Capitalist mode of production
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In Karl Marx's critique of political economy and subsequent Marxian analyses, the capitalist mode of production refers to the system of organizing production and distribution within capitalist societies. The process of capitalism, the dynamic of capital accumulation, preceded the development of the capitalist mode of production, beginning sometime in the 15th century. The capitalist mode of production, involving the dominance of wage-based labour and private ownership of the means of production, began growing rapidly in Western Europe from the 18th century, later extending to most of the world.
The capitalist mode of production is characterised by private ownership of the means of production, extraction of the surplus value created in production by a class of private owners (referred to as exploitation), wage-based labour, and distribution of both capital goods and consumer goods in a mainly market-based economy (referred to as commodity production).
A "mode of production" (in German: Produktionsweise) means simply "the distinctive way of producing," which could be defined in terms of how it is socially organized and what kinds of technologies and tools are used. Under the capitalist mode of production
- both the inputs and outputs of production are mainly privately owned, priced goods and services purchased in the market.
- production is carried out for exchange and circulation in the market, aiming to obtain a net profit income from it.
- the owners of the means of production (capitalists) are the dominant class (bourgeoisie) who derive their income from the surplus product produced by the workers and appropriated freely by the capitalists.
- A defining feature of capitalism is the dependency on wage-labor for a large segment of the population; specifically, the working class (proletariat) do not own capital and must live by selling their labour power in exchange for a wage.
The capitalist mode of production may exist within societies with differing political systems (e.g. liberal democracy, Social democracy, fascism, Communist state, Czarism), and alongside different social structures such as tribalism, the caste system, an agrarian-based peasant society, urban industrial society and post-industrialism. Although capitalism has existed in the form of merchant activity, banking, renting land, and small-scale manufactures in previous stages of history, it was usually a relatively minor activity and secondary to the dominant forms of social organization and production with the prevailing property system keeping commerce within clear limits.
Distinguishing Characteristics 
Capitalist society is epitomized by the so-called circuit of commodity production, M-C-M' and by renting money for that purpose where the aggregate of market actors determine the money price M, of the input labor and commodities and M' the struck price of C, the produced market commodity.It is centered on the process M → M', "making money" and the exchange of value that occurs at that point. M' > M is the condition of rationality in the capitalist system and a necessary condition for the next cycle of accumulation/production. For this reason, Capitalism is "production for exchange" driven by the desire for personal accumulation of money receipts in such exchanges, mediated by free markets. The markets themselves are driven by the needs and wants of consumers and those of society as a whole in the form of the bourgeois state. These wants and needs would, in the socialist or communist society envisioned by Marx, Engel, and others be the driving force, it would be "production for use". Contemporary mainstream (bourgeois) economics, particularly that associated with the right, holds that an "invisible hand", through little more than the freedom of the market, is able to match social production to these needs and desires.
“Capitalism” as this money-making activity has existed in the shape of merchants and money-lenders who acted as intermediaries between consumers and producers engaging in simple commodity production (hence the reference to “merchant capitalism”) since the beginnings of civilization. What is specific about the “capitalist mode of production” is that most of the inputs and outputs of production are supplied through the market (i.e. they are commodities) and essentially all production is in this mode. For example, in flourishing Feudalism, most or all of the factors of production including labor are owned by the feudal ruling class outright and the products may also be consumed without a market of any kind, it is production for use within the feudal social unit and for limited trade.
This has the important consequence that the whole organization of the production process is reshaped and reorganized to conform with economic rationality as bounded by capitalism, which is expressed in price relationships between inputs and outputs (wages, non-labor factor costs, sales, profits) rather than the larger rational context faced by society overall. That is, the whole process is organized and reshaped in order to conform to “commercial logic”. Another way of saying this is that capital accumulation defines economic rationality in capitalist production. In the flourishing period of capitalism these are not operating at cross purposes and thus Capitalism acts as a progressive force (e.g. against Feudalism). In the final stages, Capitalism, as a mode of production, achieves complete domination on a planetary basis and has nothing to overcome but itself, the final (for it, Capitalism, viewed as a Hegelian process, not for historical development per se) negating of the negation posited by Orthodox Marxism.
