You’ve been very patient. You’ve considered all of this talk about business, finance, and the general “nuts and bolts” of the economy. Let’s talk about something nearer to your leftist heart.

Let’s talk about capitalist exploitation of labor.

If you have followed the preceding essays, I hope I have proven to you that capitalism isn’t the same thing as commerce. Commerce is a fundamental activity of human beings – especially human beings organized in complex technologically advanced societies. Not only that, the process of organizing a business enterprise is not primarily a coercive effort. It is very much a persuasive effort. It is all about the organization of resources and productive energy for the mutual benefit of all of the participants. There is no good reason why labor can’t be included with all of the other actors as a beneficiary of the wealth created by the business organization.

In fact, labor is not oblivious to the wealth it helps to create. Neither have wage earners shrunk from organizing themselves to improve their bargaining position. What for example, is a corporation, if not an organization of people with investment capital, in order to create a large and powerful bargaining unit. That wage earners seek to organize themselves into large and powerful bargaining units called unions should surprise no one. Neither should anyone have any objection. But of course, capitalist businessmen do object. They think unions are “subversive”.

Here’s what the conservative capitalist thinks he has a right to expect. Let’s consider an economic colossus like General Motors. What we have in this “corporation” is hundreds of thousands of people who have pooled their money together to form a giant powerful business organization. The conservative businessman – relying on the legal fiction that a corporation is a single “person”, when in fact it is thousands of people acting together – wants you to deal with this giant, all by your self. They think it is “unfair – if you can believe that – for you to organize a union and win wage increases through “extortion”. That this economic giant might be the one doing the extorting never seems to occur to them.

“Power corrupts.” So the conservative tells us when he opposes any governmental or political use of power to benefit the people who do the work. Apparently, conservatives live on some strange planet where economic power doesn’t corrupt. They fail to appreciate the fundamental nature of a business as an organization. This means that economic power from economic organization is just a specialized form of political power. Thus, economic power is just as capable of being abused. The examples of the abuse of economic power are so numerous that I will spare you a recitation here.

But conservatives understand this perfectly well. Like all elites, they are actually very politically sophisticated. Under industrial capitalism, the locus of political power has shifted from purely political to economic forms. This enables the conservative to bray about political tyranny, while he advances economic tyranny every way he knows how. Consider the position of the remaining apologists for the Confederacy. According to them, the civil war was a fight against the “tyranny” of a federal government bent on interfering with southern “institutions – like slavery, for example. Apparently, the economic oppression of slave labor wasn’t itself tyranny. Go figure.

In fact, the tyranny possible for large economic organizations is precisely the goal of the conservative. Consider the “full employment” policies advocated by the left for decades. Conservatives oppose “full employment – tooth and nail. The justification for not having full employment is the need for a pool of labor for start-up business enterprises. “If everyone has a job, where are you going to find labor for your business?” This question misstates the conservative’s problem. But why should we expect any better of them, since conservatives really are the duplicitous manipulators they appear to be. The real conservative problem is having a pool of cheap labor.

First of all, “full employment” doesn’t mean that every last wage earner has a job. Like any ideal, that is an impossibility. It is impossible for a simple reason, conveniently overlooked by conservatives. The conservative assumes that the labor pool is this static unchanging constant. He analogizes the labor pool to a stagnant pond. It is more like a lake formed by a dam. People come in and out of it all the time. They enter it when they’re young, and leave it when they retire. Within the labor pool, there is tremendous movement, as the business organizations that utilize labor come and go. In other words, the start-up business has a source of new labor, namely wage earners freed from businesses that close down. Of course, the competition for good labor is a little keener.

Which is the problem for the conservative. Conservatives say that an expanding economy boosts wages – and they are correct. What they don’t say is that the economic power of a passive investor is weakened in such an economy. Here’s how it works. The relationship between a business organizer and the wage earner is a dynamic relationship. The business organizer depends on the wage earner. Business organizers are not doing you a favor giving you a job. He needs you. You need to eat, put a roof over your head, and provide a measure of security for yourself – just like the business organizer. You actually have a great many mutual interests, and a dynamic relationship within which to advance your mutual interests. Sure, you want more money. The boss wants – not more – but better work. Whatever he pays you, your giving something tangible in exchange for it.

