MIDTERMM

Chapter 2

Property, Power, and Government

I. Property and government

The principles outlined in the previous chapter are broad enough to be used in the

analysis of a wide variety of economic systems. All economic systems, regardless of whether

they’re organized on the basis of slavery, feudalism, mercantilism, corporatism, capitalism, or

socialism, must – at a minimum - coordinate labor with the means of production to generate and

distribute a gross product that is sufficient to reproduce the conditions of life characteristic of

that system. The more successful systems do more than this by providing a greater amount, or

more appropriate combination, of the goods and services needed to enhance life, improving the

material life of its members over time. Our focus will be on capitalism, though we will

occasionally compare it to other modes of organizing society so as to gain a better understanding

of the system. Toward the end of our study, we’ll explore socialist forms of organization and

contrast it to capitalism. But most of our attention will be focused on capitalist modes of

organization.

A characteristic feature of capitalist economies is that the means of production are, on the

whole, privately owned. Some of the land and capital might be publicly owned, controlled and

managed by government, but it represents a small proportion of the total, and for that reason is

often ignored, or considered exogenous, when thinking of the behavior of capitalist economies.

The focus tends to be on the much larger private sector, where production and distribution is

carried out through organizations called business firms, or simply firms. The firms are privately

owned organizations that own means of production and coordinate them with labor to produce

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and sell a good or service for a profit.1 What will be produced, how much will be produced, and

by what methods, is dictated by the profits that can be captured by the firms. What’s more, the

distribution of the gross product, as well as the allocation of the resources needed to generate the

gross product, is carried out by firms competing against each other to buy and sell goods through

a dense network of markets.

In these societies government’s primary role is to provide the legal and regulatory

structure through which private economic activity is carried out. It does so by defining and

defending private property while providing the commercial and social infrastructure needed to

carry on. Some goods are produced and distributed by government, such as public lighting,

postal service, public highways, public transportation, and public education, but the volume and

composition of public goods, their methods of production and means of distribution, are dictated

by notions of the common good, with profitability playing a minor role. Yet, while capitalist

governments play a secondary role in the production and distribution of the gross product, they

have a huge impact on economic activity through the legal and regulatory structures they create

and maintain as well as the volume and composition of the public goods they provide. Changes

in that structure can impact how production and employment is carried out, the level and type of

investment, the nature of domestic and international trade, and the volume and distribution of

income and wealth.

While government in capitalist societies is traditionally thought of as being contextual to

private economic activity, particularly when thinking of the production and distribution of the

gross product, it is absolutely essential – and thus, not contextual or exogenous, to defining

1. For the moment we can think of profit as being coterminous with surplus. Later we’ll see that profit is only one

portion of the surplus, which in turn is composed mostly of various forms of property income (interest, rent, and

profit).

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property rights and maintaining the legal and regulatory environment needed to defend private

property. At first blush it would seem that the issue of individual ownership or private property is

relatively straightforward and uncomplicated. Whether or not this or that piece of property (such

as land, machinery, buildings, or a business) is owned by an individual, a group, or an

organization, is determined by criteria established by government (in the form of titles, deeds,

bill of sale, certificates, etc.); and if there’s disagreement over who owns what, it is government

that ultimately determines the rightful owner, after listening to and evaluating the respective

claims. Once title has been established, we tend to assume that owners can do as they wish with

that property.

But this is not as straightforward as is commonly assumed. Consider, for example,

someone that has legal title over ten acres of land. Does that ownership apply to everything that

exists below the surface of that land, such as mineral deposits that might exist one mile below the

surface? Can that owner exclude others from flying over her/his acreage, tunneling under it, or

traveling across its surface? Can the owner build a nuclear power plant or a skyscraper on that

acreage? Is the owner entitled to destroy the ecosystem of those ten acres? In each of these cases

the question that immediately confronts us is, what exactly are the rights associated with the

ownership of that land? And, more to the point, what are the limits to those rights? At what point

does an owner’s property rights impinge on the rights of others? All of these questions demand

that government, as the ultimate authority of society, define the nature of private property and

the limits or boundaries to which those property rights apply.

The judiciary of capitalist governments is forever developing and modifying the various

rights and responsibilities associated with different types of property. Private ownership

generally carries with it the right to use that property; generate income from its use; transfer,

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abandon, or destroy, that property; exclude others from using it; and enforce rightful claims to its

ownership. But in each case, the question of the rights associated with private property can vary

depending on the impact which the use of that property might have on others or the broader

community. One person’s right to use her/his property can impact the rights of others, and this

can lead to conflicts which, if not resolved by the parties to the conflict, will be resolved by

government. The use of private property inevitably carries with it questions regarding the impact

of its use on others and this, in turn, requires that government establish criteria regarding its

legality.