In this context, Marx refers to a transition from the “formal subsumption” of production under the power of capital to the “real subsumption” of production under the power of capital. In what he calls the “specifically capitalist mode of production”, both the technology worked with and the social organization of labour have been completely refashioned and reshaped in a commercial (profit and market-oriented) way; the “old ways of producing” (for example, crafts and cottage industries) had been completely displaced by the then new industrialism.
Summary of Basic Distinctions 
In general, capitalism as an economic system and mode of production can be summarized by the following:
- Capital accumulation: Production for profit and accumulation as the implicit purpose of all or most of production, constriction or elimination of production formerly carried out on a common social or private household basis.
- Commodity production: Production for exchange on a market; to maximize exchange-value instead of use-value.
- Private ownership of the means of production: Ownership of the means of production by a class of capital owners, either individually, collectively (see: Corporation) or through a state that serves the interests of the capitalist class (see: State capitalism).
- Primacy of wage labor: Near universality of wage labor, whether so-called or not, with coerced work for the masses in excess of what they would need to sustain themselves and a complete saturation of bourgeois values at all levels of society from the base reshaping and reorganization described above .
Marx argued that capital existed incipiently on a small scale for centuries, in the form of merchant, renting and lending activities, and occasionally also as small-scale industry with some wage labour (Marx was also well aware that wage labour existed for centuries on a modest scale before the advent of capitalist industry). Simple commodity exchange, and consequently simple commodity production, which form the initial basis for the growth of capital from trade, have a very long history. The "capitalistic era" according to Marx dates from the 16th century, i.e. it began with merchant capitalism and relatively small urban workshops.
For the capitalist mode of production to emerge as a distinctive mode of production dominating the whole production process of society, many different social, economic, cultural, technical and legal-political conditions had to come together.
For most of human history, these did not come together. Capital existed, commercial trade existed, but it did not lead to industrialisation and large-scale capitalist industry. That required a whole series of new conditions, namely specific technologies of mass production, the ability to independently and privately own and trade in means of production, a class of workers compelled to sell their labor power for a living, a legal framework promoting commerce, a physical infrastructure making the circulation of goods on a large scale possible, security for private accumulation, and so on. In many Third World countries, many of these conditions do not exist even today, even although there is plenty capital and labour available; the obstacles for the development of capitalist markets are less a technical matter and more a social, cultural and political problem.
A society, region or nation is “capitalist” if the predominant source of incomes and products being distributed is capitalist activity; even so, this does not yet mean necessarily that the capitalist mode of production is dominant in that society.
Defining structural criteria 
Marx never provided a complete definition of the capitalist mode of production as a short summary, although in his manuscripts he sometimes attempted one.
In a sense, Das Kapital as a whole provides his “definition”. Nevertheless, it is possible to summarise the essential defining characteristics of the capitalist mode of production as follows:
- The means of production (or capital goods) and the means of consumption (or consumer goods) are mainly produced for market sale; output is produced with the intention of sale in an open market; only through sale of output, can the owner of capital claim part of the surplus-product of human labour, and realize profits. Equally, the inputs of production are supplied through the market, as commodities. The prices of both inputs and outputs are mainly governed by the market laws of supply and demand (and ultimately by the law of value). In short, a capitalist must use money to fuel both the means of production and labor in order to make commodities. These commodities are then sold to the market for a profit. The profit once again becomes part of a larger amount of capital which the capitalist reinvests to make more commodities and ultimately more and more capital.
- Private ownership of the means of production ("private enterprise") as effective private control and/or legally enforced ownership, with the consequence that investment and management decisions are made by private owners of capital who act autonomously from each other and, because of business secrecy and the constraints of competition, do not co-ordinate their activities according to collective, conscious planning. Enterprises are able to set their own output prices within the framework of the forces of supply and demand manifested through the market, and the development of production technology is guided by profitability criteria.
- The corollary of that is wage labour (“employment”) by the direct producers, who are compelled to sell their labour power because they lack access to alternative means of subsistence (other than being self-employed or employers of labour, if only they could acquire sufficient funds) and can obtain means of consumption only through market transactions. These wage earners are mostly "free" in a double sense: they are “freed” from ownership of productive assets, and they are free to choose their employer.
