Marx's Capital was a book that revolutionised political economy and for the first time opened our eyes to the real workings of capitalism. It was, however, met with a wall of silence from the mainstream economists and the establishment. Despite this, Capital became regarded in the workers' movement as the Bible of the working class.
The aim of this book, written by authors from the International Marxist Tendency, is to help guide readers through the pages of volume one of Capital; to bring out the main themes and ideas contained within it; and to discuss the relevance of this great Marxist classic in terms of understanding the crisis-ridden world around us today - and, most importantly, how we can radically transform it.
Table of Contents
Karl Marx’s Capital is an undeniable masterpiece of political economy – a work that is even more relevant today than at the time it was written, over 150 years ago. Through his writings in the three volumes of Capital, Marx revolutionised our understanding of the capitalist system, uncovering and explaining its inner processes, emergent laws, and inherent contradictions. “To reveal the economic law of motion of modern society,” Marx wrote in the preface to Capital, was “the final purpose” of his book.
Capital, however, remains a difficult book to fully understand, particularly for those who are new to Marxist ideas and its dialectical method of analysis. Like other sciences, political economy has its own terminology, which at times can add a barrier to accessing the concepts and theories contained within Marx’s magnum opus. Those who do overcome such hurdles, however, will find a veritable feast of ideas and analysis; an invaluable toolkit for making sense of modern society and the global capitalist economy.
The aim of this book is to help guide readers through the pages of volume one of Capital; to bring out the main themes and ideas contained within it; and to discuss the relevance of this great Marxist classic in terms of understanding the crisis-ridden world around us today – and, most importantly, how we can radically transform it. “The philosophers have only interpreted the world, in various ways,” Marx famously asserted. “The point, however, is to change it.”
Introduction: the making of Marx’s Capital
By Rob Sewell
“Karl Marx had it right. At some point, capitalism can destroy itself.” (Nouriel Roubini, Wall Street Journal, 13 August 2011)
Marx once joked that it would have been very “unpractical” if he had died without completing Capital, “at least in manuscript form”. The first volume of Capital was eventually finished after many delays in the autumn of 1867, although the remaining volumes were not published until after his death.
Marx arrived in London in late autumn 1849, beginning what turned out to be a life-long exile. He saw his main responsibility as being to uncover the mysteries of capitalism.
In London, Marx soon went to work in collecting and sifting through the existing material of the classical economists. His notebooks during this period show an intense knowledge of such writers as Adam Smith, J.B. Say, David Ricardo, McCulloch, James Mill, Sismondi, Jeremy Bentham and many others. However, it would take another ten years of arduous work before Marx’s economic ideas would finally appear in print with the publication of A Contribution to the Critique of Political Economy in 1859.
Marx was extremely meticulous. When The Critique was finally published, he explained that it was “the result of conscientious investigation lasting many years”. This could be seen in his preparatory notebooks dealing with 1857-58, which alone made up almost 1,000 pages in print.
English classical economic thought was the most advanced of its time. These ideas in turn had been stimulated by the enormous progress made by British capitalism, the most advanced economy of the age. Marx not only studied the latest trends but also undertook a detailed critique of classical economics, revealing its limitations and contradictions. The classical bourgeois economists, who had made an extremely valuable contribution to the subject, were nevertheless restricted by their bourgeois outlook and prejudices, which regarded capitalism as the pinnacle of human development.
Marx explained that the adherents of classical political economy belonged to a period in which the class struggle was as yet undeveloped. This permitted its thinkers a certain independence and freedom of expression. Marx observed that its last great representative, David Ricardo, consciously made “the antagonism of class interests, of wages and profits, of profits and rent, the starting-point of his investigations.”
Ricardo had in fact based himself on the labour theory of value, which Marx later deepened and developed. However, these promising investigations were cut across by class prejudices. This led Marx to conclude that bourgeois classical economics “had reached the limits beyond which it could not pass.”These theories could not uncover the real contradictions of capitalism and therefore entered into crisis. This essential task fell to Marx to resolve.
Even the most far-sighted bourgeois economists, the natural defenders of the capitalist order, could not bring themselves to promote economic theories that would challenge the very basis of bourgeois society. Subsequently, studies based upon the labour theory of value were unceremoniously abandoned in favour of the harmless, but nevertheless useless, marginal utility theory. “Ricardo never concerns himself with the origin of surplus-value,” explained Marx. “Ricardo’s school also merely evaded the problem rather than solving it. In fact, these bourgeois economists instinctively and rightly saw that it was very dangerous to penetrate too deeply into the burning question of the origin of surplus-value.”
Theory and practice
Marx regarded himself first and foremost as a revolutionary and communist, who was committed to ending the old social order based on private ownership. For him, theory and practice were inseparable.
This stands out sharply from today’s academic “Marxists” who have no connection with revolutionary practice and who busy themselves in their ivory towers writing erudite theses on this or that aspect of Marx. Their approach to economics is completely abstract and mechanical. Without exception, they are devoid of dialectical thinking and adopt a completely one-sided and schematic approach to the most complex of questions. Amongst these are the so-called analytical Marxists, such as G.A. Cohen, John Roemer and Robert Brenner, who reject dialectics. David Harvey, whilst generally recognising the importance of dialectics, is rather agnostic. “I am not in principle arguing that the analytical Marxists are wrong, that those who turn Marx into a positivist model-builder are deluded,” he says. “Maybe they are right.”
In fact, these “Marxists” are completely wrong. Marx’s dialectical method is essential in understanding Marx’s writings. To deny this is to deny their very essence. Lenin answered such views a long time ago when he stressed that without a thorough understanding of dialectics, including a study of Hegel’s Logic, it was not possible to understand Marx’s Capital. “Consequently, half a century later”, Lenin explained, “none of the Marxists understood Marx!!”As we know, this is even truer today.
It is no accident that in Capital Marx paid tribute to Hegel as an intellectual giant and mentor. In his afterword to the second German edition of Capital Marx explained: “The mystifying side of Hegelian dialectic I criticised nearly thirty years ago, at a time when it was still the fashion…[These days he is treated like a ‘dead dog’]…I therefore openly avowed myself the pupil of that mighty thinker, and even here and there, in the chapter on the theory of value, coquetted with the modes of expression peculiar to him. The mystification which dialectic suffers in Hegel’s hands, by no means prevents him from being the first to present its general form of working in a comprehensive and conscious manner. With him it is standing on its head. It must be turned right side up again, if you would discover the rational kernel within the mystical shell.”
Marx’s interest in political economy centred on the belief that the socialist revolution was linked to the crisis of capitalism. This idea became an essential aspect of Marx’s conception of historical materialism, which regarded the economic basis of society as the foundation upon which the political superstructure of laws, political parties, official morality, and so on, were erected. This relationship was not, however, a simple linear relationship, but a complex dialectical one.
Marx saw the key to the development of society in the development of the productive forces: industry, science and technique. As soon as a society proves unable to fulfil this role, it enters into crisis. “At a certain stage of development, the material productive forces of society come into conflict with the existing relations of production or – this merely expresses the same thing in legal terms – with the property relations within the framework of which they have operated hitherto. From forms of development of the productive forces these relations turn into fetters. Then begins an era of social revolution.”
For the first time, socialism was transformed from a utopian idea into a science – a necessary stage in the development of history and society. The agency of change from one social system to another was the class struggle, the victory of a rising proletarian class over the outmoded ruling class.
Exploitation, profit and crisis
In political economy, while bourgeois economists could only see a relationship between things, namely, the exchange of commodities, Marx brilliantly revealed that economics was in fact the relationship between people, and in the final analysis between classes.
In Capital, Marx revealed in depth the secret of exploitation under capitalism, where the working class is forced to sell not its labour but its labour-power in order to survive. This distinction between labour and labour-power is essential in understanding capitalist exploitation.
He revealed that the creation of surplus-value, the driving force of the capitalist mode of production, is derived from the unpaid labour of the working class. The working class is forced to work and produce values not only to cover their wages, but to toil longer to produce surplus-value. The working day is, in effect, divided between necessary labour and surplus labour. The capitalists expropriate this surplus labour.
Raw material and the depreciation of machinery only transfer their value to the new commodities. They do not create new values, which come from the labour of the working class, the sole source of value. Capital is only dead labour: the ‘crystallised’ or ‘congealed’ labour of the past. If the working class received in wages the full value of their labour, then capitalists would not gain any profit.
Marx explained that the value of labour-power (wages) is determined in the same way as the value of all commodities. It is determined by the amount of socially necessary labour contained in them. The value of labour-power is the value of those things that can restore that labour-power: food, shelter and other necessities of life. It also includes an amount that can permit the worker to raise a family and the next generation of wage slaves.
Under these circumstances, workers cannot buy back the full value of what they produce. Capitalism is only able to overcome this contradiction by constantly reinvesting the surplus-value appropriated by the capitalists back into production. Yet this results in an additional contradiction: investment further increases the productive capacity of capitalism, pouring greater and greater amounts of commodities onto the market. Eventually, this leads periodically to, in the words of Marx, “an epidemic of overproduction”, a phenomenon peculiar to capitalism. This is not overproduction of the things that people need, but overproduction in the sense of commodities that cannot be sold profitably. Capitalist production is not based on supplying human need, but in making profits.
“The factory system’s tremendous capacity for expanding with sudden immense leaps” wrote Marx in volume one of Capital, “and its dependence on the world market, necessarily give rise to the following cycle: feverish production, a consequent glut on the market, then a contraction of the market, which causes production to be crippled. The life of industry becomes a series of periods of moderate activity, prosperity, overproduction, crisis and stagnation.”
In this present epoch of capitalist decline, however, slumps can have far more devastating effects and, more importantly, the economic recoveries are more feeble and weaker than before. This is the nature of the current crisis, which can be described not as a cyclical crisis, but as an organic crisis. In these times, the booms are shallow and the slumps are sharper and more prolonged. The system cannot any longer develop the productive forces as in the past. Today’s recovery is the weakest in history. It is severely restricted, with precious little capital investment taking place, massive cuts in living standards and endemic unemployment. This represents an epoch of crisis that is preparing revolutionary events on a global scale.
Preparing for revolution
Marx’s writings on political economy, as on other questions, were intended to arm the workers’ movement theoretically for the coming socialist revolution. This was the main reason behind his decision to write Capital and draw out the inherent crises within capitalism.
Marx soldiered on. Drafts followed on from more drafts. Marx’s frustration was clearly evident in his letters. In October 1864, he complained about the delays that prevented him from finishing the first volume of Capital. “I hope I may now complete it finally in a couple of months and deal the bourgeoisie a theoretical blow from which it will never recover.”But the project always took longer than anticipated.
Eventually things came together. In April 1867, Marx again repeats the same intention of using the book to launch an ideological hammer blow against the apologists of capitalism. “The first volume [of Capital] comprises the First Book: ‘The Process of Production of Capital’. It is without question the most terrible missile that has yet been hurled at the heads of the bourgeoisie (landowners included).”
Marx sacrificed everything, including his health and that of his family, in order to complete this work, his missile. While living in utter destitution in Dean Street, Soho, occasionally being forced to pawn his own coat to pay the bills, Marx did everything possible to visit and continue his studies in the Reading Room of the British Museum.
The British Library was a veritable gold mine of information and the primary source from which Marx’s ideas on political economy would eventually be forged. From the time of the Copyright Act of 1842, a copy of every book, magazine, pamphlet and journal ever published had to be deposited by law with the British Museum. By the time Marx was using the Reading Room, there were some 600,000 books, covering every subject under the sun, including the latest copies of Hansard, Parliamentary Committee Reports and the invaluable Blue Books. It was from this extensive Library, at seat number 07, that he worked on The Class Struggles in France, the Eighteenth Brumaire of Louis Bonaparte, and the preparatory material for Capital.
But illness and poverty took their inevitable toll and exacted an exceptionally high personal price from Marx and his family, who were forced to endure unimaginable deprivation. Once again, his letters reveal the real picture.
“I was at the whole time at death’s door,” Marx explained. “I thus had to make use of every moment when I was capable of work to complete my book, to which I have sacrificed my health, happiness and family.”This was a reference to the harsh miseries of Soho life, in which three of his young children perished from consumption and other poverty-related diseases.
“A week ago I reached the pleasant point where I am unable to go out for want of the coats I have pawned, and can no longer eat meat for want of credit,” wrote Marx in a letter to Engels. When his wife and children were ill, Marx described his plight to Engels: “I could not and cannot call the doctor because I have no money to buy medicine. For the past eight to ten days I have been feeding the family solely on bread and potatoes, but whether I shall be able to get hold of any today is doubtful. Such a diet is not, of course, beneficial in present climatic conditions. I have not written any articles for Dana because I don’t have a penny to go and read the papers…The best and most desirable thing that could happen would be for the landlady to throw me out. Then I would at least be quit of the sum of £22. But such complaisance is hardly to be expected of her. On top of that, debts are still outstanding to the baker, the milkman, the tea chap, the greengrocer, the butcher. How am I to get out of this infernal mess?…I myself am in shit.”
Toil, poverty and illness
Life was gruelling, especially in exile. Jenny, from an aristocratic family, probably felt the most pain. The complaints about the hardships of daily life are endless, but Marx strove to continue his work. To his credit, Marx rose above the personal misery and every kind of perfidy that afflicted him.
After his exhausting work at the British Museum, Marx would return home to prepare his economic manuscripts. This would usually take him through the night until around 4 o’clock in the morning. He wrote to Engels describing his workload or “shift-work”, as he referred to it. “Hence the shift-system, as the English manufacturing swine have applied it to the same people between 1848 and 1850, has been applied to my own person by myself.”
