 Hi, this is Professor Friedman at the University of Massachusetts at Amherst, and today we're going to talk about capitalism as an economic system, a system that is different than other ways of organizing economic life. And this is a difference that's meaningful because when orthodox economists, those we call neoclassical economists, think about the economy. They're not thinking about the economy that we experience out there. They're thinking about a different world, an older world, a world of production for use, where people control the means of production themselves and go out, wake up in the morning and say, what am I going to do today? I think I will go on some deer because I'm hungry for venison, or they go out to raise wheat because they want bread, or they raise cotton because they want a new shirt. This is a world of production for use where people produce in order to consume. That's how orthodox economists think of the world. If you go to the orthodox textbooks, they talk about the demand for products, they go back to human individuals' utility functions. People do things because they want the outcome. And that's the way most of human economic activity has been organized through the ages. From the cavemen through the family farmers in Iowa, the people produced to consume. As long as you think of the world that way, mind you, you never have a problem of aggregate demand or unemployment. Because people produce to consume, either consume what they produce or exchange for something equivalent that they will then consume, there's never excess production. This can't be excess because people are producing to consume. So why wouldn't they be consuming everything that's produced? People don't want things, they won't make them. So there's never a problem that what people are making is inappropriate. And you go to orthodox economists, they're always kind of thinking to themselves, please, you complain about this movie or that movie or this video game is too violent. They'll always think to themselves and sometimes they'll say outright, well, people didn't want it. They wouldn't make it. Production for use. That's not the way the world is actually organized. It's what is an Adam Smith. And an Adam Smith, the basic circuit of production is this. Some commodity, you produce it, you either consume it or you exchange it for a different commodity, C prime. So I make, I kill a deer, either so that I can eat venison or so that I can exchange it for a beaver, exchange of equivalents. Sometimes you'll go through money. So I kill a deer, I sell it, I buy beaver or cotton or whatever. So this world recognizes division of labor. There's a social division of labor where you produce things and exchange them for others. But the point is always final consumption you produce to consume. That's not how most economic activities carried on in the world these days. It was, it's not bad as a representation of how the economies were organized in the 18th century. So even there it was wrong. Think in the 18th century of the most important single sector of the economy for the United Kingdom. It was not the family farmers that Smith was thinking about. It was not small artisan shops making jewelry that they could drink beer. The largest sector of the economy was slave labor producing sugar for sale in European markets. British sale, British ships went down to Africa, traded trinkets, guns, alcohol, woven cloth for slaves that they took to Jamaica. There they put the slaves to work, grown sugar. The sugar was then transported back to London or maybe over to Amsterdam or Antwerp for sale. And the British ship owners and slave owners pocketed the gold. Why was this production process, the sugar growing in Jamaica, why did those slaves work grown sugar? They didn't consume the sugar. They weren't producing so that they could trade to get beef or a deer or whatever. They were working to make profits for their owner, for the people who claimed ownership rights in the slaves. If you wanted to get involved in this business you'd start with money. You start with money, not intermediate. You start with money, you buy a commodity, a slave. And you turn that commodity into another commodity, sugar, which you then sell for more money. You make a profit if m prime is greater than m. This is the circuit of production for slavery. It's also the circuit of production for capitalism and wage labor. There's a change. Capitalism is not slavery. The capitalist does not own you. If you don't want to work, you can quit. You can go someplace else. You can starve. But what the capitalist owns is not you but your time. You sell your time to the capitalist. You promise the capitalist you will be there at 8 o'clock and you'll stay till 5. Maybe an hour for lunch, half an hour for lunch. And during that time you could sit there doing nothing or the capitalist can get you to work. If the capitalist gets you to work hard you'll produce commodities. So the capitalist starts out with money, buys your time, labor time. You turn this into commodities that the capitalist sells. If the capitalist makes, sells it for more money than the capitalist started with, the capitalist makes a profit. This is profit. And the capitalist is happy. If the capitalist doesn't make a profit, the capitalist goes out of business and the capitalist starts selling his or her labor time to some other capitalist. So when we talk about capitalism, we really only need to talk about successful capitalism. Failed capitalism, failed capitalists don't concern us. They disappear. The successful capitalists end up with more money. Now here you get something interesting and something that is left out of the standard Smithian model because the capitalists end up with more money. What do they do with their more money? They hire more workers. So you start out with M' now. You buy more labor time. You get more commodities and more money, more profit. Capitalism is an expansive system without regard for what's being produced or whether anybody wants the stuff that's being produced. Up here we know you want beaver because you work for it. Do you want sugar? Does the capitalist want sugar or coffee or cloth or video games or pornography or any of the other things that capitalists are producing? Not necessarily. But the capitalist makes them as long as the capitalist can find a market. The capitalist hires workers, more and more workers. Where do those workers come from? Workers expansive, always searching for more workers and more places to sell its commodities. This is a different economy than a production for use economy. And it's an economy that is dynamic and expanding and has moved to take over practically the entire world. That is something that Adam Smith never anticipated. And that's something we'll be talking about some more. So thank you very much. Have a good day.