These issues are central to not only the immediate question of private property but also to

the exchanges and contracts that are continuously taking place in capitalist societies. The

exchange of one form of private property for another is ubiquitous in these societies. One form

of private property, say money, is exchanged for another form of private property, say a

produced good or land; and in each case, the nature of that property, whether it is indeed what it

claims to be, and whether all the rights associated with it are transferred with that exchange, are

assumed to be understood and agreed to by the parties to the exchange. If not, if what is being

exchanged is different from what had been agreed upon, then the aggrieved party can appeal to

government to resolve the dispute.

Contracts are similar in nature; indeed, they are nothing more than a formal version of an

exchange. There are numerous types of contracts, both formal and informal, and in each case, the

validity of that contract and whether or not it has been honored must ultimately be resolved by

government. As in the case of exchange, there is always the possibility that one of the parties to

the contract might fail to honor his/her end of the bargain. And if a breach of contract does occur,

then it’s government that inevitably must be brought into the dispute to resolve the issue.

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The foregoing underscores the fact that, in capitalist societies, the private ownership of

the means of production carries with it a government that is forever attending to property rights

and the disputes that invariably emerge over their use. Thus, the claim that capitalist societies are

systems in which the means of production are privately owned is another way of saying that

capitalist governments are forever involved in securing property rights and resolving disputes

over property, exchange, and contracts. But there’s no reason to presume that such resolutions

will generally be fair and consistent with the interests of society as a whole. Government is relied

upon to resolve these issues not necessarily because it will be fair, even though that is often the

hope, but because it is the ultimate authority in society; and individuals must comply with its

dictates or run the risk of being fined, jailed, or put to death.

This does not mean that government can do whatever it pleases; good governance always

involves a judicious attention to the concerns and complaints of the governed. So long as, on the

whole, citizens believe their government pursues policies that are broadly consistent with the

interests of the community at large, then the system will be relatively stable, regardless of the

form of government. Unstable governments are those that are broadly perceived as tendentious,

favoring one sector of society over others; and unless rectified, such governments run the risk of

being overthrown. So, stable capitalist governments are those whose decisions and policies are

broadly viewed as legitimate by the citizenry at large, and – more to the point – by the owners of

private property and, specifically, the individual owners of the means of production. And this is

true regardless of whether the government in question is democratic or dictatorial.

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II. The Liberal Ideal

One of the earliest examples of a society organized on the basis of private property was

offered by John Locke in his Two Treatises on Government published in the last decade of the

17th century. The arguments which Locke advanced have been central to conceptions of private

property and government in capitalist societies, particularly in societies that have been

influenced by Anglophonic traditions, such as the United States of America (USA). Here, we’ll

sketch the conception of society embedded in his theory of government. This theory is important

because it provided the theoretical context used by the founding fathers to establish the USA

form of government.

Locke imagines the existence of a society composed of individual property owners.

Everyone in this hypothetical society owns property of some sort, though it’s admitted that some

might own more than others and that the nature of that property might differ from one individual

to the other. Some individuals might own land, a farm or a mine, others might own machinery, a

building, or a collection of goods. The individuals in this hypothetical society make a living by

producing and selling goods that have been generated by applying their labor to the various

forms of property they might own. A portion of these goods are consumed directly by the

individual producers, but most of it is offered for sale to other individual property owners who

have also produced goods which they too intend to sell. In short, what we have here is an

idealized commercial society in which every individual is a property owner and sustains

herself/himself by exchanging portions of her/his property, or the output generated by that

property (with the requisite amount of her/his labor), in return for the property or output of others

who are doing the same. What’s more, all of this is assumed to be taking place without the

existence of government.

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He calls this hypothetical society a state of nature to underscore the idea that government

does not exist in this society, even though individuals own private property. That is, private

property is assumed to be a fundamental right, a natural right, that exists prior to government

and, as such, does not need its validation. What’s more, the individuals carry on their economic

activities, producing goods and exchanging them for other goods, in a more or less orderly

fashion. Each individual is seeking her/his own material interest, but in a fashion that’s assumed

to be bound by commercial civility. The parties to a possible exchange are capable of arriving at

a rate of exchange, a price, that’s acceptable to both parties since property rights are, on the

whole, honored by everyone in such a society.