As early as April 1851, Marx claimed he would finish his work in a “matter of five weeks”, but weeks turned into months and months into years. There was no end to this Herculean task to which he was bound, like Prometheus to the rock. Each time he came within sight of concluding his economic studies, more challenging material would turn up, requiring even more detailed investigation.
His constant efforts were sustained by Engels’ unswerving devotion and generosity, which allowed Marx to survive and eventually carry though this own revolution in political economy, allowing him for the first time to “lay bare the law of motion of modern society”, as he put it in the Preface of Capital. But at what personal cost!
In order to survive, he was forced to scrape a living by writing for the newspapers, mainly the New York Tribune, which he regarded more as a distraction and an irritant. “This continual scribbling for newspapers bores me. It takes up too much of my time, separates things, and means nothing,” he complained. But he had no alternative, as he desperately needed the money. It was, however, not enough to cover his outgoings. If it were not for Engels’ unstinting support, financial and in other ways, Marx and his family would have perished in the workhouse or in some debtors’ prison.
The oncoming economic crisis was bearing down on Marx, who was struggling with his material. In late 1857, Marx wrote: “The present commercial crisis has impelled me to set to work seriously on my outlines of political economy, and also to prepare something on the present crisis.” He nevertheless complained, “I am forced to fritter away […] my days earning a living. [Only] the nights remain free for real work and that is disrupted by ill-health.”. Visitors noticed the piles of used matches and ash scattered about the place, a reminder of his nocturnal chain-smoking as he prepared his manuscripts.Again, “I have been overdoing very much my nocturnal labours, accompanied, it is true, by mere lemonade on the one hand, but an immense deal of tobacco on the other,” he wrote to Engels
“I am not a master of my own time, but rather a servant,” he stated. “Only the night remains free and very frequent attacks and recurrences of a liver complaint again disturb work at night.”. After complaining about the severe liver trouble which virtually incapacitated him, he wrote with a certain irony: “I owe it to the Party that the thing [ Capital] shouldn’t be disfigured by the kind of heavy, wooden style proper to a disordered liver.”He often complained to Engels of his bilious attacks, haemorrhoids, carbuncles and dizzy spells, which prevented him from writing or even sitting down, most of which was the result of irregular and poor diet. “I lead the most troubled life that can be imagined,” wrote Marx
Despite the recurring illnesses and difficulties, Marx still continued to pursue his studies. This entailed extensive research, criticism and observation of the most recent materials, all of which served to delay the completion of his work. “…the thing is proceeding very slowly because no sooner does one set about finally disposing of subjects to which one has devoted years of study than they start revealing new aspects and demand to be thought out further,” complained Marx. As can be seen, he left no stone unturned to discover the underlying reality beneath the economic appearances, no matter what the delay.
It was the onset of deep economic crisis in 1857 that forced Marx’s hand and drove him to publish his work on economics. It was a question of publish or be damned. There was no more time to waste. “Taken all in all, the crisis has been burrowing away like the good old mole it is,” noted Marx on 22 February 1858. “The present commercial crisis has impelled me to set to work seriously on my outlines of political economy, and also to prepare something on the present crisis,” wrote Marx to Lassalle. The first fruits of his hard and laborious work was the production of a short book entitled A Contribution to the Critique of Political Economy in 1859. However, this endeavour, as you might expect, was not without a last minute financial hitch. “The ill-fated manuscript is ready but can’t be sent off as I haven’t a farthing for postage or insurance,” complained the exasperated Marx. He went on half in jest: “I don’t suppose anyone has ever written about ‘money’ when so short of the stuff.”
Despite these difficulties, the book was eventually published. It constituted the first coherent outline of the Marxist theory of value, a detailed analysis of money, as well as revealing the essence behind the appearance of market relations, namely as relations between people or classes. Interestingly, the book opens with the same beginning as in the first volume of Capital, published almost a decade later: “The wealth of bourgeois society, at first sight, presents itself as an immense accumulation of commodities, its unit being a single commodity.”It was no accident that his investigations would begin here, namely the distinction of use-value and exchange-value. For Marx to unlock the secrets of the commodity was to unlock the essential workings of capitalism, including the nature of capitalist crisis itself. A Contribution to the Critique of Political Economy was, however, more of a curtain raiser than a fully worked out analysis.
Volume one of Capital would not appear until 1867, in German, eight years after the Critique. It would take many years for the book to appear in the English language. The period between the Critique and the Capital were extremely fruitful, the culmination of Marx’s unstinting studies. These years also included the drafts for the next two volumes of Capital and The Theories of Surplus-value in three volumes, none of which would be published during his lifetime.
Marx worked very closely with Engels in producing Capital, despite the attempt by some to place a wedge between the two men. So close were they that each draft page of Capital, meticulously copied by his daughter Laura, was sent to Engels for his comments and observations before being eventually signed off.
Finally, the first volume of Capital was finished in the early hours of 16 August 1867. “Naturally it gave me pleasure to lick the cub clean after so many birth pangs,” stated Marx. He immediately dashed off a note to Engels: “I have only you to thank for making this possible! Without the sacrifices you made for me, I would have been unable to finish the monstrous labours for the three volumes. I embrace you, full of thanks!”
In the Preface to volume one of Capital, Marx explains that the book was in fact a continuation of his 1859 work and he apologised for the lengthy delay between their publications. “The long pause between the first part and the continuation is due to an illness of many years’ duration that again and again interrupted my work,” he explained apologetically. The first English edition of Capital did not come out until 1887, 20 years after the German edition, and several years after Marx’s death. This task was completed under the close supervision of his old friend and lifelong collaborator Frederick Engels.
The studies that Marx undertook in 1857 and 1858 were eventually published almost 100 years later in a book entitle Grundrisse, and then only in German. Marx of course never intended that these rough notes and observations be published, but were simply undertaken for personal self-clarification. He made this abundantly clear. “The total material lies before me in the form of monographs,” explained Marx, “which were written at widely separated periods, for self-clarification, not for publication…”
Nevertheless, the work indicates Marx’s line of thought and how he originally envisaged the final completion of his work. This mass of notes were discovered among his manuscripts after his death and later deciphered, edited, and then published. They contain fascinating insights, which analyse the fundamental contradictions of capitalism, including capitalist crisis. Nevertheless, Marx stressed that these notebooks were only a “fragmentary sketch” and were an “ anticipation of results that are still not proven”.
This process of self-clarification was an essential aspect of Marx’s work. While writing these notes, he dissected the arguments of his opponents line by line. His dialectical method allowed him to see the issues in an all-sided, fully rounded out way, rather than a series of isolated problems. This was the means by which he was able to discover the source of surplus-value. In doing so, Marx had managed to overthrow all previous concepts of profit. He once again acknowledged his debt to Hegel and the dialectical method. “By mere accident … I leafed through Hegel’s Logic again and found much to assist me in the method of analysis,”he explained.
The extensive research Marx had undertaken in 1857 and 1858 covered seven large notebooks, in which he outlines his thoughts on the suggested content of a future book on economics. Between 1861 and 1863, Marx revised his original drafts, which were again revised and redrafted between 1863 and 1865, before the eventual publication of Capital.
By 1867, Marx had managed to complete the drafts that were to make up the three volumes of Capital as well as the Theories of Surplus-value. This was even more amazing considering that he was so deeply involved in the work of the International Workingmen’s Association, or the First International.
This political work, together with ever newer and deeper studies, continual illness, and finally death, nevertheless prevented him from completing the entire work as he had hoped. Even in his final years Marx was continuing to master his knowledge of political economy. As late as 1879, not long before his death, he was absorbed in analysing the industrial crisis as it was unfolding, especially any unique features that may arise. “The phenomena are this time singular, in many respects different from what they were in the past,” he wrote to Nikolai Danielson, “and this – quite apart from other modifying circumstances – is easily accounted for by the fact that never before the English crisis was preceded by tremendous and now already five years lasting crisis in the United States, South America, Germany, Austria, etc.” He concluded, “It is therefore necessary to watch the present course of things until their maturity before you can ‘consume’ them ‘productively’, I mean ‘theoretically’.”
After his death, it was left to his close collaborator, Frederick Engels, the only person who could carry out the task satisfactorily, to prepare the publication of the second and third volumes of Capital from the manuscripts that Marx had left behind.
A monument of revolutionary theory
While there was a conspiracy of silence when volume one of Marx’s Capital was published, it nevertheless was to have an impact over the years in the working class movement. The book even managed to get past the Tsarist censors, as it was considered a work so difficult as to have no revolutionary importance. Needless to say, it was eagerly read aloud passage by passage and chapter by chapter at workers’ discussion circles, the cadre schools of Russian Bolshevism. Capital became commonly known on the continent as the ‘Bible’ of the working class and was indispensable in theoretically educating the movement in the nature and contradictions of capitalism. So it remains today. The three volumes of Capital constitute a real monument to Marx, not of marble, but of revolutionary theory.
“You know that I have sacrificed my whole fortune to the revolutionary struggle,” Marx wrote in a letter to his son-in-law Paul Lafargue. “I do not regret it. Quite the contrary. If I had to begin my life over again, I would do the same.”
The evolution of modern capitalism is a confirmation of the analysis of Marx. The economic slump of 2008 and the crisis in Europe and on a world scale has given birth to a political radicalisation and growing turmoil. It is laying the basis for revolutionary events everywhere.
“The capitalist mode of appropriation, which springs from the capitalist mode of production, produces capitalist private property,” explained Marx at the end of volume one of Capital. “This is the first negation of individual private property, as founded on the labour of its proprietor. But capitalist production begets, with the inexorability of a natural process, its own negation. This is the negation of the negation. It does not re-establish private property, but it does indeed establish individual property on the basis of the achievements of the capitalist era: namely co-operation and the possession in common of the land and the means of production produced by labour itself.”
“The knell of capitalist private property sounds,” concluded Marx. “The expropriators will be expropriated.”
1 Karl Marx, Capital, vol 1, p24, Penguin Classics (1990) edition
2 ibid, p651-652
3 Harvey, A Companion to Marx’s Capital, p13
4 Lenin’s Collected Works, vol 38, p180
5 Capital, vol 1, p29
6 Karl Marx, Introduction to a Contribution to the Critique of Political Economy
7 Capital, vol 1, p580
8 Marx and Engels Collected Works (MECW), vol 42, p4
9 MECW, vol 42, p358
10 MECW, vol 42, p366
11 Letter to Engels, 27 February 1852, MECW, vol 39, p50
12 Letter to Engels, 8 September 1852, MECW, vol 39, p181-82
13 Letter to Cluss, 15 September 1853, MECW, vol 39, p366
14 Letter to Lassalle, 21 December 1857, MECW, vol 40, p226
15 Letter to Engels, 16 January 1858, MECW, vol 40, p249
16 Letter to Lassalle, 22 February 1858, MECW, vol 40, p268
17 MECW, vol 40, p273
18 Letter to Lassalle, 12 November 1858, MECW, vol 40, p354
19 MECW, vol 40, p270
20 Letter to Engels, 21 January 1859
21 Marx, Critique, p27
22 Letter to Engels, 2am, 16 August 1867, MECW, vol 42, p402
23 Marx and Engels, Selected Works, p361, 1962
24 Letter to Engels, 16 January 1858, MECW, vol 40, p248
25 MECW, vol 45, p354, emphasis in original
26 MECW, vol 42, p308
27 Capital, vol 1, p929
Introduction: Marxism in Our Time
By Leon Trotsky
Written in April 1939, only one year before his assassination, this article by Leon Trotsky was an introduction to Otto Rühle’s abridged version of volume one of Capital.
This book compactly sets forth the fundamentals of Marx’s economic teaching in Marx’s own words. After all, no one has yet been able to expound the labour theory of value better than Marx himself.
The abridgment of the first volume of Capital – the foundation of Marx’s entire system of economics – was made by Mr Otto Rühle with great care and with profound understanding of his task. First to be eliminated were obsolete examples and illustrations, then quotations from writings which today are only of historic interest, polemics with writers now forgotten, and finally numerous documents – Acts of Parliament, reports of factory inspectors, and the like – which, whatever their importance for understanding a given epoch, have no place in a concise exposition that pursues theoretical rather than historical objectives. At the same time, Mr Rühle did everything to preserve continuity in the development of the scientific analysis as well as unity of exposition. Logical deductions and dialectic transitions of thought have not, we trust, been infringed at any point. It stands to reason that this extract calls for attentive and thoughtful perusal. To aid the reader, Mr Otto Rühle has supplied the text with succinct marginal titles.
Certain of Marx’s arguments, especially in the first, the most difficult chapter, may seem to the uninitiated reader far too discursive, hair-splitting, or ‘metaphysical’. As a matter of fact, this impression arises as a result of approaching overly habitual phenomena scientifically. The commodity has become such an all-pervasive, customary and familiar part of our daily existence that we, lulled to sleep, do not even attempt to consider why men relinquish important objects, needed to sustain life, in exchange for tiny discs of gold or silver that are of no earthly use whatever. The matter is not limited to the commodity. One and all of the categories (the basic concepts) of market economy seem to be accepted without analysis, as self-evident, as if they were the natural basis of human relations. Yet, while the realities of the economic process are human labour, raw materials, tools, machines, division of labour, the necessity to distribute finished products among the participants of the labour process, and the like, such categories as ‘commodity’, ‘money’, ‘wages’, ‘capital’, ‘profit’, ‘tax’, and the like are only semi-mystical reflections in men’s heads of the various aspects of a process of economy which they do not understand and which is not under their control. To decipher them, a thoroughgoing scientific analysis is indispensable.