The capitalist investor or lender isn’t giving the business organizer anything tangible. Imagine this scenario. You are hired by a business organizer, in order to help build his new factory. In exchange for helping him get started, you get paid a cut of his profits for the rest of your days. Sound like a good deal? You’ll never see such a deal. The conservative scoffer out there who says such an arrangement is absurd is quite correct. If you want to derive a continuing piece of the action, you need to make a continuing contribution. And yet, the man who puts up the money – paper symbols of imaginary value – to pay you to build the factory gets this very same absurd deal. He gets income from the business for as long as he owns his shares. He helped get the business started, and makes money without lifting another finger. Which is the better deal for the business organizer – paying good money for continuing help building the business, or paying good money for help given ten years ago?

All of this suggests something really interesting. The business organizer isn’t necessarily a “capitalist”. Not only that, his interests can and do conflict with those of capitalists. Capitalists are people who – using money and property rights as the social mechanism – control the resources. They use their control in order to derive a living off of the talent and energy of other people – not only wage earners, but business organizers themselves. As a matter of fact, many business organizers through history start out with very little. They negotiate their way into positions of economic leadership, and join the ranks of capitalists when they have accumulated sufficient capital to stop doing the work of organizing businesses.

Notice something else even more interesting. The position of the capitalist is a weak position in a dynamic economy. This is because his power within the economy is based on intangible legal symbols. In other words, his power is based on his position. The power of the wage earner on the other hand is based on his very tangible and very necessary continuing effort expended in the service of the business enterprise. His power is based not on position, but on action. When push comes to shove, the business organizer is going to have to pay for his current need for labor – at the expense a repaying the capitalist investor, who provided nothing more tangible than socially recognized symbols.

Finally, notice that the trajectory of the economic development of a nation gradually improves the economic position of the wage earner. I have already demonstrated this in my discussion of the present trends in technological development. Remember the treadmill? Technological improvements in productivity, in product quality, in renewable energy – and many others besides – empower the wage earner to accumulate his own capital. As he accumulates capital, he leaves the workforce, furthering tightening the labor market, further improving the bargaining position of the wage earner. The end stage of this natural trajectory is a business world where the business organizer has to woo and cajole the wage earner – the same way he woos and cajoles capitalist investors today. It isn’t a world without enterprise and innovation. Wage earners need good business organizers to provide them with the source of their increasing prosperity. The difference is that the wage earner is in the driver seat in terms of bargaining position.

In fact, a brand new natural hierarchy will develop. It will be a hierarchy of age, experience and wisdom. Here’s how it works. You enter the work force as a young person “with two hands and a heart willing to work”, as Abraham Lincoln put it. As you work, you gain increasing expertise and at the same time you begin to accumulate capital in the form of home ownership and savings. When you reach early middle age, you mature into a responsible position within an existing business – or you take your accumulated savings and organize your own shop. If you need investment – and you might – there are plenty of sources very close to you. Those sources are the older people who derive their living from the capital they invest in the enterprises of their children. Thus, the son works on the shop floor. His father runs the business – or at least part of it. His grandfather furnishes the investment capital, and derives an income as his natural reward for a lifetime of effort expended creating the economic world that now serves his children and grandchildren.

Meanwhile the bargaining position of the capitalist investor continuously erodes, as the people who do all of the work gradually assume control.

By now you should understand why the “treadmill” exists – and why the conservatives want it to continue. The harder it is to accumulate your own capital – own your own house, start your own business, and generally take control of your own fortunes – the more dependent you are on the wealthy interests presently in control of the economy. Essentially, the corporate elite wants you in a position where you have to work for what they pay you, and where your bargaining position for your wages and working conditions is as limited as they can make it.

This requires the existence of a social condition that is a necessary part of the infrastructure of corporate capitalism. That social condition is poverty.

It is very simple, and directly related to the structural unemployment we previously discussed. If a given percentage – say five percent – of the population is unemployed that means that a given percentage has no income to provide for themselves. Essentially, the worse it is for those people, the more frightening is the prospect of unemployment for people who have jobs, the more docile and obedient they will be, the more willing to work for whatever they can get.