There are, however, inconveniences to this type of system, particularly if there are

individuals who do not honor property rights. It’s quite possible that some individuals will rob

the property of others or renege on their contracts and exchanges. These violations of property

could be resolved by having the injured parties obtain appropriate restitution from the violators.

Each individual has the right to seek justice for violations against her/his property. But there’s no

guarantee that the restitution will be appropriate or achievable, or that the individuals seeking

justice will refrain from exceeding the bounds of civility (by, for example, taking more than the

value of the property that had been stolen or reneged, or maiming the violator). What’s more, as

such instances increase in number, the community might devolve into chaos.

In an effort to overcome these inconveniences, the individuals in such a society give up

their right to seek individual justice and grant that right to a government that will now serve as

the arbiter of property rights. Government is thus created to resolve disputes over property rights.

So long as government is resolving property rights in a fashion that’s perceived as reasonable

and consistent with the property owners’ sense of fair play, then economic activity can continue

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unimpeded without having to worry about violations of property. The violators will now be

judged and appropriately punished by government, and the broader community of property

owners can go about their business without having to worry about defending their property. If

government ceases to defend property rights in a fashion that’s viewed as appropriate by the

community of property owners, then the individuals have the right to dissolve that government

and create a new one that will hopefully do a better job of defending property.

It’s important to note that Locke’s theory was the first to argue that the legitimacy of a

government is dependent on the extent to which it defends private property. It’s not coincidental

that this theory emerges at a time when capitalism is coming into existence. Governments that

defend private property in a fashion that’s consistent with the community of property owner’s

sense of fair play are legitimate. Governments that do not, are not. The theory is used to set

limits to government authority, by emphasizing the priority of private property. Individuals have

a right to property and can do with it as they wish, so long as it does not interfere with the rights

of others to do the same. And government cannot infringe on that right, telling private property

owners what they can or cannot do with that property, unless it’s determined that an individual’s

use of her/his property is coming at the expense of others or the community at large.

In general, Locke assumed that the economic activity of the individuals in such a society

would, on the whole, generate outcomes that would be consistent with the interests of the

community as a whole. For that reason, he took for granted the idea that government wouldn’t

have to swoop in to resolve property disputes all that often. It would serve as a referee or

nightwatchman, observing the economic game from the sidelines and interfering only when one

individual’s use of property negatively impacted the property rights of others. He acknowledged

the possibility that one segment of society might accumulate so much property that it would

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interfere with the rights of the rest of the community to acquire property; and under such

conditions he accepted the idea that government might need to permanently interfere in the

private sector so as to ensure that everyone has a right to property. This last possibility, however,

was not emphasized, and the overall tenor of his work implied that government would mostly

serve as a nightwatchman, without the need for on-going and permanent interference in the

private economic activity.

III. Capitalism and commodity producing societies

Capitalism is a specific version of a much broader set of societies referred to as

commodity producing societies. The one common feature present in all commodity producing

societies is that income is derived from producing a good and then selling it on the market. In

such societies, the quality, type, and amount of goods produced - that is, the amount and

composition of the gross product - is determined by the profits (surplus) that might be made from

their sale. The buying and selling of goods, market activity, dominates a considerable amount of

economic behavior. Production tends to be dictated by the profits that might be made from the

sale of goods. Goods that promise a reasonable profit will be produced while those that don't

won't; regardless of whether the good in question fulfills some basic physical or social need.

Needs which cannot be met through the selling of an appropriate good at a reasonable profit, will

go unmet unless they are provisioned through some other mechanism such as through

government.

In fact, the term commodity, as opposed to the much broader term, good, is used to

underscore the idea that in commodity producing societies the vast majority of goods are

produced for profit. A good is anything that might satisfy a human need or desire, such as a

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beautiful valley, a work of art, a backhoe, or a car. As such, it need not be produced - as in the

case of natural beauty - and even if it is produced the motivation for its production need not be

profit, as in the case of a meal prepared for friends or a work of art. The term commodity is thus

used to distinguish goods that are produced for the explicit purpose of generating a profit from

goods in general. A commodity is the result of the on-going production of goods by firms intent

on capturing profits. Thus, in commodity producing societies the vast majority of the goods that

are produced and distributed are commodities, that is, goods produced for profit.

