Capitalism and its Economics: A Critical History

Douglas Dowd’s Capitalism and its Economics is a lucid and convincing examination of the history of capitalism, economic thought, and the relationship between the two. In sharp contrast to modern academia, which often compartmentalizes social reality, dividing and abstracting it to the point of meaninglessness, Dowd emphasizes capitalism’s relationship to history and society’s stratifications of power. Written in clear prose, Dowd recounts the world that capitalism came into, demonstrating how since its inception capitalism has been a social, not just economic, system. For instance, Adam Smith only embraced laissez-faire once England had accumulated substantial surplus capital. Thus England, the first nation to industrialize, relied on economic protections like the Navigation Acts to build its empire. Once establishing sufficient economic dominance to overpower its competitors, England sought to eliminate those crutches, depriving other nations of its former advantages. Today this pattern is being repeated by the United States and the other nations of the G7, who, backed by professional economists, demand laissez-faire for developing nations, depriving them of the advantages they had, securing their perpetual servitude. With this early example, Dowd demonstrates how economics has become ideology in the service of narrow and powerful interests, to the detriment of greater society and rationality. Classical economists like Adam Smith and David Ricardo, Dowd points out, never separated the study of economics from the social relations on which it is given meaning. Rather than denying class divisions, these men acknowledged them, unabashedly assuming the interests of the ruling classes as natural. Marx revolutionized economics by, in part, using his predecessors’ findings against them, applying their implications to the vast majority within a framework emphasizing human liberation. While Ricardo saw rent paid to landlords as a rightful return on an investment, Marx focused on the fact that landlords received (receive) rent because of their power. Witnessing its own ominous applications, economics transformed. Entering the era of neoclassical political economy, Dowd details how that discipline, “by removing its analysis from history and becoming a theory of ‘statics,’ …served as a theory for working within and preserving the status quo.” 


Dowd reveals the untenable assumptions, “assuming away” social reality with qualifications of “all other things being equal,” that neoclassical political economy is built on. The wealth of ammunition he supplies is, perhaps naturally enough, foreign to mainstream economics. While the latter presupposes the permanent existence of scarcity of resources, it does not acknowledge that scarcity is intentionally created and sustained by capitalism. Thus, anyone praising capitalism’s “efficiency” can be brought down by noting how foodstuffs are deliberately destroyed to keep prices high, while countless people starve. Similarly, the practice of “planned obsolescence”—incorporating failure into a product’s design to ensure brisk consumption—could not be more antithetical to efficiency. Further, the “lopsided” structure of American jobs, where 15-20 percent of private non-farm workers do not produce anything, but supervise those who do, is surely at odds with popular paeans to our system’s alleged efficiency. 


The most factually preposterous assumption of neoclassical economics, according to Dowd, is the theory of competitive markets. “Assuming away” things like the State’s role in the economic process, technological transformations, and social processes, neoclassical economics ignores a reality filled with, among other things, oligopolies engaged in monopolistic price arrangements. Far from the myth of perfect competition, capitalism’s history has seen ever-escalating mergers and acquisitions that have fixed prices, leading from “competition” to “rivalry”—that is, a rigged game. Rather than responding to the market, price arrangements only increase costs to consumers, as companies spend more money on the advertising and superficial product and packaging changes associated with “non-price competition.” 


Neoclassical economics’ assumption of “rational self-interested consumers” is likewise blown to bits, as Dowd examines the impact of mass advertising, conspicuous consumption, and enormous consumer debt—all highly irrational, yet all prolific and cornerstones of the modern economy’s sustenance. 


Although neoclassical economics was largely discredited by its failure to anticipate or respond to the Great Depression, or the ensuing establishment of monopoly capitalism, it has been resuscitated by the global economic slowdown that began in 1973. It was here when global excess productive capacities reduced the incentive for investment in production, resulting in finance capital superseding productive capital. This has led to today’s situation, where profits from net interest are higher than corporate profits, and where stock, bond, and currency markets are all enormously inflated by massive speculation. Further, financial sector debt is nearly double the size of non-financial corporate debt, indicating the grave instability of today’s economy. The dominance of finance over productive capital also portended the further enslavement of the developing world. Persuading governments to curtail subsidized loans to the world’s poorest countries, the financial sector moved in with high-interest loans. 