In the United States, where a man who owns a million is referred to as being ‘worth’ a million, market concepts have sunk in deeper than anywhere else. Until quite recently Americans gave very little thought to the nature of economic relations. In the land of the most powerful economic system, economic theory continued to be exceedingly barren. Only the present deep-going crisis of American economy has bluntly confronted public opinion with the fundamental problems of capitalist society. In any event, whoever has not overcome the habit of uncritically accepting the ready-made ideological reflections of economic development, whoever has not reasoned out, in the footsteps of Marx, the essential nature of the commodity as the basic cell of the capitalist organism, will prove to be forever incapable of scientifically comprehending the most important and the most acute manifestations of our epoch.
Having established science as cognition of the objective recurrences of nature, man has tried stubbornly and persistently to exclude himself from science, reserving for himself special privileges in the shape of alleged intercourse with super-sensory forces (religion), or with timeless moral precepts (idealism). Marx deprived man of these odious privileges definitely and forever, looking upon him as a natural link in the evolutionary process of material nature; upon human society as the organisation of production and distribution; upon capitalism as a stage in the development of human society.
It was not Marx’s aim to discover the ‘eternal laws’ of economy. He denied the existence of such laws. The history of the development of human society is the history of the succession of various systems of economy, each operating in accordance with its own laws. The transition from one system to another was always determined by the growth of the productive forces, i.e., of technique and the organisation of labour. Up to a certain point, social changes are quantitative in character and do not alter the foundations of society, i.e., the prevalent forms of property. But a point is reached when the matured productive forces can no longer contain themselves within the old forms of property; then follows a radical change in the social order, accompanied by shocks. The primitive commune was either superseded or supplemented by slavery; slavery was succeeded by serfdom with its feudal superstructure; the commercial development of cities brought Europe in the sixteenth century to the capitalist order, which thereupon passed through several stages. In his Capital, Marx does not study economy in general, but capitalist economy, which has its own specific laws. Only in passing does he refer to the other economic systems to elucidate the characteristics of capitalism.
The self-sufficient economy of the primitive peasant family has no need of a ‘political economy’, for it is dominated on the one hand by the forces of nature and on the other by the forces of tradition. The self-contained natural economy of the Greeks or the Romans, founded on slave labour, was ruled by the will of the slave-owner, whose ‘plan’ in turn was directly determined by the laws of nature and routine. The same might also be said about the medieval estate with its peasant serfs. In all these instances economic relations were clear and transparent in their primitive crudity. But the case of contemporary society is altogether different. It destroyed the old self-contained connections and the inherited modes of labour. The new economic relations have linked cities and villages, provinces and nations. Division of labour has encompassed the planet, having shattered tradition and routine, these bonds have not composed themselves to some definite plan, but rather apart from human consciousness and foresight, and it would seem as if behind the very backs of men. The interdependence of men, groups, classes, nations, which follows from division of labour, is not directed or managed by anyone. People work for each other without knowing each other, without inquiring about one another’s needs, in the hope, and even with the assurance, that their relations will somehow regulate themselves. And by and large they do, or rather were wont to.
It is utterly impossible to seek the causes for the recurrences of capitalist society in the subjective consciousness – in the intentions or plans – of its members. The objective recurrences of capitalism were formulated before science began to think about them seriously. To this day the preponderant majority of men know nothing about the laws that govern capitalist economy. The whole strength of Marx’s method was in his approach to economic phenomena, not from the subjective point of view of certain persons, but from the objective point of view of society as a whole, just as an experimental natural scientist approaches a beehive or an anthill.
For economic science the decisive significance is what and how people do, not what they themselves think about their actions. At the base of society is not religion and morality, but nature and labour. Marx’s method is materialistic, because it proceeds from existence to consciousness, not the other way around. Marx’s method is dialectic, because it regards both nature and society as they evolve, and evolution itself as the constant struggle of conflicting forces.
Marxism and official science
Marx had his predecessors. Classical political economy – Adam Smith, David Ricardo – reached its full bloom before capitalism had grown old, before it began to fear the morrow. Marx paid to both great classicists the perfect tribute of profound gratitude. Nevertheless the basic error of classical economics was its view of capitalism as humanity’s normal existence for all time instead of merely as one historical stage in the development of society. Marx began with a criticism of that political economy, exposed its errors, as well as the contradictions of capitalism itself, and demonstrated the inevitability of its collapse. As Rosa Luxemburg has very aptly observed, Marx’s economic teaching is a child of classical economics, a child whose birth cost its mother her life.
Science does not reach its goal in the hermetically sealed study of the scholar, but in flesh-and-blood society. All the interests and passions that rend society asunder, exert their influence on the development of science – especially of political economy, the science of wealth and poverty. The struggle of workers against capitalists forced the theoreticians of the bourgeoisie to turn their backs upon a scientific analysis of the system of exploitation and to busy themselves with a bare description of economic facts, a study of the economic past and, what is immeasurably worse, a downright falsification of things as they are for the purpose of justifying the capitalist regime. The economic doctrine which is nowadays taught in official institutions of learning and preached in the bourgeois press offers no dearth of important factual material, yet it is utterly incapable of encompassing the economic process as a whole and discovering its laws and perspectives, nor has it any desire to do so. Official political economy is dead. Real knowledge of capitalist society can be obtained only through Marx’s Capital.
The law of labour value
In contemporary society man’s cardinal tie is exchange. Any product of labour that enters into the process of exchange becomes a commodity. Marx began his investigation with the commodity and deduced from that fundamental cell of capitalist society those social relations that have objectively shaped themselves on the basis of exchange, independently of man’s will. Only by pursuing this course is it possible to solve the fundamental puzzle – how in capitalist society, in which man thinks for himself and no one thinks for all, are created the relative proportions of the various branches of economy indispensable to life.
The worker sells his labour-power, the farmer takes his produce to the market, the money lender or banker grants loans, the storekeeper offers an assortment of merchandise, the industrialist builds a plant, the speculator buys and sells stocks and bonds – each having his own considerations, his own private plan, his own concern about wages or profit. Nevertheless, out of this chaos of individual strivings and actions emerges a certain economic whole, which, true, is not harmonious, but contradictory, yet does give society the possibility not merely to exist but even to develop. This means that, after all, chaos is not chaos at all, that in some way it is regulated automatically, if not consciously. To understand the mechanism whereby various aspects of economy are brought into a state of relative balance is to discover the objective laws of capitalism.
Clearly, the laws which govern the various spheres of capitalist economy – wages, price, land, rent, profit, interest, credit, the Stock Exchange – are numerous and complex. But in the final reckoning they come down to the single law that Marx discovered and explored to the end; that is, the law of labour value, which is indeed the basic regulator of capitalist economy. The essence of that law is simple. Society has at its disposal a certain reserve of living labour-power. Applied to nature, that power produces products necessary for the satisfaction of human needs. In consequence of division of labour among independent producers, the products assume the form of commodities. Commodities are exchanged for each other in a given ratio, at first directly, and eventually through the medium of gold or money. The basic property of commodities, which in a certain relationship makes them equal to each other, is the human labour expended upon them – abstract labour, labour in general – the basis and the measure of value. Division of labour among millions of scattered producers does not lead to the disintegration of society, because commodities are exchanged according to the socially necessary labour-time expended upon them. By accepting and rejecting commodities, the market, as the arena of exchange, decides whether they do or do not contain within themselves socially necessary labour, thereby determines the ratios of the various kinds of commodities necessary for society, and consequently also the distribution of labour-power according to the various trades.
The actual processes of the market are immeasurably more complex than has been here set forth in but a few lines. Thus, oscillating around the value of labour, prices fluctuate considerably above and below their value. The causes of these fluctuations are fully explained by Marx in the third volume of Capital, which describes “the process of capitalist production considered as a whole”.
Nevertheless, great as may be the divergences between the prices and the values of commodities in individual instances, the sum of all prices is equal to the sum of all values, for in the final reckoning only the values that have been created by human labour are at the disposal of society, and prices cannot break through this limitation, including even the monopoly prices of trusts; where labour has created no new value, there even Rockefeller can get nothing.
Inequality and exploitation
But if commodities are exchanged for each other according to the quantity of labour invested in them, how does inequality come out of equality? Marx solved this puzzle by exposing the peculiar nature of one of the commodities, which lies at the basis of all other commodities: namely, labour-power. The owner of the means of production, the capitalist, buys labour-power. Like all other commodities, it is evaluated according to the quantity of labour invested in it, i.e., of those means of subsistence which are necessary for the survival and the reproduction of the worker. But the consumption of that commodity – labour-power – consists of work, i.e., the creation of new values. The quantity of these values is greater than those which the worker himself receives and which he expends for his upkeep. The capitalist buys labour-power in order to exploit it. It is this exploitation which is the source of inequality.
That part of the product which goes to cover the worker’s own subsistence Marx calls necessary-product; that part which the worker produces above this, is surplus-product. Surplus-product must have been produced by the slave, or the slave-owner would not have kept any slaves. Surplus-product must have been produced by the serf, or serfdom would have been of no use to the landed gentry. Surplus-product, only to a considerably greater extent, is likewise produced by the wage worker, or the capitalist would have no need to buy labour-power. The class struggle is nothing else than the struggle for surplus-product. He who owns surplus-product is master of the situation – owns wealth, owns the state, has the key to the church, to the courts, to the sciences and to the arts.
Competition and monopoly
Relations amongst capitalists, who exploit the workers, are determined by competition, which for long endures as the mainspring of capitalist progress. Large enterprises enjoy technical, financial, organisational, economic and, last but not least, political advantages over small enterprises. The greater amount of capital, being able to exploit a greater number of workers, inevitably emerges victorious out of a contest. Such is the unalterable basis of the concentration and centralisation process of capital.
While stimulating the progressive development of technique, competition gradually consumes, not only the intermediary layers but itself as well. Over the corpses and the semi-corpses of small and middling capitalists, emerges an ever-decreasing number of ever more powerful capitalist overlords. Thus, out of ‘honest’, ‘democratic’, ‘progressive’ competition, grows irrevocably ‘harmful’, ‘parasitic’, ‘reactionary’ monopoly. Its sway began to assert itself in the eighties of the past century, assuming definite shape at the turn of the present century. Now the victory of monopoly is openly acknowledged by the most official representatives of bourgeois society. Competition as a restraining influence, complains the former Attorney-General of the United States, Mr Homer S. Cummings, is being gradually displaced and, in large fields, remains only ‘as a shadowy reminder of conditions that once existed’. Yet when in the course of his prognosis Marx had first deduced monopoly from the inherent tendencies of capitalism, the bourgeois world had looked upon competition as an eternal law of nature.
The elimination of competition by monopoly marks the beginning of the disintegration of capitalist society. Competition was the creative mainspring of capitalism and the historical justification of the capitalist. By the same token the elimination of competition marks the transformation of stockholders into social parasites. Competition had to have certain liberties, a liberal atmosphere, a regime of democracy, of commercial cosmopolitanism. Monopoly needs as authoritative a government as possible, tariff walls, ‘its own’ sources of raw materials and arenas of marketing (colonies). The last word in the disintegration of monopolistic capital is fascism.
Concentration of wealth and the growth of class contradictions
Capitalists and their advocates try in every way to hide the real extent of the concentration of wealth from the eyes of the people as well as from the eyes of the tax collector. In defiance of the obvious, the bourgeois press is still attempting to maintain the illusion of a ‘democratic’ distribution of capitalist investment. The New York Times, in refutation of the Marxists, points out that there are from three to five million separate employers of labour. Joint-stock companies, it is true, represent a greater concentration of capital than three to five million separate employers, yet the United States does have ‘half a million corporations’. This sort of trifling with lump sums and average figures is resorted to, not in order to disclose, but in order to hide things as they are.
From the beginning of the war until 1923 the number of plants and factories in the United States fell from index figure 100 to 98.7, while the mass of industrial production rose from 100 to 156.3. During the years of sensational prosperity (1923-1929), when it seemed that everybody was getting rich, the number of establishments fell from 100 to 93.8, while production rose from 100 to 113. Yet the concentration of business establishments, bound by their ponderous material bodies, is far behind the concentration of their souls, i.e., ownership. In 1929 the United States did actually have more than 300,000 corporations, as the New York Times correctly observes. It is only necessary to add that 200 of these, i.e., 0.07 per cent of the entire number, directly controlled 49.2 per cent of the assets of all the corporations, four years later that ratio had already risen to 56 per cent while during the years of Roosevelt’s administration it has undoubtedly risen still higher. Inside these 200 leading corporations the actual domination belongs to a small minority. A Senate committee found out in February, 1937, that for the past twenty years the decisions of twelve of the very largest corporations have been tantamount to directives for the greater part of American industry. The number of chairmen of the boards of these corporations is about the same as the number of members in the cabinet of the President of the United States, the executive branch of the republic’s government. But these chairmen of the board are immeasurably more powerful than the cabinet members.
The same processes may be observed in the banking and insurance systems. Five of the largest insurance companies in the United States have absorbed not only the other companies but even many banks. The total number of banks is reduced, chiefly in the form of so-called ‘mergers’, essentially by being absorbed. The extent of the turnover grows rapidly. Above the banks rises the oligarchy of super-banks. Bank capital merges with industrial capital into financial super-capital. Supposing that the concentration of industry and banks were to proceed at the same rate as during the last quarter of a century – as a matter of fact, the tempo of concentration is on the increase – in the course of the impending quarter century the monopolists will have garnered unto themselves the entire economy of the country, without leaving over so much as the widow’s mite.