While all commodity producing societies have these features in common, they differ on

the manner in which control and ownership over the means of production is distributed, and on

the manner in which power over the ability to generate and use income is dispersed throughout

the population. For example, it is conceivable that the ownership of productive assets might be

sufficiently dispersed that each family owns enough capital and land to produce for itself and sell

the remainder on the open market. Some families would specialize in the production of

agricultural goods, while others would specialize in manufactured goods or the provisioning of

services. Each family, in other words, would own its own firm.

This type of economic system is referred to as a simple commodity producing society and

represents the kind of economy that Thomas Jefferson thought would have to exist for

democracy to function properly. Jefferson believed that democracy required that ownership of

productive property be widely dispersed. In particular, he imagined that each family would own,

however modest, a farm that would permit the family to sustain itself from its own work. What

would be produced and how much would be produced would be determined by the profits that

might be made from the production and sale of commodities. And if, as a result of insufficient

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sales, a family could not obtain income through the market, it always had the ability to produce

some of the necessities for itself.

In such a system, the farm would provide, however meager, enough resources to permit

the family to sustain itself from its own production. Each family would always have enough

economic power to generate income for itself, either in the form of the products directly

produced and consumed on the farm, or in the form of the money, and thus the products of other

firms, obtained from selling the farm's output. Moreover, as a result of this same power, the

typical individual would be free to accept or reject potential exchanges as he or she saw fit.

There would be little to no economic coercion forcing the individual to accept the terms of some

potentially extortionary transaction. The individual could reject such abusive exchanges since he

or she could always live off the farm. If the money being offered for his or her products, or labor

services, did not seem appropriate, he or she could always afford to reject the offer. The

ownership of land would provide the average individual with enough power to reject terms that

seemed inappropriate, while accepting only those transactions that seemed beneficial.

A capitalist society is a specific version, or species, of commodity producing societies.

But, unlike Jefferson's vision of a simple commodity producing society, capitalist societies are

characterized by the fact that the vast majority of families do not own enough productive

property to generate their own income.2 More specifically, the vast majority of families in a

capitalist society do not own a farm, or business of some sort, which would allow them to obtain

the bulk of their income from the selling of commodities. The income of a typical family in a

capitalist society is determined by the wages that might be obtained from the selling of labor

2. Keep in mind that we are focusing on productive property and not property in general; the latter would also include consumptive property. Thus, the ownership of homes, a form of consumptive property, is fairly widespread in the United States, but the ownership of factories, farms, or even small shops, is not.

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services to the firms. Furthermore, unlike the average individual in Jefferson's farm owning

society, the average individual in a capitalist society is much more dependent on, and thus less

free to reject, the income that might be obtained from the selling of labor power to the firms.

The typical worker in a capitalist society is less inclined to reject a wage offer that seems

inappropriate than is the typical worker in a simple commodity producing society. The typical

worker, in a capitalist society, cannot go back to the farm and live off the land. In capitalist

societies, private economic power is concentrated in the hands of a relatively small fraction of

the population, those who own and control firms - the business or capitalist class. The business

owners have the power to coordinate the labor process within their firms and thus have enough

power in relation to the workers to set the terms of employment. The firm provides the capitalist

with a greater amount of control over his or her search for income, while at the same time

providing a strong bargaining position with reference to workers and thus their wages and

conditions of work. The average capitalist has a greater capacity to control his or her own search

for income than does the average worker.

The property arrangements typical of capitalist societies are the result of two closely

related sets of circumstances. First, there is a general attitude towards property rights that is

much more unrestrained than in other types of political economic systems. That is, in capitalist

societies property owners have a wide range of economic activities they can pursue, through the

use of that property, without having to first seek approval from government or the community at

large. The range of activities that property owners are prohibited from pursuing is relatively

minor. Second, capitalist societies have developed an elaborate set of financial institutions

through which rights to property and claims on such property are traded. In their struggle for

income, property owners try to defend and/or enhance their economic power by buying various

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ownership rights to firms and property in general. The accumulation of property enhances the

position of any one individual owner by providing him or her with a greater flow of income and

a larger base of economic power. The result of the competitive struggle for income is not the

widespread dispersal of productive property, but rather the concentration of that property in the

hands of a relatively small fraction of the population. This unequal distribution of productive

property occurs naturally in capitalist societies as a result of the freewheeling competitive

struggle which the property rights and financial institutions of these societies makes possible.