- Being carried out for market on the basis of a proliferation of fragmented decision-making processes by owners and managers of private capital, social production is mediated by competition for asset-ownership, political or economic influence, costs, sales, prices, and profits. Competition occurs between owners of capital for profits, assets and markets; between owners of capital and workers over wages and conditions; and between workers themselves over employment opportunities and civil rights.
- The overall aim of capitalist production, under competitive pressure, is (a) to maximise net profit income (or realise a net superprofit) as much as possible, through cutting production costs, increasing sales, and monopolisation of markets and supply, (b) capital accumulation, to acquire productive and non-productive assets, and (c) to privatize both the supply of goods and services and their consumption. The larger portion of the surplus product of labor must usually be reinvested in production, since output growth and accumulation of capital mutually depend on each other.
- Out of preceding characteristics of the capitalist mode of production, the basic class structure of this mode of production society emerges: a class of owners and managers of private capital assets in industries and on the land, a class of wage and salary earners, a permanent reserve army of labour consisting of unemployed people, and various intermediate classes such as the self-employed (small business and farmers) and the “new middle classes” (educated or skilled professionals on higher salaries).
- The finance of the capitalist state is heavily dependent on levying taxes from the population and on credit; that is, the capitalist state normally lacks any autonomous economic basis (such as state-owned industries or landholdings) that would guarantee sufficient income to sustain state activities. The capitalist state defines a legal framework for commerce, civil society and politics, which specifies public and private rights and duties, as well as legitimate property relations.
- Capitalist development, occurring on private initiative in a socially unco-ordinated and unplanned way, features periodic crises of over-production (or excess capacity). This means that a critical fraction of output cannot be sold at all, or cannot be sold at prices realising the previously ruling rate of profit. The other side of over-production is the over-accumulation of productive capital: more capital is invested in production than can obtain a normal profit. The consequence is a recession (a reduced economic growth rate) or in severe cases, a depression (negative real growth, i.e. an absolute decline in output). As a corollary, mass unemployment occurs. In the history of capitalist development since 1820, there have been more than 20 of such crises; nowadays the under-utilisation of installed productive capacity is a permanent characteristic of capitalist production (average capacity utilisation rates nowadays normally range from about 60% to 85%).
In examining particular manifestations of the capitalist mode of production in particular regions and epochs, it is of course possible to find exceptions to these main defining criteria. But the exceptions prove the rule, in the sense that over time, the exceptional circumstances tend to disappear.
State capitalist interpretation 
As mentioned, Marx never explicitly summarised his definition of capitalism, beyond some suggestive comments in manuscripts which he did not publish himself. This has led to controversies among Marxists about how to evaluate the "capitalist" nature of society in particular countries.
Supporters of theories of state capitalism such as the International Socialists reject the definition of the capitalist mode of production given above. In their view, claimed to be more revolutionary (in that true liberation from capitalism must be the self-emancipation of the working class - "socialism from below"), what really defines the capitalist mode of production is:
- means of production which dominate the direct producers as an alien power;
- the existence of a wage-earning working class which doesn't hold or have power;
- the existence of an elite or ruling class which controls the country, exploiting the working population in the technical Marxist sense.
If true, then ownership relations generally and private ownership in particular are irrelevant to the definition of capitalism. The existence of commercial relations and commodity production are also irrelevant.
Many of the state capitalist theories, (which actually originated in Germany, where they were already criticised by Frederick Engels), define "capital" only as a social relation of power and exploitation.
This idea is based on some passages from Marx, where Marx emphasized that capital cannot exist except within a power-relationship between social classes which governs the extraction of surplus-labour. It is this power-relationship that is most important for the proponents of theories of state capitalism; everything else is secondary.
The underlying argument is that:
- Calling societies such as the USSR, China, Cuba and Vietnam etc. genuinely "socialist" or "communist" makes no sense and is confusing - because those societies have been just as oppressive and exploitative as capitalist societies.
- True socialism would mean workers' power, which would consist precisely in eliminating the exploitation and oppression of workers, and is impossible without workers' democracy.
