complex social systems arose in which a ruling class lived off the labor of the vast majority of the population--who were sometimes owned directly by the ruling class as slaves and sometimes bound to a piece of land as peasants and forced to give up some of what they labored to produce to the elite.

THE PROCESS of classes emerging varied in different parts of the world, but human labor and who possessed it produced was the central factor.

Humans have always made tools to help them survive. But at certain points--when humans settled in one place, rather than lived in nomadic bands--the tool-making progressed from basic items used in hunting and gathering to more complex tools, like methods of irrigation to grow cultivated plants, to take one example.

As the tools improved, these groups of people could produce more than was necessary for basic survival--they produced a surplus. Over a long period of time, a small group within these societies came to control that surplus, and that control became the basis of a social distinction and political authority. Next to emerge were centralized states, exercising military and legal authority as a way to protect the wealth of this minority.

The Marxist historian Chris Harman summarized how this dynamic led to another--one more directly involved in the rise of capitalism as a distinct form of class society:

[T]he ruling classes of the new civilizations...demanded distantly obtained products on a scale that could not be satisfied by the old-established customary networks. At the same time, they were rarely prepared to face the hardship and risks involved in procuring such things themselves.

People soon emerged who were--in return for a share of the surplus the ruling class had obtained through exploiting the cultivators. So specialized traders got a "mark-up" by selling to the ruling class goods from a great distance away. Some were individuals from the exploited cultivator class, others from the nomadic peoples living between the centers of civilization. But regardless of their origins, they began to crystallize into a privileged class separate from the old ruling classes.

As this not-yet-ruling class developed its economic strength, there were power struggles with the established elite. Often, the ruling state apparatus was too powerful to be overthrown--in China, for example, the development of capitalism was held back for centuries by this.

In medieval Western Europe, where the various states were more primitive and constantly at war with each other, the merchant class organized itself into a more powerful grouping, with its representatives emerging to vie for political power.

THE EMERGENCE of merchant networks went along with what Marx and Engels classified as "the production of commodities"--defined as "that economic phase where articles are produced not only for the use of producers, but also for the purpose of exchange."

Through all previous history, production of what humans needed to survive--whether hunting and gathering in pre-class societies or the predominantly agricultural systems in class societies before capitalism--was mainly organized around meeting the consumption needs of those doing the producing or the minority who ruled over them.

Making things to sell them--which the ideologists of capitalism tell us is instinctive--was the exception. But that changed with capitalism and the emergence of a new ruling class, whether still vying for power or already installed, organized around the exchange of goods.

The most peculiar commodity of all is human labor. On one level, wage laborers--workers who sell their ability to labor for a wage--are free of the compulsion that characterized previous systems like feudalism or slavery. But they aren't free not to work.

And in the process of work, they are robbed. Workers aren't paid on the basis of the full value of what they produce. They are paid enough to keep them coming back to work--usually just enough to meet their daily needs and those of their families.

The difference between this wage and the value that capitalists realize in selling the commodities made by others, but owned by them, is the source of profit--what Marx called surplus value. This, according to Marx, is the basis of the capitalist system: "Only where wage-labor is its basis does commodity production impose itself upon society as a whole; but it is also true that only there does it unfold all its hidden potentialities."

These "hidden potentialities" include the way that workers become dependent on commodity production.

Wage-labor had existed on and off for millennia, but only became established as the norm in Western Europe after centuries of crisis within the feudal system, in the form of war, plagues and famine.

In order to make sure the wage labor system would be the only alternative for the majority in society, the phenomenon of "enclosure"--where, for example, landlords kicked peasants off their traditional lands, forcing workers into the cities to be wage laborers--became synonymous with capitalism's rise.

Over time, food, clothing and housing all became commodities, to be paid for in money. The growing working class competed for jobs, which gave capitalists their most effective tool in controlling wages. Workers who feared being replaced could be forced to work longer hours in degrading conditions just to make starvation wages.

Marx described this as "wage slavery": "The Roman slave was held by chains; the wage-laborer is bound to his owner by invisible threads."

The threads are invisible because workers aren't directly expropriated of a portion of what they produce. By contrast, capitalists pay workers what is supposed to be "a fair pay for a fair day's work"--only workers are paid a fraction of the value they produce, and the capitalists pocket the difference.

PROFITS AREN'T just the source of luxury lifestyles for the capitalists. Unlike feudalism, capitalists reinvest their profits in more machinery, warehouses, raw materials and wages. Newer technology enables workers to make more products faster, and the capitalist can gain even more surplus value, at least at first. Thus, capitalism has expanded at greater and greater speed over time.

To acquire raw materials and markets to sell to, capitalism drove the expansion of the European empires. In the Americas, gold was extracted and land stolen from the Indigenous. Africans were kidnapped and enslaved in order to produce sugar, cotton and other critical commodities. The civilizations of India and China were subjugated as well, to convert them into markets for European goods and sources of cheap labor.

Without the expansion of "free trade" through campaigns of terror, there would have been neither the raw materials nor the international markets to sustain the rapid growth of European capitalism.

This process reached a new level with the introduction of large-scale industrial machinery and the modern factory. But this in turn gave rise to another essential feature of capitalism--recurring economic crises. In the Communist Manifesto, Marx and Engels and Marx wrote:

Modern bourgeois society, with its relations of production, of exchange and of property, a society that has conjured up such gigantic means of production and of exchange, is like the sorcerer who is no longer able to control the powers of the nether world whom he has called up by his spells...

It is enough to mention the commercial crises that by their periodical return put the existence of the entire bourgeois society on its trial, each time more threateningly. In these crises, a great part not only of the existing products, but also of the previously created productive forces, are periodically destroyed. In these crises, there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity--the epidemic of overproduction.

Capitalism is capable of producing enough to meet the needs of the entire human population and enable the full development of individual human capabilities. However, since its productive forces are directed toward making profits, the wealth of the few comes before the good of all, even if this means mass suffering.

In The Grapes of Wrath, John Steinbeck described a common scene during the Great Depression:

Carloads of oranges dumped on the ground. The people come for miles to take the fruit, but this could not be. How would they buy oranges if they could drive out and pick them up? And men with hoses squirt kerosene on the oranges...A million people hungry, needing the fruit--and kerosene sprayed over the golden mountains.

And the smell of rot fills the country.

Capitalist crises are the result of material abundance subordinated to the drive for profit. Working-class people are the living source of that profit, yet they can't share in the abundance.

But by organizing together, workers have the power to challenge the system and ultimately to win an alternative society, based on the democratic organization and fair distribution of that material abundance. That is socialism.