IV. Varieties of Capitalism3

One common way of categorizing capitalist societies is to imagine them arranged along a

continuum that gauges the degree of government oversight. At one end of that spectrum would

be capitalist societies that limit the role of government to a fairly small proportion of total

economic activity, confining its presence to issues of private property and commercial

infrastructure while providing minimal social infrastructure. Capitalist nations that lean toward

this end of the continuum have been defined as Liberal Market Economies (LME), with the

United States of America (USA) being a representative example of this form of capitalism. The

means of production are privately owned, government ownership of land and capital is minimal,

and commercial infrastructure is well developed, but social infrastructure is modest when

compared to other advanced capitalist nations.

This is the “small government” version of capitalism eulogized by conservatives. But it

must be emphasized that the term “small’ is misleading since it suggests that the role of

government in these types of societies is minor or inconsequential. A more appropriate way of

3 The following section borrows the title, and some of the ideas, found in Peter A. Hall and David Soskice’s 2001

book Varieties of Capitalism.

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thinking about this version of capitalism is that government is confined to those activities that are

central to the defense of private property, the adjudication of disputes among property owners,

and providing the commercial infrastructure needed by business. This is the version of capitalism

that existed in the USA during the 19th century, when social infrastructure was largely neglected

and government focused mostly on issues of private property and commercial infrastructure.

These functions represent the absolute minimum which a government must carry out to sustain

viable capitalist societies. Defining and defending private property is absolutely necessary to the

functioning of capitalism and central to the mission of the judiciary, police, and military

institutions of these societies. Likewise, the development and maintenance of commercial

infrastructure (such as public highways, communication systems, harbors, public lighting, water

and sewage systems) is essential to conducting business. These functions may take up a

relatively small proportion of the nation’s gross output, and as a result considered “small,” but

this does not mean they are of minor importance, they are instead core functions of capitalist

states.

At the other end of the spectrum are capitalist societies that encourage a much larger role

for government by providing more oversight of private economic activity and a more expansive

social infrastructure while still defending private property and maintaining a robust commercial

infrastructure. This class of capitalist societies has been referred to as Coordinated Market

Economies (CME), with the Nordic countries being representative of this form of capitalism.

While the means of production are still, on the whole, privately owned, the portion that’s owned

by government is larger than in their LME counterparts. Yet, they’re just as attentive as their

LME counterparts to the importance of private property and the institutions needed to defend it,

such as the judiciary, police, and the military, and are equally fastidious about maintaining the

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system’s commercial infrastructure. Where they differ is in the area of social infrastructure.

CMEs offer a more generous set of public goods (e.g., public education, public health care,

public housing, public transportation, day care facilities, maternity and paternity leaves, paid

vacations, etc.) than is common in LME systems. These are societies wherein government has

gone beyond the minimal activities needed to sustain a viable capitalist economy (private

property and commercial infrastructure) and have moved into the provisioning of the public

goods needed to sustain a robust social infrastructure. As a result, government in these societies

takes up a larger proportion of gross output, since they offer a wider and more generous set of

public goods than is common to LME systems.

It’s important to note that beyond the question of the degree of government involvement

in the economy, the above way of classifying capitalist societies draws attention to the way in

which economic activity is organized. It’s not just that the state, in CME systems, has a greater

role to play in the provisioning of social infrastructure than is common to LME systems, it’s that

economic activity is coordinated with the state and the broader public, in particular labor, in

ways that are minimized or non-existent, in LME systems. Liberal market economies rely

heavily on the market as a way of coordinating the profit seeking activity of the firms, and they

leave the firms, and the capitalists that own and manage the firms, free to pursue profits any way

they see fit. In contrast, coordinated market economies are far more comfortable than their LME

counterparts with forms of coordination that require firms to account for the other interests in

society, such as labor, the environment, or more broadly the common good. The latter form of

coordination requires a greater role for the state and a broader range of interests represented in

the governance of firms and society at large.

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It should also be noted that there is variation within each of these categories and that

some nations possess elements of both LME and CME. For example, even though the USA is

often categorized as an example of an LME form of capitalism, it nevertheless spends far more

on the military than any other LME nation. Indeed, the USA spends more on military related

activities than any other nation on earth. What’s more, the partnership that has emerged in the

USA between the federal government and defense contractors, the so-called military-industrial

complex, has led to the development of technologies that may not have emerged in the absence

of Federal Government subsidies. In other words, despite being perceived as an example of an

LME form of capitalism, which presumably generates new technologies through free market

competition, a wide swath of technological innovations in the USA have emerged from public-

private relationships, such as the military-industrial complex or public subsidies of private

industry, and not from the “free market.”

