Capitalist mode of production (Marxist theory)

In Karl Marx's critique of political economy and subsequent Marxian analyses, the capitalist mode of production (German: Produktionsweise) refers to the systems of organizing production and distribution within capitalist societies. Private money-making in various forms (renting, banking, merchant trade, production for profit and so on) preceded the development of the capitalist mode of production as such. The capitalist mode of production proper, based on wage-labour and private ownership of the means of production and on industrial technology, began to grow rapidly in Western Europe from the Industrial Revolution, later extending to most of the world.

The capitalist mode of production is characterized by private ownership of the means of production, extraction of surplus value by the owning class for the purpose of capital accumulation, wage-based labour and—at least as far as commodities are concerned—being market-based.

A "mode of production" (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:

The capitalist mode of production may exist within societies with differing political systems (e.g. liberal democracy, social democracy, fascism, Communist state and 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.

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, Engels and others) be the driving force; this 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”, the formal turning of workers into wage-laborers, 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. Some historians, such as Jairus Banaji and Nicholas Vrousalis have argued that capitalist relations of production predate the capitalist mode of production.