Late Stage Capitalism
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You're right that we shouldn't necessarily be looking at extreme ends of any spectrum, but this isn't a thing. Communism has issue with private goods - goods owned BY A COMPANY/STATE used to make profit. It has no issue with PERSONAL goods - things an individual owns and uses.
I get the knee jerk reaction to the extreme positions, but it's best to characterize both correctly, instead of relying on literally the propaganda talking point of "there's no personal owners under communism".
cool, so if an individual owns a factory for personal use thats fine, right?
That's means of production and should be owned by everyone working in it.
Marx said it. Does anyone read?
and if you are the sole owner and worker?
@Ookami38 already gave you a better answer than i did.
Then it's your personal property. You, as the solitary laborer, own 100% of the means of production. Effectively, no different from what would happen today in capitalism for a private owner using a private property to do whatever with. It's not that hard, and none of this leads to some amazing gotcha moment for you.
The differences come when you have other workers. They aren't just employees, paid a set wage, with all of the power still in the hands of the owner. They are stakeholders, with a real, meaningful share of the profits and the decision making.
Sole proprietors are petty bourgeois and petty bourgeois production is to be gradually eliminated. It isn't an issue of direct exploitation, but instead that production should be socialized and advanced.
this seems like it would highly incentivize making contracts with independent contractors
Yes? Once they start employing other individuals, it goes from personal goods to private goods, and those other individuals who use the factory (the means of production) should have a percentage of ownership in said factory. That's.... That's how this works, yes.
Sole proprietors are petty bourgeois. The goal of socialism is not mass individual production, but collectivized production. Marxism is not a moral system based on eliminating exploitation due to it being a sin, but due to the fact that it becomes an impedement to continued development.