Everything we have talked about – savings from personal power generation, availability of more durable products with a longer service life, increased savings and homeownership – all give the wage earner a hedge against hard times. They give him more leverage at the bargaining table, which he will translate into even higher wages, more benefits, and still more bargaining leverage. If you want to keep the wage earner from having any leverage to negotiate a better deal for himself, you need structural unemployment, the debt treadmill, and destitution for those who are out of a job.

Now you understand why conservative forces have opposed virtually every improvement in the working conditions in industrial societies. They opposed child labor laws, limitations on hours, minimum wage laws, unionization, occupational health and safety laws, and every single social welfare initiative ever proposed. Now you understand the continuing opposition to the New Deal – which has lasted for seventy years. That opposition is justified, if you accept the need to hold down the natural improvement in the leverage of the wage earner. The New Deal created relief agencies and the WPA in order give people a way to make at least a meager living. The National Labor Relations Act established the legal infrastructure for orderly unionization. The Federal Housing Act established federal guarantees and subsidies to encourage home ownership. Agricultural subsidies have been so successful in raising the farmer out of poverty, that most farmers are Republicans these days. The aggregate result of these initiatives has been the most broad based expansion of wealth and living standards in human history – with the conservative wailing and gnashing his teeth every step of the way.

Similar is the irrational hatred conservatives have for Bill Clinton, who ended massive deficit spending, by raising taxes to close the gap between revenue and expenditures. The economic effect of bringing the budget closer to balance was astounding. According to conservative ideology, taxes are a drain on productivity by siphoning off investment capital to finance government. That theory is sound enough – and I apologize to those of you on the left, but that is an economic fact of life. Here’s how we deal with this fact of life.

Taxes aren’t the only drain on the economy. How about interest payments, if you want a private sector example of a drain on the pocketbook of the nation. Interest is factored into the cost of absolutely everything you buy. Not only is it a visible cost, if you finance your purchase, it is a hidden part of the direct costs of goods. Conservatives say that corporations “pass the cost of taxes on to the consumer”. They also pass the interest they pay on to you. When interest rates come down, it gives the economy the very same “shot in the arm” the conservatives claim for tax cuts. After all, a middle class taxpayer doesn’t care if his monthly expenses are lowered because he pays fewer taxes or pays lower interest.

Deficits drive up interest rates by consuming a portion of available finance capital to finance the government. Since there is a finite supply of finance capital, this competition drives up the price of money – the same way similar competition drives up the price of any other commodity. When Bill Clinton reduced deficit spending – by raising taxes – he lowered the cost of finance capital, which lowered interest across the board. Sure, people were paying higher taxes, but they were paying less for their mortgage, their car payment, their business loans and their credit cards. Meanwhile, they were tapping into the reserves of capital they had accumulated in their homes, when they refinanced for the lower rates. This injected still more cash into the economy and fueled a consumer spending boom and a bull market unseen in the history of Wall Street. This infusion of money financed capital improvements in businesses, which led to huge – and largely unexplained [until now] increases in productivity. Those increases further drove increases in wages. All of this was accomplished with virtually no inflation. In short, Bill Clinton’s tax increase, which closed the deficit, sparked the largest economic expansion since the end of World War II. What’s more, that economic expansion was broad based. For once, the rising tide indeed lifted every boat.

Once again, the conservatives hated every minute of it. They much preferred the Reagan expansion. That economic boom benefited the well-to-do, while wage earners saw their wages and living standards erode. In fact, David Stockman admitted in his book that deficits were a method to bankrupt the government’s ability to finance New Deal initiatives. Just to make sure you haven’t missed the point, consider the benefits of deficit spending, from the point of view of capitalist elites. First of all, they severely limit the government’s efforts to remediate poverty. On the other hand, they are quite lucrative for capitalist elites. Who do you think buys the bonds that finance the government. Tax cuts don’t keep rich people’s money out of the hands of the government. They just change its character. The rich still finance the government. Instead of paying the money and never seeing it again – like you do – they “lend” the money, and get it back with interest. That’s why the federal budget contains 250 billion dollars in interest payments on the national debt. Those interest payments are cash transfers from you to the wealthy. See why Dubya didn’t place a high priority on paying off the national debt?