The statistics of the United States are here resorted to only because they are more exact and more striking. Essentially the process of concentration is international in character. Throughout the various stages of capitalism, through phases of conjunctural cycles, through all the political regimes, through peaceful periods as well as through periods of armed conflicts, the process of the concentration of all the great fortunes into an ever-decreasing number of hands has gone on and will continue without end. During the years of the Great War, when the nations were bleeding to death, when the very bodies politic of the bourgeoisie lay crushed under the weight of national debts, when fiscal systems rolled into the abyss, dragging the middle classes after them, the monopolists were coining unprecedented profits out of the blood and muck. The most powerful companies of the United States increased their assets during the years of the war two, three, four and more times and swelled their dividends to 300, 400, 900 and more per cent.
In 1840, eight years before the publication by Marx and Engels of the Manifesto of the Communist Party, the famous French writer Alexis de Tocqueville wrote in his book on Democracy in America: “Great wealth tends to disappear, the number of small fortunes to increase.” That thought has been reiterated innumerable times, at first with reference to the United States, later with reference to those other young democracies, Australia and New Zealand. Of course, de Tocqueville’s view was already erroneous in his own day. Still, real concentration of wealth began only after the American Civil War, on the eve of which de Tocqueville died. At the beginning of the present century two per cent of the population of the United States already owned more than half of the entire wealth of the country; in 1929 the same two per cent owned three-fifths of the national wealth. At the same time 36,000 wealthy families had as great an income as 11,000,000 middling and poor families. During the crisis of 1929-1933 monopolistic establishments had no need to appeal to public charity; on the contrary, they rose higher than ever above the general decline of national economy. During the ensuing rickety industrial revival on the yeast-cakes of the New Deal the monopolists again skimmed a lot of heavy cream. The number of the unemployed decreased at best from 20,000,000 to 10,000,000; at the same time the upper crust of capitalist society – no more than 6,000 adults – garnered fantastic dividends; this is what Solicitor General Robert H. Jackson proved with figures during his tenure as Anti-Trust Assistant Attorney-General.
Ferdinand Lundberg who, for all his scholarly conscientiousness, is a rather conservative economist, wrote in his book, which created quite a stir: “The United States is owned and dominated today by a hierarchy of sixty of the richest families, buttressed by no more than ninety families of lesser wealth.” To these might be added a third tier of perhaps three hundred and fifty other families, with incomes in excess of a hundred thousand dollars a year. The predominant position there belongs to the first group of sixty families, who dominate not only the market but all the levers of government. They are the real government, ‘the government of money in a dollar democracy’.
Thus, the abstract concept, ‘monopolistic capital’ is filled in for us with flesh and blood. What it means is that a handful of families, bound by ties of kinship and common interest into an exclusive capitalist oligarchy, dispose of the economic and political fortunes of a great nation. One must perforce admit that the Marxist law of concentration has worked out famously!
Has Marx’s teaching become obsolete?
Questions of competition, concentration of wealth, and monopoly naturally lead to the question whether in our day Marx’s economic theory is merely of historic interest – as, for example, Adam Smith’s theory – or whether it continues to be of actual significance. The criterion for replying to that question is simple: if the theory correctly estimates the course of development and foresees the future better than other theories, it remains the most advanced theory of our time, be it even scores of years old.
The famous German economist, Werner Sombart, who was virtually a Marxist at the beginning of his career but later revised all the more revolutionary aspects of Marx’s teaching, especially those most unpalatable for the bourgeoisie, in 1928, toward the end of his career, countered Marx’s Capital with his own Capitalism, which has been translated into many languages and which is probably the best known exposition of bourgeois economic apologetics in recent times. After paying the tribute of platonic appreciation to the tenets of Capital’s author, Sombart writes at the same time, “Karl Marx prophesied: firstly, the increasing misery of wage labourers; secondly, general ‘concentration’, with the disappearance of the class of artisans and peasants; thirdly, the catastrophic collapse of capitalism. Nothing of the kind has come to pass.” Against this erroneous prognosis Sombart counterpoises his own ‘strictly scientific’ prognosis. “Capitalism will continue,” according to him, “to transform itself internally in the same direction in which it has already begun to transform itself, at the time of its apogee: as it grows older, it will become more and more calm, sedate, reasonable.” Let us try to verify, if only along the basic lines, which of the two is right, Marx, with his prognosis of catastrophe, or Sombart, who in the name of all bourgeois economy, promised that matters would be adjusted ‘calmly, sedately, reasonably’. The reader will agree that the question is worthy of notice.
“The theory of increasing misery”
“Accumulation of wealth at one pole,” wrote Marx sixty years before Sombart, “is therefore, at the same time accumulation of misery, agony of toil, slavery, ignorance, brutality, mental degradation, at the opposite pole, i.e., on the side of the class that produces its product in the form of capital.” That thesis of Marx’s, under the name ‘the theory of increasing misery’, has been subjected to constant attacks by democratic and social-democratic reformers, especially during the period 1896-1914, when capitalism developed rapidly and yielded certain concessions to the workers, especially to their upper stratum. After the World War, when the bourgeoisie, frightened by its own crimes and by the October Revolution, took to the road of advertised social reforms, the value of which was simultaneously nullified by inflation and unemployment, the theory of the progressive transformation of capitalist society seemed to the reformers and to the bourgeois professors fully warranted. “The purchasing power of wage labour,” Sombart assured us in 1928, “has increased in direct ratio to the expansion of capitalist production.”
As a matter of fact, the economic contradiction between the proletariat and the bourgeoisie was aggravated during the most prosperous periods of capitalist development, when the rise in the standard of living of certain strata of toilers, which at times was rather extensive, hid from superficial eyes the decrease of the proletariat’s share in the national income. Thus, just before falling into prostration, the industrial production of the United States increased by 50 per cent between 1920 and 1930, while the sum paid out in wages rose only by 30 per cent, which meant, Sombart’s assurances notwithstanding, a tremendous decrease of labour’s share in the national income. In 1930 began an ominous growth of unemployment, and in 1933 more or less systematic aid to the unemployed, who received in the form of relief hardly more than one-half of what they had lost in the form of wages. The illusion of the uninterrupted “progress” of all classes has vanished without a trace. The relative decline of the masses’ standard of living has been superseded by an absolute decline, workers begin by economising on skimpy entertainment, then on their clothes and finally on their food. Articles and products of average quality are superseded by shoddy ones, and the shoddy by the worst. Trade unions begin to look like the man who hangs on desperately while going down in a rapidly descending escalator.
With six per cent of the world’s population, the United States holds forty per cent of the world’s wealth. Still, one-third of the nation, as Roosevelt himself admitted, is undernourished, inadequately clothed, and lives under subhuman conditions. What is there to say, then, for the far less privileged countries? The history of the capitalist world since the last war has irrefutably borne out the so-called ‘theory of increasing misery’. The increase in the social polarity of society is today acknowledged not only by every competent statistician, but even by statesmen who remember the rudimentary rules of arithmetic.
The fascist regime, which merely reduced to the utmost the limit of decline and reaction inherent in any imperialist capitalism, became indispensable when the degeneration of capitalism blotted out the possibility of maintaining illusions about an increase in the proletariat’s standard of living. Fascist dictatorship means the open acknowledgment of the tendency to impoverishment, which the wealthier imperialist democracies are still trying to disguise. Mussolini and Hitler persecute Marxism with such hatred precisely because their own regime is the most horrible confirmation of the Marxist prognosis. The civilised world was indignant or pretended to be indignant when Göring, in the tone of the executioner and buffoon peculiar to him, declared that guns were more important than butter, or when Cagliostro, Casanova, and Mussolini advised the workers of Italy to learn to pull in tighter the belts on their black shirts. But does not substantially the same take place in the imperialist democracies? Butter everywhere is used to grease guns. The workers of France, England, the United States learn to pull in their belts without having black shirts. In the richest country of the world millions of workers have turned into paupers living at the expense of federal, state, municipal or private charity.
The reserve army and the new sub-class of the unemployed
The industrial reserve army makes up an indispensable component part of the social mechanics of capitalism, as much as a supply of machines and raw materials in factory warehouses or of finished products in stores. Neither the general expansion of production nor the adaptation of capital to the periodic ebb and flow of the industrial cycle would be possible without a reserve of labour-power. From the general tendency of capitalist development – the increase of constant capital (machines and raw materials) at the expense of variable capital (labour-power) – Marx drew the conclusion: “The greater the social wealth the greater is the industrial reserve army the greater is the mass of a consolidated surplus-population the greater is official pauperism. This is the absolute general law of capitalist accumulation.”
The thesis – indissolubly bound up with the ‘theory of increasing misery’ and for scores of years denounced as ‘exaggerated’, ‘tendentious’, and ‘demagogic’ – has now become the irreproachable theoretical image of things as they are. The present army of unemployed can no longer be regarded as a ‘reserve army’, because its basic mass can no longer have any hope of returning to employment: on the contrary, it is bound to be swelled by a constant flow of additional unemployed. Disintegrating capitalism has brought up a whole generation of young people who have never had a job and have no hope of getting one. This new sub-class between the proletariat and the semi-proletariat is forced to live at the expense of society. It has been estimated that in the course of nine years (1930-1938) unemployment has taken out of the economy of the United States more than 43,000,000 labour man-years. Considering that in 1929, at the height of prosperity, there were two million unemployed in the United States and that during those nine years the number of potential workers has increased by five million, the number of lost man-years must be incomparably higher. A social regime ravaged by such a plague is sick unto death. The proper diagnosis of this malady was made nearly four score of years ago, when the disease itself was a mere germ.
The decline of the middle classes
Figures which demonstrate the concentration of capital indicate therewith that the specific gravity of the middle class in production and its share of the national income have been constantly declining, while small holdings have either been completely swallowed up by the large or reduced in grade and robbed of their independence, becoming a mere badge of unendurable toil and desperate want. At the same time, it is true, the development of capitalism has considerably stimulated an increase in the army of technicians, managers, servicemen, clerks, attorneys, physicians – in a word, of the so-called ‘new middle classes’. But that stratum, the growth of which was already no mystery even to Marx, has little in common with the old middle class, who in the ownership of its own means of production had a tangible guarantee of economic independence. The ‘new middle class’ is more directly dependent on the capitalists than are the workers. Furthermore, this ‘new middle class’ acts, in large measure, as taskmaster for the capitalists. Among it also has been noticed considerable overproduction, with its aftermath of social degradation.
“Reliable statistical information,” states a person as remote from Marxism as the already-quoted former Attorney-General Homer S. Cummings, “shows that very many industrial units have completely disappeared and that what took place was a progressive elimination of the small business man as a factor in American life.”
But, objects Sombart along with many of his forerunners and successors, notwithstanding Marx, “general concentration, with the disappearance of the class of artisans and peasants,” has not yet taken place. It is hard to say which carries more weight in such an argument, irresponsibility or bad faith. Like every theoretician, Marx began by isolating the fundamental tendencies in their pure form; otherwise, it would have been altogether impossible to understand the destiny of capitalist society. Marx himself was, however, perfectly capable of viewing the phenomena of life in the light of concrete analysis, as a product of the concentration of diverse historical factors. Surely, Newton’s laws are not invalidated by the fact that the rate of speed in the fall of bodies varies under different conditions or that the orbits of planets are subjected to disturbances.
In order to understand the so-called ‘tenacity’ of the middle classes, it is well to bear in mind that the two tendencies, the ruination of the middle classes and the transformation of these ruined ones into proletarians, develop neither at an even pace nor to the same extent. It follows from the increasing preponderance of the machine over labour-power that the further the process of ruination of the middle classes proceeds, the more it outstrips the process of their proletarianisation; indeed, at a certain juncture the latter must cease altogether and even back up.
Just as the operation of the laws of physiology yields different results in a growing than in a dying organism, so the laws of Marxist economy assert themselves differently in a developing and disintegrating capitalism. This difference is shown with especial clarity in the mutual relations of town and country. The rural population of the United States, increasing comparatively less than the total population, continued to increase in absolute figures until 1910, when it amounted to more than 32,000,000. During the subsequent twenty years, notwithstanding the rapid increase in the country’s total population, it fell to 30.4 million, i.e., by 1.6 million. But in 1935 it rose again to 32.8 million swelling in comparison with 1930 by 2.4 million. This turn of the wheel, astonishing at first glance, does not in the least refute either the tendency of the urban population to increase at the expense of the rural population, or the tendency of the middle classes to become atomised, while at the same time it demonstrates most pointedly the disintegration of the capitalist system as a whole. The increase in the rural population during the period of the acute crisis of 1930-1935 is simply explained by the fact that well-nigh two million of urban population, or, speaking more to the point, two million of starving unemployed, moved into the country – to plots of land abandoned by farmers or to the farms of their kith and kin, so as to apply their labour-power, rejected by society, to productive natural economy and in order to drag out a semi-starved existence instead of starving altogether.
Hence, it is not a question of the stability of small farmers, artisans and storekeepers, but rather of the abject helplessness of their situation. Far from being a guarantee of the future, the middle class is an unfortunate and tragic relic of the past. Unable to stamp it out altogether, capitalism has managed to reduce it to the utmost degree of degradation and distress, The farmer is denied, not only the rent due him for his plot of land and the profit on his invested capital, but even a goodly portion of his wages. Similarly, the little fellows in town fret out their allotted span between economic life and death. The middle class is not proletarianised only because it is pauperised. In that it is just as hard to find an argument against Marx as in favour of capitalism.