Explicating capitalism’s evolution from colonialism to imperialism to today’s global economy, Dowd’s analysis easily lends itself to other applications. For instance, the “enclosure movement” that commodified land and labor in late 18th century Britain, fulfilling capitalism’s requirement to expand in every direction, bears a rather obvious resemblance to Vandana Shiva’s description of capital’s “enclosure of the biological and intellectual commons (through patenting and genetic engineering, including the enclosure of water and the atmosphere),” (“Monocultures of the Mind,” Z December 2002). Similarly, globalized arrangements are reproducing individual irrationalities in entire nations. Whereas relentless advertising encourages Western consumers to want what they don’t need, while not wanting what they do need, coercive trade agreements force Southern nations to export what they need domestically, while importing what they don’t.  Framing his discussion with an “analytical quartet” of capitalism, industrialism, imperialism, and nationalism, and exploring how each interrelates and exacerbates the worst qualities of the others, Dowd examines the factors that led to the World Wars, the Cold War, and the eventual dominance of monopoly capitalism. Dowd’s description of a post-war American economy reliant on a government-subsidized military industrial complex is especially relevant to understanding today’s “War on Terrorism.” Although written before 9/11, Dowd’s analysis indicates why effective critiques of the U.S.’s current drive for war must go beyond condemnations of individual actors to criticisms of the military industrial complex and capitalism per se. 


While Dowd never argues that ideology is unique to capitalism, he does explain how the interplay of several factors produced a tremendous concentration of power in post-war America. Examining monopoly capitalism’s six “clusters of relationships and processes (giant corporations, the State, consumerism, globalization, the military-industrial complex, and the role of the media),” Dowd reveals why the field of mainstream economics, with all its vacuous misinformation, has achieved such dominance. That mainstream economics in capitalism focuses almost entirely on trade theory and microeconomics, never looking at the whole or capitalism’s relationship to social reality, is not surprising. To be intellectually honest or to apply economics to social improvement would incriminate capitalism as irrational, wasteful, destructive, and unjust. 


Although Dowd accomplishes a great amount in limited space, his analysis would have benefited from a closer examination of non-capitalist economies. Looking at the Soviet Union, Dowd rightly notes that understanding its shortcomings requires acknowledging that the Russian Revolution occurred at “very much the wrong time, in very much the wrong place.” But while the Soviet Union cannot be understood without recognizing that it faced tremendous obstacles, including immediate and repeated assaults from the capitalist powers, Dowd does not explore theoretical problems that were intrinsic to early Soviet communism. Thus, Dowd deprives us of a comprehensive picture of issues that go beyond capitalism, but that must be understood if we are to intelligently respond to and overcome capitalism. Further, Dowd does not ask whether or not the Soviet Union did in fact constitute communism. The existence of alienated labor in that society indicates that the Soviet social-economy was a far distance from anything that Marx ever promoted. That the Soviet Union is popularly equated with communism is arguably related to the ideological dominance of capitalism that Dowd so eloquently describes. 


Nevertheless, Dowd concludes the book by writing, “If we are to make substantial and enduring progress toward a better society, we must combat what we have been taught with our own social vision, not just fragments of such a vision.” Indeed, the Soviet and Chinese Revolutions, and the retrogression of today’s anti-imperialist fundamentalist movements, reveals that human progress requires much more than the mere negation of capitalism. An intelligent focus, and good starting point that Dowd leaves us with, is his advocacy of changing the structures of production. Avoiding the inherent problems of only focusing on trying to achieve political power, or simply challenging capitalism’s “ideological hegemony,” production’s revolutionary transformation would directly alter economic, social, and political relations. This direction could conceivably allow us to eliminate capitalism through creating a new world based on human freedom.