You are currently viewing Capitalism – How Does it Work? </h1> <h3>An Average Joe understanding of what capitalism is and how it functions<h3>

Capitalism – How Does it Work?

An Average Joe understanding of what capitalism is and how it functions

     When you hear someone mention ‘capitalism’, what immediately comes to mind? Is it something dark and nefarious, or is it bright and full of hope? For most people, I’d imagine that they’ve never given much thought to what capitalism is or how it works. Well, I’d like to help with that. Today, I’m going to give a basic rundown of what capitalism is and how it functions.

     As I’m sure you’re already aware, I do not hold an overall favorable view of capitalism. And going forward, I will be offering different critiques and alternatives. But I would like to start by laying out the foundations for what exactly we’re talking about.



I would first like to start out with the definition of capitalism provided by Merriam-Webster.

  • Definition of capitalism
  • : an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market

     So, let’s get this straight. The accepted definition is a thing (system) in which all capital goods are privately owned. And from there, products, services, etc. are sold in a free market.

    Well, that sounds OK. But it doesn’t really give us an understanding of how it functions. For this, I will be using influences from Karl Marx’s Capital. Now don’t be alarmed. My goal is not to radicalize you (at least, not yet 😊). What Marx does is take every aspect of capitalism and break it down to show how it functions. Later, he then offers critiques and a view of an alternative. But we’re not worried about that yet.

    production in capitalismTo start off with, I’d like to define capitalism simply as ‘value in motion’. The culmination of the motion value takes would be called the totality. The totality consists of 4 major moments where value passes through. As with all motion, each moment is crucial. If there are any “hiccups”, the full motion cannot be completed. An easy example of this would be to think of the totality as the human body. Wherein each moment would be your heart, brain, liver, etc. Each moment needs to function independently of one another, but also come together eventually to allow you a healthy life. The difference here is that instead of creating a healthy body, the totality of capitalism creates circulation and accumulation of capital.

There are 4 main moments within the totality:

  1. Money
  2. Obtain the means of production
  3. Creation of new commodity
  4. The realization of surplus value

        In each of these moments, the value takes on a new form. Initially, it starts out as money. Then, it’s turned into a commodity which is represented by the means of production (which are the tools, machinery, materials needed for operation) and labor power. From there, by combining the means of production and labor, a new commodity is created. Finally, the new commodity is sold on the market in which there is a surplus value. If this still sounds a little overbearing, don’t worry. I’m going to go into the moments a little more to hopefully clear some things up.

     Have you ever heard the saying “money is the root of all evil”? Well, it’s especially true for capitalism! Jokes aside, as stated earlier, all moments are required to function properly for capitalism to work. And it all starts with money. There’s a couple things that we need to keep in mind here. First is that while not all money can be considered capital, all capital flows through the money moment. I’m going to expand on that a little later, so let’s just leave it at that for now. Second, for a capitalist, it is generally most beneficial to take all money available to them to turn into capital. This will likely ensure the most surplus value at the end.

means of production

     From there, it is time to obtain the means of production. To a lot of people, that phrase sounds ominous. But all it really means is that the capitalist will need to obtain the commodities in which they will put to work to produce their new commodity. The two commodities are labor power and the physical materials (means of production), machinery, tools, etc. needed for production. At this point in the totality, the value is represented by the labor power plus the means of production.

     Next up is where the real work is done. In combining the labor power and the means of production, a new commodity is created. The value in this moment is fully represented by the new commodity. What’s significant about the new commodity is how it’s valued. During production, the means of production and labor power each reproduce their initial value. However, additional value is added from labor. This is referred to as surplus value.

     Finally, the capitalist will need to realize the surplus value by selling the commodity on the market. In this final moment, the money realized represents the value. That being said, there are many claims on the money obtained. There’s the workers, banks, government (taxes), other merchants and vendors ,etc. All of these parties have a claim as they were necessary to facilitate the transformation of the value. Oh, and of course the capitalist will certainly take some money for themselves too (can’t forget about that!). But at this point, the money that is left over can (and most likely will) be turned into additional capital.

     Now from here, you may think that things are done. That the value has completed is cycle of motion and that the totality is complete. But not so fast! When you think of Amazon, Google, or Apple, how do you think they got as big as they did? If they just focused on the original cycle, sure they would likely grow, but they didn’t just grow. They exploded.

     Here is where the true nature of capitalism starts to appear. Let’s not think about the totality as a simple cycle, but as a spiral. A capitalist inherently incentivizes additional surplus value. There’s a multitude of reasons, but one major one is that competition creates the desire for additional capital to aid in expansion. In the totality, this means that the capitalist is always looking to increase the surplus value. At this point is where a lot of the critiques of capitalism comes into play. But as I said, we’re not at that point yet.

cash money

     Earlier, I mentioned how money isn’t always considered capital. I would like to expand on that real quick. With keeping in mind that money needs to have value to be used as capital, what actually gives money value? For most of us it’s just either paper or numbers on a screen. There’s nothing fancy about money, it’s just there. What actually gives it value, is the intent of use. If a pile of money is sitting in front of you, it’s worthless unless you’re actually looking to purchase something with it. So therefore the actual use of the money is what creates the value.

     Finally, I would like to address capital specifically. The contemporary definition is that capital is a factor of production, that it is tangible. Mostly represented as money and other assets. But given the definition of capitalism that I’ve presented today, I would argue that capital is the whole process that value goes through. If capitalism is defined as value in motion, then that means capital flows freely within the totality taking on different forms. It is not something that is fixed. A quick example of this is to think of all the money in the world. It simply existing does not deem it as capital. It isn’t until there is use intended that it has value, which at that point it can be considered capital. From there, a capitalist will enter the spiral.



     As I’ve alluded to a few times, I will be offering several critiques of capitalism going forward. So having a basic understanding of the inner workings is necessary. I do hope that you’ve found this informative. From just talking with different people I know personally, I know there’s a lot of people that have never really thought about what exactly capitalism is or how it functions. And I believe that even if you have no quarrels with it, you should still have a general understanding of the thing that literally drives the world. And I hope I was able to contribute to furthering that a little bit.

     If you’re interested in going more in depth on Marx’s presentations of capitalism, I highly recommend the podcast David Harvey’s Anti-Capitalist Chronicles ( It can be found on most podcast platforms. In this podcast, David Harvey uses Marx’s theories and applies them to today’s economy.

Also, as always, feel free to reach out on twitter or email about anything you’d like to discuss.


Leave a Reply