The end of the past and the beginning of the present century were marked by such overwhelming progress made by capitalism that cyclical crises seemed to be no more than ‘accidental’ annoyances. During the years of almost universal capitalist optimism, Marx’s critics assured us that the national and international development of trusts, syndicates and cartels introduced planned control of the market and presaged the final triumph over crisis. According to Sombart, crises had already been ‘abolished’ before the war by the mechanics of capitalism itself, so that “the problem of crises leaves us today virtually indifferent”. Now, a mere ten years later, these words sound like hollow mockery, while only in our own day does Marx’s prognosis loom in the full measure of its tragic cogency. In an organism with poisoned blood every incidental illness tends to become chronic in character; even so, in the rotting organism of monopolistic capitalism crises assume a particularly malignant form.
It is remarkable that the capitalist press, which halfway tries to deny the very existence of monopolies, resorts to these same monopolies in order halfway to deny capitalistic anarchy. If sixty families were to control the economic life of the United States, the New York Times observes ironically, “it would show that American capitalism, so far from being ‘plan-less’ is organised with great neatness.” This argument misses the mark.
Capitalism has been unable to develop a single one of its trends to the ultimate end. Just as the concentration of wealth does not abolish the middle class, so monopoly does not abolish competition, but only bears down on it and mangles it. No less than the ‘plan’ of each of the sixty families, the sundry variants of these plans are not in the least interested in coordinating the various branches of economy, but rather in increasing the profits of their own monopolistic clique at the expense of other cliques and at the expense of the entire nation. The crossing of such plans in the final reckoning only deepens the anarchy in the national economy. Monopolistic dictatorship and chaos are not mutually exclusive; rather they supplement and nourish each other.
The crisis of 1929 broke out in the United States one year after Sombart had proclaimed the utter indifference of his ‘science’ to the very problem of crises. From the peak of unprecedented prosperity the economy of the United States was catapulted into the abyss of monstrous prostration. No one in Marx’s day could have conceived convulsions of such magnitude! The national income of the United States had risen for the first time in 1920 to sixty-nine billion dollars, only to drop the very next year to fifty billion dollars, i.e., by 27 per cent. In consequence of the prosperity of the next few years, the national income rose again, in 1929, to its highest point of eighty-one billion dollars, only to drop in 1932 to forty billion dollars, i.e., by more than half! During the nine years 1930-1938 were lost approximately forty-three million man-years of labour and 133 billion dollars of the national income, assuming the norms of labour and income of 1929, when there were ‘only’ two million unemployed. If all this is not anarchy, what can possibly be the meaning of the word?
The ‘theory of collapse’
The minds and hearts of middle-class intellectuals and trade-union bureaucrats were almost completely enthralled by the achievements of capitalism between the time of Marx’s death and the outbreak of the World War. The idea of gradual progress (‘evolution’) seemed to have been made secure for all time, while the idea of revolution was regarded as a mere relic of barbarism. Marx’s prognosis about the mounting concentration of capital, about the aggravation of class contradictions, about the deepening of crises, and about the catastrophic collapse of capitalism was not amended by partly correcting it and making it more precise, but was countered with the qualitatively contrary prognosis about the more balanced distribution of the national income, about the softening of class contradictions and about the gradual reformation of capitalist society. Jean Jaurès, the most gifted of the social-democrats of that classic epoch, hoped gradually to fill political democracy with social content. In that lay the essence of reformism. Such was the alternative prognosis. What is left of it?
The life of monopolistic capitalism in our time is a chain of crises. Each crisis is a catastrophe. The need of salvation from these partial catastrophes by means of tariff walls, inflation, increase of government spending and debts lays the ground for additional, deeper and more widespread crises. The struggle for markets, for raw material, for colonies makes military catastrophes unavoidable. All in all, they prepare revolutionary catastrophes. Truly, it is not easy to agree with Sombart that aging capitalism becomes increasingly ‘calm, sedate and reasonable’. It would be more apt to say that it is losing its last vestiges of reason. In any event, there is no doubt that the ‘theory of collapse’ has triumphed over the theory of peaceful development.
The decay of capitalism
However expensive the control of the market has been to society, mankind up to a certain stage, approximately until the World War, grew, developed and enriched itself through partial and general crises. The private ownership of the means of production continued to be in that epoch a comparatively progressive factor. But now the blind control by the law of value refuses to render further service. Human progress is stuck in a blind alley. Notwithstanding the latest triumphs of technical thought, the material productive forces are no longer growing. The clearest and most faultless symptom of the decline is the world stagnation of the building industry, in consequence of the stoppage of new investments in the basic branches of economy. Capitalists are simply no longer able to believe in the future of their own system. Construction stimulated by the government means a rise in taxation and the contraction of the “untrammelled” national income, especially since the main part of the new government construction is directly designed for war purposes.
The stunted development of the system has acquired a particularly malignant and degrading character in the most ancient sphere of human activity, the one most closely connected with the basic vital needs of man – in agriculture. No longer satisfied with the obstacles which private ownership in its most reactionary form, that of small land holdings, places before the development of agriculture, capitalist governments see themselves not infrequently called upon to limit production artificially with the aid of statutory and administrative measures which would have frightened artisans in the guilds at the time of their decline. It will be recorded in history that the government of the most powerful capitalist country granted premiums to farmers for cutting down on their planting, i.e., for artificially diminishing the already falling national income. The results are self-evident: despite grandiose productive possibilities, secured by experience and science, agrarian economy does not emerge from a putrescent crisis, while the number of the hungry, the preponderant majority of mankind, continues to increase faster than the population of our planet. Conservatives consider it sensible politics to defend a social order which has descended to such destructive madness and they condemn the socialist fight against such madness as destructive Utopianism.
Fascism and the New Deal
Two methods for saving historically doomed capitalism are today vying with each other in the world arena – Fascism and the New Deal, in all their manifestations. Fascism bases its programme on the demolition of labour organisations, on the destruction of social reforms and on the complete annihilation of democratic rights, in order to forestall a resurrection of the proletariat’s class struggle. The fascist state officially legalises the degradation of workers and the pauperisation of the middle classes, in the name of saving the ‘nation’ and the ‘race’ – presumptuous names under which decaying capitalism figures.
The policy of the New Deal, which tries to save the imperialist democracy by way of sops to the labour and farmer aristocracy, is in its broad compass accessible only to the very wealthy nations, and so in that sense it is an American policy par excellence. The government has attempted to shift a part of the costs of that policy to the shoulders of the monopolists, exhorting them to raise wages and shorten the working day and thus increase the purchasing power of the population and extend production. Léon Blum attempted to translate this sermon into elementary school French. In vain! The French capitalist like the American, does not produce for the sake of production but for profit. He is always ready to limit production, even to destroy manufactured products, if thereby his own share of the national income will be increased.
The New Deal programme is all the more inconsistent in that, while preaching sermons to the magnates of capital about the advantages of abundance over scarcity, the government dispenses premiums for cutting down on production. Is greater confusion possible? The government confutes its critics with the challenge: can you do better? What all this means is that on the basis of capitalism the situation is hopeless.
Beginning with 1933, i.e. in the course of the last six years, the federal government, the states and the municipalities have handed out to the unemployed nearly fifteen billion dollars in relief, a sum quite insufficient in itself and representing merely the smaller part of lost wages, but at the same time, considering the declining national income, a colossal sum. During 1938, which was a year of comparative economic revival, the national debt of the United States increased by two billion dollars past the thirty-eight billion dollar mark, or twelve billion dollars more that the highest point at the end of the World War. Early in 1939 it passed the 40 billion dollar mark. And then what? The mounting national debt is of course a burden on posterity. But the New Deal itself was possible only because of the tremendous wealth accumulated by past generations. Only a very rich nation could indulge itself in so extravagant a policy. But even such a nation cannot indefinitely go on living at the expense of past generations. The New Deal policy with its fictitious achievements and its very real increase in the national debt, leads unavoidably to ferocious capitalist reaction and a devastating explosion of imperialism. In other words, it is directed into the same channels as the policy of fascism.
Anomaly or norm?
Secretary of the Interior Harold L. Ickes considers it “one of the strangest anomalies in all history” that America, democratic in form, is autocratic in substance: “America, the land of majority rule but controlled at least until 1933 (!) by the monopolies that in their turn are controlled by a negligible number of their stockholders.” The diagnosis is correct, with the exception of the intimation that with the advent of Roosevelt the rule of monopoly either ceased or weakened. Yet what Ickes calls “one of the strangest anomalies in all history”, is, as a matter of fact, the unquestionable norm of capitalism. The domination of the weak by the strong, of the many by the few, of the toilers by the exploiters is a basic law of bourgeois democracy. What distinguishes the United States from other countries is merely the greater scope and the greater heinousness in the contradictions of its capitalism. The absence of a feudal past, rich natural resources, an energetic and enterprising people, in a word, all the prerequisites that augured an uninterrupted development of democracy, have actually brought about a fantastic concentration of wealth.
Promising this time to wage the fight against monopolies to a triumphant issue, Ickes recklessly harks back to Thomas Jefferson, Andrew Jackson, Abraham Lincoln, Theodore Roosevelt and Woodrow Wilson as the predecessors of Franklin D. Roosevelt. “Practically all of our greatest historical figures,” said he on December 30, 1937, “are famous because of their persistent and courageous fight to prevent and control the over-concentration of wealth and power in a few hands.” But it follows from his own words that the fruit of this “persistent and courageous fight” is the complete domination of democracy by the plutocracy.
For some inexplicable reason Ickes thinks that this time victory is assured, provided the people understand that the fight is “not between the New Deal and the average enlightened businessman, but between the New Deal and Bourbons of the sixty families who have brought the rest of the businessmen in the United States under the terror of their domination.” This authoritative spokesman does not explain just how the ‘Bourbons’ managed to subjugate all the enlightened businessmen, notwithstanding democracy and the efforts of the ‘greatest historical figures’. The Rockefellers, the Morgans, the Mellons, the Vanderbilts, the Guggenheims, the Fords and Co. did not invade the United States from the outside, as Cortez invaded Mexico; they grew organically out of the ‘people’, or more precisely, out of the class of ‘enlightened industrialists and businessmen’ and became, in line with Marx’s prognosis, the natural apogee of capitalism. Since a young and strong democracy in its hey-day was unable to check the concentration of wealth when the process was only at its inception, is it possible to believe even for a minute that a decaying democracy is capable of weakening class antagonisms that have attained their utmost limit? Anyway, the experience of the New Deal has produced no ground for such optimism. Refuting the charges of big business against the government, Robert H. Jackson, a person high in the councils of the administration, proved with figures that during Roosevelt’s tenure the profits of the magnates of capital reached heights they themselves had stopped dreaming about during the last period of Hoover’s presidency, from which it follows, in any event, that Roosevelt’s fight against monopolies has been crowned with no greater success than the struggle of all his predecessors.
Although they feel themselves called upon to defend the foundations of capitalism, the reformers in the very nature of things prove themselves powerless to harness its laws with economic police measures. What else can they do then but moralise? Mr Ickes, like the other cabinet members and publicists of the New Deal, winds up by appealing to the monopolists not to forget decency and the principles of democracy. Just how is this better than prayers for rain? Surely, Marx’s view of the owner of the means of production is far more scientific? “As a capitalist,” we read in Capital, “he is merely personified capital. His soul is the soul of capital. But capital has only one single aim in life, to create surplus-value.” If the capitalist’s behaviour were determined by the attributes of his individual soul or of the lyrical effusions of the Secretary of the Interior, neither average prices nor average wages would be possible, nor book-keeping, nor all of capitalist economy. Yet book-keeping continues to flourish and is a strong argument in favour of the materialistic conception of history.
“Unless we destroy monopoly,” said the former United States Attorney General Homer S. Cummings in November, 1937, “monopoly will find ways to destroy most of our reform and, in the end, lower the standards of our common life.” Citing startling figures to prove that “the trend to an undue concentration of wealth and economic control was unmistakable,” Cummings was at the same time forced to admit that the legislative and judicial fight against the trusts has so far led nowhere. “A sinister intent,” he complained, “is difficult to establish” when it is a matter of “economic results”. That’s just the point! Worse than that: the judicial struggle against trusts has brought about “confusion worse confounded”. This happy pleonasm rather aptly expresses the helplessness of democratic justice in its fight against the Marxist law of value. There are no grounds for hope that Mr Cummings’ successor, Mr Frank Murphy, will be more fortunate in solving these tasks, the very posing of which testifies to the hopeless quackery in the sphere of economic thought.
To bring back yesterday
One cannot but agree with Professor Lewis W. Douglas, the former Director of the Budget in the Roosevelt Administration, when he condemns the government for “attacking monopoly in one field while fostering monopoly in many others”. Yet in the nature of the thing it cannot be otherwise. According to Marx, the government is the executive committee of the ruling class.
Today monopolists are the strongest section of the ruling class. The government is in no position to fight against monopoly in general, i.e., against the class by whose will it rules. While attacking one phase of monopoly, it is obliged to seek an ally in other phases of monopoly. In union with banks and light industry it can deliver occasional blows against the trusts of heavy industry, which, by the way, do not stop earning fantastic profits because of that.