If you don’t believe in this utterly cynical fiscal policy of the corporate capitalist elite, consider this. The first thing George W. Bush did as president, was cut taxes for the wealthy. As of this writing, guess what? The deficits are back to the tune of 160 billion dollars for fiscal year 2002. While they were at it, the Congress almost passed a sweeping “reform” of the bankruptcy code – further attempting to keep you chained to the treadmill. As quick as they can – if they have time – the conservatives will be busying themselves getting those interest rates back up, getting unemployment back up, and generally undoing the prosperity of the hated Bill Clinton.

The expanding Clinton economy even made welfare reform work better than it ever should have. With unemployment at its lowest rate in forty years, people on welfare had jobs available, many of which paid more than the minimum wage. All of which goes to prove that full employment, low interest rates, and rising wages are the tonic to end poverty and welfare dependency. That’s why conservatives oppose those things. They like poverty. They need it.

Poverty is what created capitalists to start with. To see how that worked, and to understand why capitalism and “free enterprise” are not the same thing, click here.



According to most leftists, industrial capitalism creates poverty. In fact, it was poverty that helped create industrial capitalism.

Like every other social system in history, capitalism did not spring into existence, fully formed. It evolved out of that social system known as feudalism. It was a unique product of some peculiarities of English history, and might never have evolved at all. In fact its origins are rather interesting. Capitalism was born at sea.

Medieval feudalism was a singular example of the kind of decentralized tyranny the conservatives love. It evolved with the introduction of a rather inconspicuous technological improvement – the stirrup, which was introduced into Western Europe shortly after the fall of the Western Roman Empire. The stirrup allows a rider to stand up while riding his horse. This simple convenience turns a horse into a really potent weapons platform. Armed with a long sharpened pole – jousting anyone? – an armored horseman can smash through lines of infantryman. This simple improvement in the technology of warfare helped the Germanic kingdoms of Western Europe contain the spread of Islam.

It also dramatically shrunk the manpower needs for the military. Which was a good thing, because no central government existed with the wherewithal to outfit an army with horses and armor. In fact, warfare was largely a contractual arrangement, with knights furnishing their own horses and equipment, and kings paying them. Only there wasn’t any “money” to pay them with. Instead, medieval kings paid their soldiers with land. This arrangement is the origin of our particular brand of property rights. Essentially, a knight’s “property right” was the right to steal from peasants, who lived on the land but didn’t own it. Sound familiar?

The result was a collection of interesting social and political conditions. First, feudal kings were constantly broke, going to their nobility hat in hand asking them to pony up for the next military adventure. For its part, the nobility throughout medieval Europe was highly independent and frankly unruly. The English nobles were some of the worst. They humiliated – and occasionally killed – unpopular kings on a fairly routine basis. This leads to the third condition of feudalism, a militarily powerful class of people with their own independent economic base, who gradually reduced the peasantry to serfdom – a relatively late development in medieval history.

Meanwhile, every noble and every king in Europe began to covet the riches of the Near East, India and China, which they rediscovered as a result of the crusades. Being a society of a large number of smalltime potentates, there was sizable numbers of enterprising people – particularly in the Mediterranean. By the 1200’s, Venetian merchants had established large shipping operations, organized and financed by a variety of means that are very familiar today. Indeed, it may not be overstatement to credit the Venetians with invention of the business corporation. They certainly invented banking. The kings of other nations eventually began to see merchant ships as a source of wealth and national power.

Two separate developments in England led to capitalist industrialization. The first is fairly well known. The English – isolated on the fringes of Europe, turned to sea power. Being perpetually strapped for cash, they employed the old medieval method to finance merchant ships, and the navy to protect them. They commissioned “privateers” – a nice word for pirates – and cut them in on a share of the plunder. Just like their horse mounted ancestors, these “privateers” furnished their own ships, and had a strong incentive to build them. Eventually, they evolved into the first true corporations, such as the East India Company. These were large scale organizers that allowed wealthy individuals to syndicate the risks inherent in shipping. Those wealthy individuals were the old feudal nobles, and a new breed of noble, namely commoners who knew how to navigate.

The second development was actually the earlier. In the early days of the rebirth of commerce, specialization in early industry developed. Flanders – modern day Belgium – was a center for weaving cloth. Its primary source for fiber was wool conveniently found right across the English Channel. In fact, English wool was recognized as the highest quality in medieval Europe. In other words, English wool was a “cash crop”. Its cultivation reduced the land used to grow food. Meanwhile, shipping was attracting ever larger numbers of people into English cities. These people had to be fed, which turned food itself into a “cash crop”. Farming transformed itself from the means of subsistence to a business. Land being scarce, the landowners discovered a brand new idea – unknown to human history before that.