It should also be noted that there is a cultural and political component to these different

forms of capitalism. The LME forms of capitalism are, on the whole, inheritors of the English

form of capitalism that was later dispersed to the colonies of Great Britain, such as the USA,

Canada, New Zealand, and Australia. All of these nations are often thought of as LME forms of

capitalism even though there are obvious differences among them. While they all have inherited

the liberal traditions of English political economy, the extent to which they provide for social

infrastructure and willingness to regulate markets varies among them. Canada, for example, has a

far more robust social infrastructure than does the USA, even though it is often classified as an

LME system. In contrast, CME forms of capitalism tend to be found in societies that emerged

after capitalism developed in England or the USA. Furthermore, they have political cultures that

are less distrustful of government than is common to societies that inherited English political

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traditions. Yet, even here, one also finds variations. Thus, it’s common to classify Norway,

Finland, and Sweden as being a form of CME, even though Germany and Japan are also thrown

into the mix. While it’s true that all of these cultures are far more comfortable with the state than

is common to LME systems, there are, nevertheless, significant differences among them.

Both of these forms of capitalism, particularly those found in Western Europe and North

America, tend to have democratic governments, either of the parliamentary form, such as

Norway, or the presidential form, such as the USA. As a result, it’s common, particularly in the

USA, to assume that capitalism and democracy are complementary, that capitalism has a

tendency to generate democratic forms of governance. But this is a questionable proposition

that’s contradicted by the numerous examples of capitalist societies governed by dictatorships,

military juntas, oligarchies, or monarchies. Indeed, capitalism evolved out of a monarchical

context in 17th century England, and it wasn’t until the early 20th century that universal suffrage

gained a foothold in that society. What’s more, even among the capitalist nations of Western

Europe, there have been times when they’ve reverted to anti-democratic forms of government, as

in the case of Spain during Franco’s dictatorship from 1936 to 1975, Nazi Germany in the 1930s

and 1940s, and Fascist Italy from the 1920s to the 1940s.

Indeed, it could be argued that capitalism works best when democracy is restrained and

business interests are allowed to rule unimpededly. So long as capitalists are secure in their

property and allowed to carry on their business in ways that enhance their profits, the lack of

democracy, while it may be decried, will be endured and even celebrated. Chile during the fascist

dictatorship of Augusto Pinochet, from 1973 to 1990, is a good example. But so too is Brazil,

during the military dictatorships from 1964 to 1985, Nicaragua under the Somoza family

dictatorship from 1933 to 1979, Indonesia under the Suharto dictatorship from 1967 to 1998,

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Congo under the dictatorship of Mobutu Sese Seko from 1965 to 1997, and numerous others

whose listing would take up more space than is needed to make the point.

Clearly, the defining feature of a capitalist society isn’t the existence of democracy, but

rather a form of government that gives priority to, or is sufficiently differential to, those who

own the means of production, a class of people known as business owners, capitalists, or the

bourgeoisie. These are the people that own firms and coordinate labor with capital and land to

generate a profit from the production and sale of goods and services. Capitalist governments,

regardless of whether they’re organized along democratic or non-democratic lines, are

distinguished by the attention they show toward private property and commercial infrastructure,

or more broadly, the needs of business.

This does not mean that capitalist governments, democratic or otherwise, are forever

bending to the demands of business owners. Governments, after all, are expected to speak and

act on behalf of the entire nation, pursuing policies thought to be in the interests of the broader

public and not some narrow segment of society – such as the capitalist class. Governments can

and do pursue policies that may not be favored by business interests if the benefits to society are

thought to outweigh the disapproval of business. But so long as business interests are consulted

in the development of public policy, even if their preferences aren’t always granted, that nation

can be thought of as capitalist, regardless of whether it’s democratic. This consultation might

take the form of ongoing informal discussions between business leaders and government, or it

might be formalized in a legislative body that represents business interests. What’s more, this

consultation need not be harmonious and may at times be contentious. But, regardless of the

form such interaction might take, the point is that capitalist governments, democratic or

otherwise, tend to weigh more heavily the concerns of business than those of other segments of

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society and, as a result, are keen to maintain a framework (private property and commercial

infrastructure) which facilitates the pursuit of profit.

In all capitalist societies the extent to which business interests tolerate the government

under which they operate depends on the extent to which it interferes with profit seeking activity.