Lewis Douglas does not counterpose science to the official quackery, but merely another kind of quackery. He sees the source of monopoly not in capitalism but in protectionism, and accordingly, discovers the salvation of society not in the abolition of private ownership of the means of production but in the lowering of customs tariffs. “Unless the freedom of markets is restored,” he predicts, it is “doubtful that the freedom of all institutions – enterprise, speech, education, religion – can survive.” In other words, without restoring the freedom of international trade, democracy, wherever and to the extent that it still survives, must yield either to a revolutionary or to a fascist dictatorship. But freedom of international trade is inconceivable without freedom of internal trade, i.e., without competition. And freedom of competition is inconceivable under the sway of monopoly. Unfortunately, Mr Douglas, quite like Mr Ickes, like Mr Jackson, like Mr Cummings, and like Mr Roosevelt himself, has not gone to the trouble to initiate us into his own prescription against monopolistic capitalism and thereby – against either a revolution or a totalitarian regime.
Freedom of trade, like freedom of competition, like the prosperity of the middle class, belongs to the irrevocable past. To bring back yesterday, is now the sole prescription of the democratic reformers of capitalism; to bring back more “freedom to small and middle-sized industrialists and businessmen, to change the money and credit system in their favour, to free the market from being bossed by the trusts, to eliminate professional speculators from the Stock Exchange, to restore freedom of international trade, and so forth ad infinitum. The reformers even dream of limiting the use of machines and placing a proscription on technique, which disturbs the social balance and causes a lot of worry. Apropos of that a leading American scientist remarked with a bitter sneer that apparently security could be achieved only by returning to the happy amoeba or, failing this, to the contented swine.
Millikan and Marxism
Yet unfortunately, this very scientist, Dr Robert A. Millikan, likewise looks backward rather than forward. Speaking in defence of science on December 7, 1937, he observed: “United States statistics show that the percentage of the population ‘gainfully employed’ has steadily increased during the last fifty years, when science has been most rapidly applied.” This defence of capitalism under the guise of defending science cannot be called a happy one. It is precisely during the last half century that “was broken the link of times” and the interrelation of economics and technique altered sharply. The period referred to by Millikan includes the beginning of capitalist decline as well as the highest point of capitalist prosperity.
To hush up the beginning of that decline, which is worldwide, is to stand forth as an apologist for capitalism. Rejecting socialism in an off-hand manner with the aid of arguments that would scarcely do honour even to Henry Ford, Dr Millikan tells us that no system of distribution can satisfy the needs of man without raising the range of production. Undoubtedly! But it is a pity that the famous physicist did not explain to the millions of American unemployed just how they were to participate in raising the national income. Abstract preachment about the saving grace of individual initiative and high productivity of labour will certainly not provide the unemployed with jobs, nor will it fill the budgetary deficit, nor will it lead the nation’s business out of its blind alley.
What distinguished Marx is the universality of his genius, his ability to understand phenomena and processes of various fields in their inherent connection. Without being a specialist in natural sciences, he was one of the first to appreciate the significance of the great discoveries in that field; for example, the theory of Darwinism. Marx was assured that pre-eminence not so much by virtue of his intellect as by virtue of his method. Bourgeois-minded scientists may think that they are above Socialism; yet Robert Millikan’s case is but one more confirmation that in the sphere of sociology they continue to be hopeless quacks. They should learn scientific thinking from Marx.
Productive possibilities and private ownership
In his message to Congress at the beginning of 1937 President Roosevelt expressed his desire to raise the national income to ninety or one hundred billion dollars, without, however, indicating just how. In itself this programme is exceedingly modest. In 1929, when there were approximately two million unemployed, the national income reached eighty-one billion dollars. Setting in motion the present productive forces would not only suffice to realise Roosevelt’s programme but even to surpass it considerably. Machines, raw materials, workers, everything is available, not to mention the population’s need for the products. If notwithstanding that, the plan is unrealisable – and unrealisable it is – the only reason is the irreconcilable antagonism that has developed between capitalist ownership and society’s need for expanding production. The famous government-sponsored National Survey of Potential Production Capacity came to the conclusion that the cost of production and services used in 1929 amounted to nearly ninety-four billion dollars, calculated on the basis of retail prices. Yet if all the actual productive possibilities were utilised, that figure would have risen to 135 billion dollars, which would have averaged $4,370.00 a year per family, sufficient to secure a decent and comfortable living. It must be added that the calculations of the National Survey are based on the present productive organisation of the United States, as it came about in consequence of capitalism’s anarchic history. If the equipment itself were re-equipped on the basis of a unified socialist plan, the productive calculations could be considerably surpassed and a high comfortable standard of living, on the basis of an extremely short labour day assured to all the people.
Therefore, to save society, it is not necessary either to check the development of technique, to shut down factories, to award premiums to farmers for sabotaging agriculture, to turn a third of the workers into paupers, or to call upon maniacs to be dictators. Not one of these measures, which are a shocking mockery of the interests of society, is necessary. What is indispensable and urgent is to separate the means of production from their present parasitic owners and to organise society in accordance with a rational plan. Then it would at once be possible really to cure society of its ills. All those able to work would find a job. The work-day would gradually decrease. The wants of all members of society would secure increasing satisfaction. The words ‘property’, ‘crisis’, ‘exploitation’ would drop out of circulation. Mankind would at last cross the threshold into true humanity.
The inevitability of socialism
“Along with the constantly diminishing number of the magnates of capital…” says Marx, “grows the mass of misery, oppression, slavery, degradation, exploitation; but with this too grows the revolt of the working class, a class always increasing in numbers, and disciplined, united, organised by the very mechanism of the process of capitalist production itself. Centralisation of the means of production and socialisation of labour at last reach a point where they become incompatible with their capitalist integument. This integument is burst asunder. The knell of capitalist private property sounds. The expropriators are expropriated.” That is the socialist revolution. To Marx, the problem of reconstituting society did not arise from some prescription, motivated by his personal predilections; it followed, as an iron-clad historical necessity – on the one hand, from the productive forces grown to powerful maturity; on the other, from the impossibility further to foster these forces at the mercy of the law of value. The lucubrations of certain intellectuals on the theme that, regardless of Marx’s teaching, socialism is not inevitable but merely possible, are devoid of any content whatsoever. Obviously, Marx did not imply that socialism would come about without man’s volition and action: any such idea is simply an absurdity. Marx foretold that out of the economic collapse in which the development of capitalism must inevitably culminate – and this collapse is before our very eyes – there can be no other way out except socialisation of the means of production. The productive forces need a new organiser and a new master, and, since existence determines consciousness, Marx had no doubt that the working class, at the cost of errors and defeats, will come to understand the actual situation and, sooner or later, will draw the imperative practical conclusions.
That socialisation of the capitalist-created means of production is of tremendous economic benefit is today demonstrable not only in theory but also by the experiment of the USSR, notwithstanding the limitations of that experiment. True, capitalistic reactionaries, not without artifice, use Stalin’s regime as a scarecrow against the ideas of socialism. As a matter of fact, Marx never said that socialism could be achieved in a single country, and moreover, a backward country. The continuing privations of the masses in the USSR, the omnipotence of the privileged caste, which has lifted itself above the nation and its misery, finally, the rampant club-law of the bureaucrats are not consequences of the socialist method of economy but of the isolation and backwardness of the USSR caught in the ring of capitalist encirclement. The wonder is that under such exceptionally unfavourable conditions planned economy has managed to demonstrate its insuperable benefits.
All the saviours of capitalism, the democratic as well as the fascist kind, attempt to limit, or at least to camouflage, the power of the magnates of capital, in order to forestall “the expropriation of the expropriators.” They all recognise, and many of them openly admit, that the failure of their reformist attempts must inevitably lead to socialist revolution. They have all managed to demonstrate that their methods of saving capitalism are but reactionary and helpless quackery. Marx’s prognosis about the inevitability of socialism is thus fully confirmed by proof of the negative.
The inevitability of socialist revolution
The programme of “technocracy”, which flourished in the period of the great crisis of 1929-1932, was founded on the correct premise that economy can be rationalised only through the union of technique at the height of science and government at the service of society. Such a union is possible, provided technique and government are liberated from the slavery of private ownership. That is where the great revolutionary task begins. In order to liberate technique from the cabal of private interests and place the government at the service of society, it is necessary to “expropriate the expropriators”. Only a powerful class, interested in its own liberation and opposed to the monopolistic expropriators, is capable of consummating this task. Only in unison with a proletarian government can the qualified stratum of technicians build a truly scientific and a truly national, i.e., a socialist economy.
It would be best, of course, to achieve this purpose in a peaceful, gradual, democratic way. But the social order that has outlived itself never yields its place to its successor without resistance. If in its day the young forceful democracy proved incapable of forestalling the seizure of wealth and power by the plutocracy, is it possible to expect that a senile and devastated democracy will prove capable of transforming a social order based on the untrammelled rule of sixty families? Theory and history teach that a succession of social regimes presupposes the highest form of the class struggle, i.e., revolution. Even slavery could not be abolished in the United States without a civil war. “Force is the midwife of every old society pregnant with a new one.” No one has yet been able to refute Marx on this basic tenet in the sociology of class society. Only a socialist revolution can clear the road to socialism.
Marxism in the United States
The North American republic has gone further than others in the sphere of technique and the organisation of production. Not only Americans but all of mankind will build on that foundation. However, the various phases of the social process in one and the same nation have varying rhythms, depending on special historical conditions. While the United States enjoys tremendous superiority in technology, its economic thought is extremely backward in both the right and left wings. John L. Lewis has about the same views as Franklin D. Roosevelt. Considering the nature of his office, Lewis’ social function is incomparably more conservative, not to say reactionary, than Roosevelt’s. In certain American circles there is a tendency to repudiate this or that radical theory without the slightest scientific criticism, by simply dismissing it as ‘un-American’. But where can you find the differentiating criterion of that?
Christianity was imported into the United States along with logarithms, Shakespeare’s poetry, notions on the rights of man and the citizen, and certain other not unimportant products of human thought. Today Marxism stands in the same category.
Secretary of Agriculture Henry A. Wallace imputed to the author of these lines, “a dogmatic thinness which is bitterly un-American” and counterposed to Russian dogmatism the opportunist spirit of Jefferson, who knew how to get along with his opponents. Apparently, it has never occurred to Mr Wallace that a policy of compromise is not a function of some immaterial national spirit, but a product of material conditions. A nation rapidly growing rich has sufficient reserves for conciliation between hostile classes and parties. When, on the other hand, social contradictions are sharpened, the ground for compromise disappears. America was free of ‘dogmatic thinness’ only because it had a plethora of virgin areas, inexhaustible resources of natural wealth and, it would seem, limitless opportunities for enrichment. True, even under these conditions the spirit of compromise did not prevent the Civil War when the hour for it struck. Anyway, the material conditions which made up the basis of ‘Americanism’, are today increasingly relegated to the past. Hence the profound crisis of traditional American ideology.
Empiric thinking, limited to the solution of immediate tasks from time to time, seemed adequate enough in labour as well as in bourgeois circles as long as Marx’s law of value did everybody’s thinking. But today that very law is in irreconcilable contradiction with itself. Instead of urging economy forward, it undermines its foundations. Conciliatory eclectic thinking, with its philosophic apogee, pragmatism, becomes utterly inadequate, while an unfavourable or disdainful attitude toward Marxism as a ‘dogma’ – is increasingly insubstantial, reactionary and downright funny. On the contrary, it is the traditional idea of ‘Americanism’ that has become a lifeless, petrified ‘dogma’ giving rise to nothing but errors and confusion. At the same time, the economic teaching of Marx has acquired peculiar viability and pointedness for the United States. Although Capital rests on international material, preponderantly English, in its theoretical foundation it is an analysis of pure capitalism, capitalism in general, capitalism as such. Undoubtedly, the capitalism grown on the virgin, unhistorical soil of America comes closest to that ideal type of capitalism.
Saving Mr Wallace’s presence, America developed economically not in accordance with the principles of Jefferson, but in accordance with the ideas of Marx. There is as little offence to national self-esteem in acknowledging that as in recognising that America turns around the sun in accordance with the laws of Newton. The more Marx is ignored in the United States, the more compelling becomes his teaching now. Capital offers a faultless diagnosis of the malady and an irreplaceable prognosis. In that sense the teaching of Marx is far more permeated with new ‘Americanism’ than the ideas of Hoover and Roosevelt, of Green and Lewis.
True, there is a widespread original literature in the United States devoted to the crisis of American economy. Insofar as conscientious economists offer an objective picture of the destructive trends of American capitalism, their investigations, regardless of their theoretical premises, which are usually lacking anyway, look like direct illustrations of Marx’s theory. The conservative tradition makes itself known, however, when these authors stubbornly restrain themselves from definitive conclusion, limiting themselves to gloomy predictions or such edifying banalities as ‘the country must understand’, ‘public opinion must certainly consider’, and the like. These books look like a knife without a blade or like a compass without its indicator.
The United States had Marxists in the past, it is true, but they were a strange type of Marxist, or rather, three strange types. In the first place, these were the émigrés cast out of Europe, who did what they could but could not find any response; in the second place, isolated American groups, like the De Leonists, who in the course of events, and because of their own mistakes, turned themselves into sects; in the third place, dilettantes attracted by the October Revolution and sympathetic to Marxism as an exotic teaching that had little to do with the United States. Their day is over. Now dawns the new epoch of an independent class movement to the proletariat and at the same time of – genuine Marxism. In this too, America will in a few jumps catch up with Europe and outdistance it. Progressive technique and a progressive social structure will pave their own way in the sphere of doctrine. The best theoreticians of Marxism will appear on American soil. Marx will become the mentor of the advanced American workers. To them this abridged exposition of the first volume will become only an initial step toward the complete Marx.