That new idea was “productivity”.

With a few improvements, everyone pretty much used the same farming techniques from the beginning of civilization until the late 1600’s. What you could produce was not really a function of technology or organization. It was a function of the basic fertility of the land. That’s why river valleys were the “cradles of civilization”. England being a small and occasionally rugged place, the English faced a problem of having insufficient land to support their urban maritime economy.

Since their wasn’t any new land being formed, and there wasn’t any land available for conquest, the English landowners figured out that technology could help them produce more on the same piece of land. Then they figured out that the old land use practices – collecting a cut of what peasants produced – was not terribly efficient. The peasants were eating up food that could be sold. The result was a dramatic reduction in the number of food producers – peasants. But the peasants didn’t just disappear. They were chased off the land when it was “enclosed”, and migrated to cities.

The destitute and desperate urban labor pool – ripe for exploitation – was born.

Without this labor pool, industrial capitalism wasn’t possible. In fact, industrial capitalism was not a radical change from the feudalism that preceded it. More accurately it was an adaptation of a system of agricultural exploitation to a new urban setting. For more detail on capitalism as “urban feudalism”, click here.



Serfs were bound to the land. They were regarded as “resources”, like the timber or minerals found there. At least, they were until that view of them became inconvenient.

As long as the nobility was primarily a class of warriors – who had to eat – feudalism was a system for providing large population of agricultural peasants with a means of survival, at the cost of keeping up the professional warriors who mostly killed each other, and left the peasants alone. When the warriors discovered “productivity”, the peasants became a problem.

So they were freed -- sort of. “Removed” is more accurate, if not as humanitarian sounding. Meanwhile, the nobility – now expanded to include wealthy commoners – saw its wealth transforming from simple control of land, to ownership of ships, and to accumulation of symbolic forms, namely money or capital. As their shipping interests brought wealth and power into the domestic economy, the need for even greater production of commodities for sale emerged. The result was application of the new technologies of agricultural productivity to other industries. That the agricultural peasantry was now removed to the cities – where they languished with nothing much to do – provided a new use for them in the newly forming “manufactories”, as Adam Smith called them. Putting them to work as industrial serfs was an entirely natural expedient from the point of view of an expanded nobility that was still pretty much medieval in its social and political outlook.

There was just one problem. They were all free, now. Theoretically, they were just a good as anybody else. Not only that, they couldn’t really be “bound to the land”, since industry used very little land, and was entirely too fluid an economic environment to allow for anything as unwieldy as agricultural serfdom. A new social theory had to allow for continued exploitation of de facto serfs, who were theoretically – and only theoretically – free.

That social theory or ideology eventually came to be known as “Social Darwinism”.

Here is the theoretical problem in a nutshell. A man is destitute. He used to be a farmer, but the landlord chased him off. He has to do something to make a living, and he is quite willing to hire himself out. He is “over a barrel”, as they say. The early industrial capitalist steps in with a “deal”. He will pay you just enough to make a bare living for yourself – in exchange for working every minute of the day you aren’t asleep. If that doesn’t sound like a very good deal to the wage earner, well, he doesn’t have to take it. Some other destitute newly landless peasant will be happy for the “opportunity” to avoid starvation.

The “freedom” in this arrangement – such as it is – is obviously of benefit to the industrialist. He is now free from the medieval obligations that went with serfdom. Serfs were bound to the land, and gave a percentage of their harvest to the lord. It was a fixed percentage, which meant that in a good harvest year there was surplus available for the peasant. The peasant also had certain rights to use “common” lands – technically owned by the lord, but dedicated to a socialized purpose. The new system of “free” labor, changed this. The worker earned a fixed wage – not a fixed percentage – which meant that the industrialist owned all the surplus. As for “common” land, it no longer existed. The former serf now had to pay for every resource he had access to.

In other words, he was turned into a “free” economic agent – with virtually no bargaining position. The industrial capitalist took full advantage of the weakness of the wage earner – maximizing the surplus extracted from his labor, and minimizing his cost. It is clear from this illustration what the industrialist meant when he talked about “liberty”. He was talking about the liberty to exploit to weakness of landless and destitute people. They were now equal in law – but far from equal in fact. All the industrialist needed was a social and moral theory to justify this new form of “economic cannibalism”.