- Trotskyist attempts to explain their oppressive nature by viewing them as "degenerated" or "deformed" workers' states are rejected for various reasons. For example, the spread of the same system to Eastern Europe without an indigenous "organic" revolution "from below" (except Yugoslavia), and the continuity of many of the same people in power before and after the collapse of the USSR and its satellite regimes, are said to prove that one variety of state capitalism just led to another.
- Other Marxist explanations that posit a new mode of production in Soviet-type societies, neither true socialism nor capitalism, such as "bureaucratic collectivism", are rejected as implausible.
- It is claimed that despite their autarkic policies, these countries of "actually existing socialism" effectively competed in the international (capitalist-dominated) market anyway through the arms race, as well as limited direct international trade, and thus were still subject to capitalist pressures, even although most of the weaponry was not commercially traded. This international competition it is claimed, forced them to function much like giant corporations, and so, it is argued, they shared key characteristics of capitalism anyway.
- Therefore, the USSR, China, Cuba, Vietnam etc. must be state capitalist, just as much as Western "state capitalisms."
Criticism of the state-capitalist interpretation 
The "state cap" interpretation of the capitalist mode of production, however, has been held only by a minority of socialists. Its Marxist and socialist critics argue that:
- For the Western and Oriental bourgeoisie or capitalist class, capitalism is fundamentally about private enterprise based on private property and freedom for commercial trade on private initiative.
- The majority of Russian, Chinese, Cuban etc. people have viewed their own societies as being some kind of socialism. Why can there be only "one true socialism"? Why can there not be many different kinds of socialism?
- "State-cap" interpretations cannot in truth be reconciled with Marx's own texts. They are very selective interpretations of those texts, which try to find analogies between particular quotes from Marx and particular features of Soviet-type societies. This, it is argued, is essentially a theological interpretation, not a scientific analysis. Because of that, there is nothing that could refute or falsify it, the interpretation is an article of faith.
- "State-cap" theorists make their interpretation true by definition, by running together characteristics from very different historical epochs and forms of society. By the same token, they fail to identify what is specific about the socio-economic structure of different societies. The implication is that any society which is not socialist must be capitalist, and if not capitalist in Marx's own sense, then state-capitalist, i.e. just a "different kind" of capitalism than Marx envisaged.
- The "state-cap" interpretation makes it difficult to understand how a transition from capitalism to socialism could possibly occur, beyond general rhetoric about "workers power" and the danger of bureaucracy. There is no real economic analysis, only a statement about who holds power.
- The "state-cap" interpretation is essentially a moral-political condemnation of Soviet-type societies, but not a serious objective explanation of the real functioning of those societies and the real progress they made.
- The "state-cap" interpretation fails to distinguish between different kinds of markets, functioning in a very different way, and benefiting different groups and social classes.
- The supporters of a "state cap" interpretation fail to appreciate the difference between a state apparatus which has an autonomous economic base (because it owns the means of production) and a state apparatus which depends mainly on taxes and credit to finance its activities.
- The supporters of the "state-cap" interpretation keep changing their arguments about why Soviet-type societies are state capitalist, making their case true by definition. Initially, it was argued that state capitalism in Russia was a "more advanced" stage of capitalism, later that viewpoint was revised to a "proto-capitalist" stage.
This does not mean, according to the Marxist critics, that state capitalism cannot exist; of course it can, if the state plays a very big role in an otherwise capitalist society, or monopolizes a strategic resource of major economic importance. Examples might be Myanmar, Suriname, Egypt or Libya. But it does mean that the concept of the capitalist mode of production shouldn't be used indiscriminately, as, it is claimed, "state-cap" theorists do.
Heterodox views and polemics 
Orthodox Marxist debate after 1917 has often been in Russian, other East European languages, Vietnamese, Korean or Chinese, and dissidents seeking to analyze their own country independently were typically silenced in one way or another by the regime. Thus, the political debate has been mainly from a Western point of view, and based on secondary sources, rather than being based directly on the experiences of people living in "actually existing socialist countries." And that debate has typically counterposed a socialist ideal to a poorly understood reality, i.e. using analysis which due to such party stultification, and shortcomings of the various parties, fails to apply the full rigor of the dialectical method to a well informed understanding of such actual conditions in situ, and falls back on trite party approved formulae.