Capitalism’s ideal mirror
At the time the first volume of Capital was published world domination by the British bourgeoisie was as yet unchallenged. The abstract laws of commodity economy naturally found their fullest embodiment – i.e., the one least dependent on past influence – in the country where capitalism had achieved its highest development. While relying in his analysis mainly on England, Marx had not only England in view, but the entire capitalist world. He used the England of his day as capitalism’s best contemporaneous mirror.
Now only memories are left of British hegemony. The advantages of capitalistic primogeniture have turned into disadvantages. England’s technical and economic structure has become outworn. The country continues to depend for its world position on the colonial empire, a heritage of the past, rather than on an active economic potential. That explains, incidentally, Chamberlain’s Christian charity toward the international gangsterism of the fascists, which has so astonished everybody. The English bourgeoisie cannot help realising that its economic decline has become thoroughly incompatible with its position in the world and that a new war threatens to bring about the downfall of the British Empire. Essentially similar is the economic basis of France’s ‘pacifism’.
Germany on the contrary, has utilised in its rapid capitalistic ascent the advantages of historic backwardness, by arming itself with the most complete technique in Europe. Having a narrow national base and paucity of natural resources, Germany’s dynamic capitalism of necessity became transformed into the most explosive factor in the so-called balance of world powers. Hitler’s convulsive ideology is only a reflected image of the convulsions of German capitalism.
In addition to numerous invaluable advantages of a historical character, the development of the United States enjoyed the pre-eminence of an immeasurably larger territory and incomparably greater natural wealth than Germany’s. Having considerably outstripped Great Britain, the North American republic became at the beginning of this century the chief stronghold of the world bourgeoisie. There all potentialities implanted in capitalism found their highest expression. Nowhere else on our planet can the bourgeoisie in any way exceed its achievements in the dollar republic, which has become for the twentieth century capitalism’s most perfect mirror.
For the same reasons that Marx preferred to base his exposition on English statistics, English parliamentary reports, English Blue Books, and the like, we have resorted in our modest introduction to evidence chiefly from the economic and political experience of the United States. It would not be difficult, needless to say, to cite analogous facts and figures from the life of any other capitalist country. But that would not add anything essential. The conclusions would remain the same, only the examples would be less striking.
The economic policy of the Popular Front in France was, as one of its financiers aptly put it, an adaptation of the New Deal ‘for Lilliputians’. It is perfectly obvious that in a theoretical analysis it is immeasurably more convenient to deal with Cyclopean than with Lilliputian magnitudes. It is the very immensity of Roosevelt’s experiment which shows that only a miracle can save the world-wide capitalist system. But it so happens that the development of capitalist production put a stop to the production of miracles. Incantations and prayers abound, miracles never come. However, it is clear that if the miracle of capitalism’s rejuvenation could happen anywhere at all, it would be nowhere else but in the United States. Yet this rejuvenation was not achieved. What the Cyclops failed to attain, the Lilliputians are even less able to accomplish. To lay the foundation for that simple conclusion, is the sense of our excursion into the field of American economy.
Mother countries and colonies
“The country that is more developed industrially,” Marx wrote in the preface to the first edition of his Capital, “only shows to the less developed the image of its own future.” Under no circumstances can this thought be taken literally. The growth of productive forces and the deepening of social inconsistencies is undoubtedly the lot of every country that has set out on the road of bourgeois development. However, the disproportion of tempos and standards, which goes through all of mankind’s development and basically has its natural as well as its historical reasons, not only became especially acute under capitalism, but gave rise to the complex interdependence of subordination, exploitation, and oppression between countries of different economic types.
Only a minority of countries has fully gone through that systematic and logical development from handicraft through domestic manufacture to the factory, which Marx subjected to such detailed analysis. Commercial, industrial and financial capital invaded backward countries for the outside, partly destroying the primitive forms of native economy and partly subjecting them to the world-wide industrial and banking system of the West. Under the whip of imperialism the colonies and semi-colonies found themselves compelled to disregard the intervening stages, at the same time artificially hanging on at one level or another. India’s development did not duplicate England’s development; it was a supplement to it. However, in order to understand the combined type of development of backward and dependent countries like India, it is always necessary to bear in mind the classical scheme Marx derived from England’s development. The law of labour value guides equally the calculations of speculators in London’s City and the money changing transactions in the most remote corners of Hyderabad, except that in the latter case it assumes more simple and less crafty forms.
Disproportion of development brought tremendous benefits to the advanced countries, which although in varying degrees, continued to develop at the expense of the backward ones, by exploiting them, by converting them into their colonies, or at least, by making it impossible for them to get in among the capitalist aristocracy. The fortunes of Spain, Holland, England, France were obtained not only from the surplus labour of their own proletariat, not only by devastating their own petty bourgeoisie, but also through the systematic pillage of their overseas possessions. The exploitation of classes was supplemented, and its potency increased by the exploitation of nations. The bourgeoisie of the mother countries was enabled to secure a privileged position for its own proletariat, especially the upper layers, by paying for it with some of the super-profits garnered in the colonies. Without that any sort of stable democratic regime would be utterly impossible. In its expanded manifestation bourgeois democracy became, and continues to remain, a form of government accessible only to the most aristocratic and the most exploitative nations. Ancient democracy was based on slavery, imperialist democracy – on the spoliation of colonies.
The United States, which formally has almost no colonies, is nevertheless the most privileged of all the nations of history. Active immigrants from Europe took possession of an exceedingly rich continent, exterminated the native population, seized the best part of Mexico and bagged the lion’s share of the world’s wealth. The deposits of fat thus accumulated continue to be useful even now, in the epoch of decline, for greasing the gears and wheels of democracy.
Recent historical experience, as well as theoretical analysis, attests that the rate of a democracy’s development and its stability are in inverse relation to the tension of class contradictions. In the less privileged capitalist countries (Russia, on the one hand; Germany, Italy and the like, on the other), which were unable to engender a numerous and stable labour aristocracy, democracy was never developed to any extent and succumbed to dictatorship with comparative ease. However, the continuing progressive paralysis of capitalism is preparing the same fate for the democracies of the most privileged and the richest nations; the only difference is in dates. The uncontrollable deterioration in the living conditions of the workers makes it less and less possible for the bourgeoisie to grant the masses the right of participation in political life, even within the limited framework of bourgeois parliamentarism. Any other explanation of the manifest process of democracy’s dislodgement by fascism is an idealistic falsification of things as they are, either deception of self-deception.
While destroying democracy in the old mother countries of capital, imperialism at the same time hinders the rise of democracy in the backward countries. The fact that in the new epoch not a single one of the colonies or semi-colonies has consummated its democratic revolution – above all in the field of agrarian relations – is entirely due to imperialism, which has become the chief brake on economic and political progress. Plundering the natural wealth of the backward countries and deliberately restraining their independent industrial development, the monopolistic magnates and their governments simultaneously grant financial, political and military support to the most reactionary, parasitic, semi-feudal groups of native exploiters. Artificially preserved agrarian barbarism is today the most sinister plague of contemporary world economy. The fight of the colonial peoples for their liberation, passing over the intervening stages, transforms itself of necessity into a fight against imperialism, and thus aligns itself with the struggle of the proletariat in the mother countries. Colonial uprisings and wars in their turn rock the foundations of the capitalist world more than ever and render the miracle of its regeneration less than ever possible.
Planned world economy
Capitalism achieved the twin historical merit of having placed technique on a high level and having bound all parts of the world with economic ties. Thus it pledged the material prerequisites for the systematic utilisation of all of our planet’s resources. However, capitalism is in no position to fulfil this urgent task. The basis of its expansion continues to consist of circumscribed nationalist states with their customs houses and armies. Yet the productive forces have long outgrown the boundaries of the national state, thereby transforming what was once a progressive historical factor into an unendurable restraint. Imperialist wars are nothing else that the detonations of productive forces against the state borders, which have come to be too confining for them. The programme of so-called autarchy has nothing to do with going back to a self-sufficient circumscribed economy. It only seems that the national base is being made ready for a new war.
After the Versailles Treaty was signed it was generally believed that the terrestrial globe had been pretty well subdivided. But more recent events have served to remind us that our planet continues to contain lands that have not yet been either plundered or sufficiently plundered. Italy has enslaved Abyssinia. Japan is trying to possess China. Tired of waiting for the return of its former colonies, Germany transformed Czechoslovakia into a colony. Italy broke into Albania. The fate of the Balkan Peninsula is in question. The United States is alarmed by the encroachments of ‘outsiders’ in Latin America. The struggle for colonies continues to be part and parcel of the policy of imperialistic capitalism. No matter how thoroughly the world is divided, the process never ends, but only again and again places on the order of the day the question of a new re-division of the world in line with altered relations between imperialistic forces. Such is the actual reason today for rearmaments, diplomatic convulsions and war alignments.
All attempts to represent the impending war as a clash between the ideas of democracy and fascism belong to the realm either of charlatanism or stupidity. Political forms change, capitalist appetites remain. If a fascist regime were to be established tomorrow on either side of the English Channel – and hardly anyone will dare to deny such a possibility – the Paris and London dictators would be just as little able to give up their colonial possessions as Mussolini and Hitler their colonial claims. The furious and hopeless struggle for a new division of the world follows irresistibly from the mortal crisis of the capitalist system.
Partial reforms and patchwork will do no good. Historical development has come to one of those decisive stages when only the direct intervention of the masses is able to sweep away the reactionary obstructions and lay the foundations of a new regime. Abolition of private ownership in the means of production is the first prerequisite to planned economy, i.e., the introduction of reason into the sphere of human relations, first on a national and eventually on a world scale. Once it begins, the socialist revolution will spread from country to country, with immeasurably greater force than fascism spreads today. By the example and with the aid of the advanced nations, the backward nations will also be carried away into the mainstream of socialism. The thoroughly rotted customs toll-gates will fall. The contradictions which rend Europe and the entire world asunder will find their natural and peaceful solution within the framework of a Socialist United States in Europe as well as in other parts of the world. Liberated humanity will draw itself up to its full height.
All page numbers referenced, unless otherwise stated, are to the Penguin Classics (1990) edition of Capital, volume one, by Karl Marx.
1) Chapter 1: The Commodity
The capitalist system is only two or three hundred years old. It emerged from the breakup of feudalism, which laid the basis for a new socio-economic system. The forcible eviction of the peasants from the land became the basis for a new class of propertyless workers. Through pillage, plunder and robbery, the necessary capital resources were accumulated for the emergence of a capitalist class, which set out to monopolise the means of production. Capitalism came into being, to use the words of Marx, “dripping from head to toe, from every pore, with blood and dirt”.
Modern capitalism is a complex and chaotic system, composed of a great multitude of interacting processes, agents, and factors. It initially confronts us, therefore, as something mysterious and unfathomable; as an omnipotent force, somehow existing above society, which imposes its laws upon us regardless of our will. It is nevertheless governed by its own laws, peculiar to the capitalist system.
The task that Karl Marx set himself was to analyse the capitalist system in a scientific manner – to make sense of capitalism by studying its historical development and thus outlining its general motion, tendencies, and laws of development. This approach is in complete contrast to that of modern bourgeois economists, who have replaced ‘political economy’ simply with ‘economics’, which concentrates simply on market relations and individual preferences and ignores the capitalist system as a whole.
The task of providing a materialist explanation to the inner workings of capitalism was started not by Karl Marx, however, but by the classical economists Adam Smith, David Ricardo, and others. It was upon the work of these giants that Marx built his own analysis of capitalism. There is no great barrier that separates Marxist economics from the economic analysis of those preceding Marx; instead Marx, using the method of dialectical materialism, simply pointed out the limitations of the theories of the classical economists, which regarded capitalism as the highest development of society, whilst providing a revolutionary explanation for the source of profit – the driving force behind capitalism.
The first question facing Marx was: where do you begin in trying to analyse the seemingly chaotic capitalist system? Marx decided to start by analysing the concept of the commodity, the production and exchange of which forms the main basis of the capitalist mode of production. While commodities were produced prior to capitalism, this was very limited. Commodity production becomes universal under capitalism.
What, then, is a commodity? In simple terms, a commodity is the product of labour – a good or service – that is produced, made, or conducted for the purpose of exchange – that is, for use by someone else. Clearly the production of goods and services has always existed in every society, without which nothing could survive. If a society stopped producing it would perish. What differentiates products as commodities, however, is the question of production for exchange. A commodity is an article or service produced for exchange.
In early tribal societies, where production was socially owned and managed, the work of various individuals was for the common good and the needs of the community, whilst individual needs were fulfilled by taking from this social wealth. In this form of society, exchange between individuals was unnecessary. However, the emergence of a division of labour within society, as Marx discusses, lays the basis for the development of commodity production and exchange. In other words, alongside the emergence of different individuals and groups performing different socially necessary tasks, we see simultaneously the development of commodity production:
“This division of labour is a necessary condition for commodity production… Only the products of mutually independent acts of labour, performed in isolation, can confront each other as commodities.”
In earlier class societies, such as under slavery or feudalism, the concept of producing commodities – i.e. producing for exchange – also existed, but this accounted for a minority of the wealth produced in society. The vast majority of production involved products that were not exchanged, but consumed for personal use or were simply appropriated by the ruling class of slave-owners or feudal lords. As Engels comments in a passage in parentheses:
“The mediaeval peasant produced a corn-rent for the feudal lord and corn-tithe for the priest; but neither the corn-rent nor the corn-tithe became commodities simply by being produced for others. In order to become a commodity, the product must be transferred to the other person…through the medium of exchange.”