That theory was found in the new science of economics, and its theories about “supply and demand” and the “hidden hand” that regulated the market place. Most people are familiar with these basic concepts. Prices for goods and services are determined by availability relative to demand. The more there is of the something, the cheaper it is. People produce different goods in response to rising and falling prices, so that supply rises or falls on its own to match demand. Thus, goods and services have a “natural” value, determined by scientific laws of economics. If labor is cheap, it is only because that is its “natural” value, as determined not by the individual capitalist businessman, but by impersonal laws of the marketplace.

Thus, the capitalist businessman is let off the hook for his exploitation. He is just paying the “natural” wages due to the wage earner. Not only is it morally justifiable, it is actually immoral for anyone – the legislature, for example – to require him to provide any improvement in wages, hours and working conditions over those which the marketplace requires him to provide.

This theoretical justification for the exploitation of labor has been learned by every industrial conservative from the eighteenth century until today. The next time an increase in the minimum wage is proposed, start scanning the “letters to the editor” of your local newspaper. You will see arguments objecting to the increase, based on the theory that “natural market forces” should set the price of labor – which “natural price” the writer inevitably assumes to be cheap.

Economic laws of “supply and demand” are certainly valid – as is the general observation about the “hidden hand” regulating prices. The validity of these laws of economics is the reason that I have concluded that the path to socialism must at least take account of these laws. If natural social dynamics do not determine prices, and drive production or discontinuation of the production of commodities, how will these determinations be made?

Consider your local clothing store. The market for clothing is as fickle as any market I can think of. It is driven by perceptions of “style” and aesthetics. In other words, who knows what people are going to want to wear? The owner of the clothing store takes a gamble every time she buys a given line of clothing. Maybe people will like it and maybe they won’t. If many people like it, she will sell her inventory for her full mark-up. If some people like it, she will sell of her inventory at full price, and mark the rest down for “clearance”. The stuff nobody likes she will sell at “50% off” – or cost – get her money back out of the inventory, and invest it in something else. Thus her overall profit margin is nowhere near the full mark-up for her wares – since she only sells a percentage of those wares at the full mark-up.

Her never ending worry is trying to anticipate demand – profiting when successful, and losing money when unsuccessful. If you thinK selling an item at cost isn’t losing money, don’t forget that she has space, electricity, telephone and other overhead that “dead” inventory isn’t paying for. Her effort to anticipate demand is the key to her success. If it is all the clothing store owner can do to accurately gauge what people will want to wear, how is some bureaucrat in a central planning agency a thousand miles away going to do any better? Now you know why the Soviet Union produced prodigious amounts of concrete and steel that was left to rust in some field – while the store shelves were empty. Whatever success Soviet communism had on the production side of the economic equation – it was a dismal failure at distributing what it produced. Market economies have proven that they are much better at directing production decisions – whatever their deficiencies in providing a measure of justice to the labor that produces everything.

If social justice and relative economic equality are going to be possible in a market economy, one of two things has to happen. The first way is to accept certain regulatory interference in the basic engine of “supply and demand” in order to “prop up” the price of labor. This is the route we have taken to this point, establishing such things as the minimum wage, unemployment compensation, laws restricting the working hours, occupational health and safety regulations, and the general social “safety net”. These have helped, but their ability to empower the wage earner has been somewhat disappointing.

On the other hand, there is a social institution that has proven itself to be more effective than any “interference” in the market place. That institution is known as organized labor. Not only has it produced the lion’s share of improvements in wages and working conditions, it has done so by “natural” means. I hear the conservatives bristling at the suggestion that a union is a natural market force. You’re wrong conservatives, if you think that a union is “unnatural”. You’re wrong, and I’ll prove it. While I’m at it, I will expose the distortion of valid economic theory that has justified exploitation, and prove that labor isn’t naturally cheap, after all. In fact, it is “unnatural” interference in the market place that depresses the value of labor.

Brace yourself, George Will. I’m about to smash the fist of reason into the glass jaw of your ideological sophistry.

Don’t click here George, if you can’t take a punch.

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