In general, the greater the number of economic restrictions and laws unfavorable to the free

conduct of business, the more likely business interests will refrain from investing in that society

and will move their capital to other, more friendly, capitalist societies; a phenomenon known as

capital flight. In extreme cases, the business community will search for ways of overthrowing

that government and instituting another government that is more sympathetic to capitalist

interests. This response is common in all capitalist societies, regardless of whether the nation is

democratic. The possibility of capital flight, and the subsequent economic stagnation or

depression it can provoke, is a sufficiently strong incentive to keep capitalist governments

attentive to the needs of business.

The case of socialist societies, of the form that emerged in the 20th century, is a good

counterexample which sheds more light on this issue. The Soviet Union, The Peoples Republic

of China, and Cuba, differed from their capitalist counterparts in that the means of production,

both land and capital, were overwhelming owned and managed by government. The proportion

that was privately owned was very small. Government coordinated labor with the publicly owned

capital and land to generate and distribute a gross product that would be made widely available

to the general public on the basis of need or public policy, not profits. In these societies, the

firms that coordinate labor and the means of production are public institutions, not privately

owned businesses; and they operate more like public bureaucracies than profit-seeing firms.4 In

4 Some socialist societies have experimented with profit-seeking firms, such as Yugoslavia and China. But, in the

case of Yugoslavia, the firms were owned by the workers and expected to abide by socialist principles. In the last 40

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addition they embrace the principle that, at a minimum, everyone is entitled to a subsistence

bundle of goods (in the form of food, housing, health, education, transportation, and such) that

allows them to survive and hopefully thrive. They are attentive to the needs of the working class

and offer a far greater array of public goods than is common in capitalist societies. But they have

all been governed as dictatorships, usually run by a political party – the communist party, which

sought to manage government, and thus the means of production and labor, in a fashion that

would advance the interests of the working classes. What’s more, they are leery of the capitalist

class because of the role they have traditionally played (in coordination with other advanced

capitalist nations) in overthrowing socialist governments.

Note that dictatorial forms of government might be capitalist or socialist. So, the

difference that exists among capitalist societies and between capitalist and socialist societies, has

less to do with the existence (or lack thereof) of democracy, then on the balance of power that

exists in these societies between the interests of business and those of the working classes. The

common thread running through all capitalist societies is the greater weight their governments

attach to the interests of capital over labor. The LME forms of capitalism are characterized not

only by what conservatives call “small government” but more importantly by the indifference, if

not hostility, displayed toward labor. In contrast the CME forms of capitalism are characterized

by laws and regulations that are more attentive to the interests of labor, than is common in LME

forms of capitalism, even though capital still sets the tone in these societies. More to the point,

socialist societies have traditionally been more attentive to the interests of labor (in terms of their

material needs) than is common in capitalist societies.

years China has allowed the existence of profit seeking firms owned by individuals. But they represent a small

proportion of all business (most of which are still state owned) and are heavily regulated by government.

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V. Property and Democracy

While democracy isn’t necessarily a form of government that coexists with capitalism, it

is the case that modern notions of representative government and democracy emerged with the

development of capitalism. England, it’s widely acknowledged, is where capitalism first

emerged. It evolved over a period of several centuries as Europe, and in particular England,

transitioned from feudalism to what eventually came to be called capitalism. Yet, despite this

long period of gestation, it can be stated with a fair degree of confidence that the fundamental

institutions of capitalism, even if they were still in an early stage of development, emerged in

England during the 17th century. It was during that century that England underwent two

revolutions, causing its political structure to move closer to what we would now call democracy.

More to the point, the monarchical form of government which had ruled England for centuries,

was put in check through the development of a republican institution, Parliament, which though

it had existed for centuries, now had legitimate authority over the king. Government was now

expected to respond to the interests of a broader segment of society (specifically merchants) than

that narrow segment of society (the landed nobility) which had traditionally been the political

base of government.

For centuries, the English monarch would consult with the landed nobility, represented in

the House of Lords – the upper chamber of Parliament composed of representatives of feudal

nobility. The House of Commons, the lower chamber of Parliament representing the interests of

the burghers, came into existence in the 13th century but was largely ignored and possessed little

power. It wasn’t until the mid-17th century that the House of Commons rebuked the authority of

King Charles I by beheading him, dissolving the monarchy, and creating a republican form of

government, the Commonwealth of England. This experiment only lasted for a few years, after

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which a monarchical form of government was reinstated, but this time with the insistence that

Parliament now had authority over the king. By the end of that century, the House of Commons

was more powerful, allowing the concerns of merchants to gain a larger voice in the governance

of society.