In turn, this has led to the accusation that Marxists cannot satisfactorily specify what capitalism and socialism really are, nor how to get from one to the other - quite apart from failing to explain satisfactorily why socialist revolutions failed to produce the desirable kind of socialism. Behind this problem, it is argued, are:
- a kind of historicism according to which Marxists have a privileged insight into the "march of history"; the doctrine is thought to provide the truth, in advance of real research and experience. Evidence contrary to the doctrine is rejected or overlooked.
- a 'uni-linear view of history, according to which feudalism leads to capitalism, and capitalism to socialism.
- an attempt to fit the histories of different societies into this schema of history, on the basis that if they are not socialist, they must be capitalist (or vice versa), or, if they are neither, that they must be in transition from one to the other.
None of these stratagems, it is argued, are either warranted by the facts or scientifically sound, and the result is that many socialists have abandoned the rigid constraints of Marxist orthodoxy, in order to analyse capitalist and non-capitalist societies in a new way.
From an Orthodox Marxist perspective, the former is simple ignorance and or purposeful obfuscation of works such as Sartre's Critique of Dialectical Reason and a broader literature which does in fact supply such specifications. The latter are partly superficial complaints which can easily be refuted as they are diametrically opposite of well known statements by Marx, Lenin, Trotsky and others, part pettifogging and redundant restatement of the same thing, and partly true observations of inferior and simplistic presentations of Marxist thought (by those espousing some brand of Marxism). Neither historical or dialectical materialism assert or imply a "uni-linear" view of human development although Marxism does claim a general and indeed accelerating secular trend of advancement, driven in the modern period by Capitalism. Similarly, Marxists, especially in the period after 1917 have, on the contrary been especially mindful of the so-called unequal and uneven development and its importance in the struggle to achieve socialism. Likewise, the pushback on Marxism's claim to be a science is partly justified and partly a scientism: as a social science, Marxism stands on better philosophical foundations than many of the so-called hard sciences, let alone the other social sciences. Finally, in the wake of the disasters of socialism in the previous century, most modern Marxists are at great pains to stipulate that only the independently acting working class can determine the nature of the society it creates for itself so the call for a prescriptive description of exactly what that society would be like and how it is to emerge from the existing class-ridden one, other than by the conscious struggle of the masses, is an unwitting expression of precisely the problem that is supposed to be being addressed (the imposition of social structure by elites).
See also 
- History of capitalism
- Immiseration thesis
- Marxian economics
- Natural capitalism
- Primitive accumulation of capital
- Relations of production
- Socialist mode of production
- State monopoly capitalism
- Surplus labour
- Types of capitalism
- Duncan Foley and Gérard Duménil, 2008. "Marx's analysis of capitalist production," The New Palgrave Dictionary of Economics, 2nd Edition. Abstract.
- Encyclopedia of Marxism at marxism.org. "Capitalism.". Marxist.org. Retrieved July 8, 2011.
- The Laws of Motion of the Capitalist Mode of Production Ernst Mandel
- Adam Smith, often mis-attributed in this sense. See the Wealth of Nations section for what Smith actually said.
Further reading 
- Karl Marx, Grundrisse.
- Alex Callinicos, "Wage Labour and State Capitalism - A reply to Peter Binns and Mike Haynes", International Socialism, second series, 12, Spring 1979.
- Erich Farl, "The Genealogy of State Capitalism", in: International (London, IMG), Vol. 2, No. 1, 1973.
- Anwar Shaikh, "Capital as a Social Relation" (New Palgrave article)
- Marcel van der Linden, Western Marxism and the Soviet Union. New York: Brill Publishers, 2007.
- Fernand Braudel, Civilization and Capitalism.
- Barbrook, Richard (2006). The Class of the New (paperback ed.). London: OpenMute. ISBN 0-9550664-7-6.
- The Marxist System Charles Sackrey & Geoff Schneider Being an Introduction To Certain of The Ideas of Karl Marx Designed Especially For Those To Whom It Has Been Suggested That Marx Has Nothing To Say To Them About The World In Which They Live.