It would be a stretch to refer to this early form of representative government as

democratic since the right to vote was highly restricted and confined to a tiny proportion of the

population, namely those that owned enough property to exercise the franchise. This restriction

had the effect of reducing the proportion of the population that could vote to about 1% to 3% of

adult males. Similar laws were in effect in the USA after it won its independence from Great

Britain. In the late 18th century, the franchise in the USA was confined to a small proportion of

white propertied males and excluded white males that did not own the required amount of

property, as well as women, slaves, free blacks, and Native Americans. The extension of the

franchise in the USA took place over a long stretch of time. Thus, it wasn’t until the 1850s that

ownership of property was dropped as a requirement to vote for white males, women didn’t

obtain the right to vote until 1920, and Native Americans didn’t gain that right until 1924, and

even though the 15th amendment (passed in 1870) had granted the right to vote to former slaves,

the Jim-Crow laws of formally confederate states excluded blacks from voting until the passage

of the 26th amendment in 1964.

This brief history should underscore the fact that the conception of government that

emerged with capitalism was a democracy of property owners. In keeping with Locke’s theory of

government and Jefferson’s hope for a democratic USA, the argument was that the interests of

property owners should be represented in government and that the latter should be the vehicle

through which private property is defended, and disputes over property resolved. And the best

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way of ensuring that government pay attention to the meaning, and disputes over, private

property, is to have property owners, or their representatives, deliberating the laws and policies

of the nation.

But here we must take a minor detour to expand on the concept of property and, in

particular, the kind of property that was envisioned during the first century or so of capitalism.

Private property can be classified into two huge categories, consumptive and productive.

Consumptive property refers to the stock of goods that are owned by individuals or groups for

the purpose of sustaining levels of consumption. Examples of this form of property would be

personal clothing, books, cars, refrigerators, TV sets, homes, and such, that provide a stream of

consumptive services to their owners. This type of property is owned for the sake of sustaining

life or enhancing the quality of life. In contrast, productive property refers to the land or capital,

the means of production, that’s owned by individuals or firms for the purpose of generating a

profit. This is the kind of property that one associates with business firms. It differs from

consumptive property in that productive property generates income and wealth. What’s more,

this kind of property is usually tied to a business enterprise (a farm, retail outlet, factory, or

conglomerate) that hires teams of workers to interact with that property to generate an output

(which is also the property of the firm) that is then sold for a profit on the market.

The kind of property that was envisioned by the early capitalist societies (such as Great

Britain and the USA) was invariably of the productive sort, that is they were thinking of the

ownership of land and capital. So, the kind of democracy they were envisioning was one in

which landowners and capitalists, or their representatives, were actively engaged in defining,

defending, and adjudicating disputes over property, while hammering out the various laws and

policies that could sustain a commercial society. It’s for this reason that the working classes

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(those who do not own productive property – who do not own firms) were initially excluded

from having a voice in the governance of society.

While the right to vote has been expanded over time, allowing the working classes to be

represented in government, its extension has been consistently resisted by the owners of

productive property, the capitalist class. The reasons are fairly obvious. If the working class is

appropriately represented in government, then laws and policies can be instituted that impose a

cost on firms and, more broadly, the owners of productive property. Examples of such policies

would be recognition of labor unions, consumer safety laws, workplace safety laws, minimum

wage laws, social security, work hour laws, etc., that impose a cost on the firms or productive

property owners, in the form of increased taxes and/or regulations. Each of these policies were

strongly resisted, and continue to be resisted, by the business classes. And it’s for this reason

that, to this day, business interests and their political representatives can be found figuring out

ways to restrict the right to vote.

The democratic forms of government that emerged with capitalism allowed the opinions

of workers to be heard and, on occasion, implemented, even though the overall tenor of public

policy favors business interest. As a result, there has been an on-going tension in capitalist

societies between the owners of firms, the capitalists who make-up a small proportion of the

population, and the much larger public, overwhelmingly workers, who exercise the right to vote

and participate in public discourse. But the manner in which this plays out depends on the kind

of democratic mechanisms that have structured the politics of any one nation. Capitalist nations

that provide a greater voice to working class interests, such as the CME nations, tend to offer a

much wider range of public goods, a more robust social infrastructure, than is common in LME

nations, particularly the USA, which do not.