Alongside the products in earlier class societies that were simply appropriated by the ruling class – i.e. taken without anything given in return – there existed also an enormous quantity of products that were neither exchanged nor appropriated. They were instead simply consumed by the producer themselves. For example, peasants farming on their own land would predominantly produce for their own consumption, with only a small fraction of their produce being exchanged for the products of others. As Marx emphasises, therefore:
“A thing can be useful, and a product of human labour, without being a commodity. He who satisfies his own need with the product of his own labour admittedly creates use-values, but not commodities. In order to produce the latter, he must not only produce use-values, but use-values for others, social use-values.”
Thus whilst the production and exchange of commodities existed in earlier societies, it is only under capitalism where commodity production becomes universal and accounts for the dominant proportion of the wealth created in society. It is only under the capitalist mode of production, therefore, that the laws and inner logic of commodity production and exchange become the dominant laws within society. It is the understanding of these laws with which Marx sought to reveal in his analysis.
What is wealth? The wealth of present-day society consists, in the main, of a vast accumulation of commodities, which must be distinguished from wealth in the broader sense. If a person grows vegetables for their own table, or produces any of the one-thousand-and-one articles made for personal use or pleasure, such articles would undoubtedly be economic wealth, but, because they would not be placed upon the market, they would not be commodities. They would be what Marx calls ‘use-values’: things that have utility and satisfy human needs. Such useful things include both the products of human labour – whether they be for personal consumption or for exchange – and also those things that society obtains for free from nature – the natural wealth of the Earth.
As Marx states in the opening sentence of Capital, “The wealth of societies in which the capitalist mode of production prevails appears as an ‘immense collection of commodities’.”In other words, where production is predominantly not for individual consumption, but for the consumption of others via exchange, we identify wealth through the production of commodities.
Due to the division of labour in society, where everyone produces something different from everyone else, it is only through exchange that we can get access to the products of other people’s work. We are all dependent upon one another. We enter into social relationships with each other, not because we are interested in other human beings, but because we want to exchange our commodities with theirs. Barter is the most basic form of exchange. But this is overtaken later by exchange involving money.
A defining feature of commodities is their possession of ‘use-value’, or utility; possessing properties that are useful to society in general, fulfilling a social need. It they were not useful, then nobody would want them and they could not be exchanged. Use-value, therefore, is a fundamental property of a commodity. Marx, however, is keen to point out that, “The nature of these needs, whether they arise, for example, from the stomach, or the imagination, makes no difference. Nor does it matter here how the thing satisfies man’s need, whether directly as a means of subsistence, i.e. an object of consumption, or indirectly as a means of production.”
This clarification by Marx puts to rest all those claims made by the critics of Marxism about its lack of relevance today. How many times has it been said that, “Marxist economics isn’t relevant in modern times now that we are all consumers buying consumer goods that we don’t need?” This myth about Marxism assumes that Marx’s analysis was only applicable to the 19th Century, with a working class that existed in a state of pauperism and wages at subsistence levels. Now that we are all buying TVs and iPhones, going on holidays abroad, and filling our wardrobes with different brands, the conclusion is that a Marxist economic analysis no longer applies.
Marx, however, makes no such assumptions about the nature or type of the commodities in society. These may be goods such as food, shelter, or clothing that fulfil basic human needs; they may be ‘luxury’ or ‘consumer’ goods; they may be services rendered; or they may be technologies and machines developed for others to employ in production. As Marx emphasises, use-values constitute both material needs and desires of the mind. The development of ‘consumerism’, with a vast advertising industry that seeks to create desires and artificial ‘needs’, therefore, changes nothing about the fundamental nature of the commodities produced and exchanged in society, nor about the laws and dynamics that govern the capitalist mode of production.
People obtain commodities through exchange in order to consume them. Needless to say, a commodity will never find a purchaser unless it is useful. A useless thing has no value to anyone. Each commodity has its own particular properties that make it useful. Every specific need corresponds with a commodity with specific characteristics. Cars, bananas, trousers, tins of beans, laptops, etc. – all have different use-values.
All commodities, as Marx explains, however, contain a dual nature. Not only are they use-values, but they have also exchange-value. The use-value of a commodity marks its quality as being a useful thing; the exchange-value, in contrast, marks “the quantitative relation, the proportion, in which use-values of one kind exchange for use-values of another kind.”The exchange-value expresses a ratio of how much of one commodity is worth in relation to another.
In other words, commodities that are exchanged differ from one another – they have different uses or use-values. Indeed, commodities are exchanged only because their use-values have different qualities. For example, I am a carpenter and need a coat for the winter. I can exchange the two chairs I made for a winter coat that I want to buy.
What, then, is the feature common to all commodities that allow them to be compared against one another? How many chairs can I exchange for a coat? Or how many pairs of shoes can I exchange for so many pairs of trousers? The answer is labour: “If then we disregard the use-value of commodities, only one property remains, that of being products of labour.”
Commodities are the result of work; they are all products of human labour. This allows us to compare one commodity (chairs) with another (coats). The exchange-value (or simply ‘value’), Marx explains, is expressed by the relative quantity of labour contained within different commodities. Commodity A (the two chairs), made from say 5 hours work, would be equal in value to commodity B (the coat), provided B is also produced in 5 hours.
In exchange, the work of the carpenter and tailor are made equivalent. The respective forms of work are disregarded, but they do not disappear. The separate, individual work of the workers still remains. But in exchange, not only are their differences shown (as chairs and a coat), but also their common features (as products of human labour). As a result of such general labour, all commodities have one quality in common: they contain value.
There was a time when the merchant was regarded as the creator of surplus; in other words, new value was added by ‘buying cheap and selling dear’. But this is false. If a person buys cheaply, someone must have sold cheaply. One person’s gain is another person’s loss. Values can be amassed in circulation, but not created. For example, a coat worth £20 may be exchanged for a chair worth £10. Here values have changed hands, but the total worth of the two commodities, namely £30, remains unaltered. One dealer wins out, but no new value has been created. In fact, value is created in production, not in exchange – namely in the making of things, not selling them.
Marx, however, was not the first to assert that labour was the source of value. Such an idea had been raised earlier by the classical economists (and even by those in ancient times). Marx developed this ‘labour theory of value’ by looking at the question not from the standpoint of the product of an individual worker, but of labour in the abstract – of society’s labour in general.
The property of value is not something natural or inherent within the commodity. It is not physical and cannot be detected with a microscope. It cannot be cut into pieces. It is nothing we could recognise with our senses. Nevertheless, it exists. It is a social property, only arising from the interaction of exchange; emerging from the act of exchange. The chairs and coat are different as use-values, but they are equal as values. This arises from the twofold character of the commodity itself.
Whilst we have chosen an example involving the exchange of chairs and coats in order to explain a point, the question of value, according to Marx, is not about the labour expended by the individual producer. Under capitalism, where commodity production and exchange is dominant and universal, commodities are not simply exchanged between individuals, but are bought and sold on the open market. Producers and consumers rarely ever come into direct contact with one another. As such, the individual character of any commodity is lost; instead, it simply becomes one example of a multitude of similar use-values. In other words, value is the result of abstract human labour.
“With the disappearance of the useful character of the products of labour, the useful character of the kinds of labour embodied in them also disappears; this in turn entails the disappearance of the different concrete forms of labour. They can no longer be distinguished, but are all together reduced to the same kind of labour, human labour in the abstract.”
In turn, the individual character of the labour contained within each commodity is lost. Buyers in the market do not care about the labour expended to produce any individual commodity, but only about the quantity of labour that is needed to produce such-and-such a commodity in general. In this sense, we no longer talk about commodities as the products of individual labour, but as products of abstract human labour; “they are merely congealed quantities of homogeneous human labour…[and] this quantity is measured by its duration, and the labour-time is itself measured on the scale of hours, days, etc.”
“The total labour-power of society, which is manifested in the values of the world of commodities, counts here as one homogeneous mass of human labour-power, although composed of innumerable individual units of labour-power.”
Socially necessary labour-time
The value of commodities, therefore, is not determined by the labour expended within an individual commodity, but only by the labour required to produce a given, relatively homogeneous, commodity in general. It is determined by the duration of labour-time socially necessary for the production of a commodity; that is, an average quantity of labour-time.
In this sense, Marx explained that the value of a commodity was not simply due to labour, as the classical economists had concluded, but due to socially necessary labour-time – “the labour-time required to produce any use-value under the conditions of production normal for a given society and with the average degree of skill and intensity of labour prevalent in that society.”Value is the result of abstract human labour, namely labour in general.
Value, therefore, as Marx explains, is not an absolute and timeless property of any commodity, but is a “relation [that] changes constantly with time and place,”depending on historical and social conditions – at root, due to the productivity of labour:
“This [the productivity of labour] is determined by a wide range of circumstances; it is determined amongst other things by the workers’ average degree of skill, the level of development of science and its technological application, the social organisation of the process of production, the extent and effectiveness of the means of production, and the conditions found in the natural environment.”
Buyers in the market do not care about the time spent concretely in any particular case, but only the labour-time required on average. Sellers in the market – a truly global market today – must, therefore, compete against the average level of skill, technology, and organisation, found in their industry or sector. “In general, the greater the productivity of labour, the less the labour-time required to produce an article, the less the mass of labour crystallised in that article, and the less its value.”Those producers with the higher productivity, therefore, are the ones that will produce commodities with a lower value. Competition drives this process. It is this fact that forces companies to compete by investing in new machinery and methods in order to increase productivity and thus sell their products below the general average of their competitors.
In this respect, Marx explained that, through the qualitative development of the means of production – i.e. through the development of science, industry, technology, and technique and the resultant increasing productivity of labour – society would see an increasing amount of use-values produced with an ever decreasing amount of labour; “an increase in the amount of material wealth may correspond to a simultaneous fall in the magnitude of its value.”Thus we see the distinction between use-value (wealth) and value (socially necessary labour-time): a person or society may be wealthy (i.e. in possession of many use-values), while a commodity is more valuable if a larger quantity of socially necessary labour-time is needed for its production.
Modern day economists in the ‘marginal utility’ school of microeconomics – who seemingly know the price of everything and the value of nothing – frequently attack the labour theory of value by citing the ‘example of the mud pie’. “If labour is the source of value,” state our critics, “then surely if I make a mud pie, it will automatically be valuable. Furthermore, if my friend takes longer to make a mud pie than me, his mud pie will be even more valuable.”
Such an argument is so much nonsense on two accounts. Firstly, as Marx asserts, for a commodity to have an exchange-value, it must first have a use-value – that is, there must be social need for the commodity. If there was no such need, the commodity would not and could not be exchanged at all, and hence it would contain no value. The mud pie argument, then, falls flat on its face.
Secondly, as Marx explains, in contrast to his predecessors, we are not simply concerned with labour-time, but with socially necessary labour-time. What buyer cares if producer A takes longer to make a given commodity than producer B (or producers C, D, E, etc.)? In a system of commodity production, buyers and sellers confront one-another in the market, and all that matters is the average labour-time required to produce the items. The producer who works more slowly than the average only receives in exchange the socially average-value. If producer A takes longer than the average, that is their bad luck; they cannot charge more simply by virtue of their inefficiency. This inefficiency will be revealed in the market, as commodities are bought and sold or unable to find a buyer. The more costly commodities made with outdated machinery will simply remain on the shelf.
On this basis, the less efficient producers will soon find themselves unable to compete and will be forced out of business. It is the market, ultimately, that determines whether the individual labour contained within a commodity is socially necessary for its production or not.
On a related note, Marx makes an important clarification regarding the different levels of skill employed in the production of any commodity. The idea behind value and labour-time is always that of average, homogeneous labour – labour in general. But all labour is concrete and particular, involving a variety of complexity and skill: the baker, the butcher, the candlestick maker all have their specialities. For this reason, Marx explains that all these different types of labour are reduced to “simple average labour”, which “varies in character in different countries and at different cultural epochs, but in a particular society it is given.” Again, we see something that is not timeless, but relative and changing under historical and social conditions. “More complex labour counts only as intensified, or rather multiplied simple labour, so that a smaller quantity of complex labour is considered equal to a larger quantity of simple labour.”Thus unskilled labour is regarded as multiples of skilled labour.
With such examples, we see the dialectical method of Marx in action: constantly abstracting from the infinite variety of particulars in order to examine the general tendencies and patterns in society; seeing properties such as value, not as intrinsic properties of commodities, but as relationships not simply between things, but between people; also, meanwhile, understanding that such abstractions – value, socially necessary labour-time, and simple average labour – are themselves constantly changing under social and historical conditions.
Price vs value
There are many criticisms of Marx’s labour theory of value by bourgeois economists, who are obsessed with distorting what the theory actually states. It is easy to knock down a straw man, which seems to be the stock-in-trade of bourgeois critics of Marx.
Marx never denied the fact that certain objects that are not products of human labour – and therefore do not contain value – can certainly have a price when offered for sale. Through their price they take on a ‘commodity form’. In the past, even religious indulgences were sold to cleanse away the sins of the repentant! Virgin land in an attractive location can be sold at an extortionate price.
Likewise, works of art or precious stones can attract vast sums of money. Scarcity plays a very important role in this regard. “Diamonds are of very rare occurrence on the world’s surface”, explained Marx, “and hence their discovery costs, on an average, a great deal of labour-time. Consequently, much labour is represented in a small volume.” He continues, “With richer mines, the same quantity of labour would be embodied in more diamonds, and their value would fall. If man succeeded, without much labour, in transforming carbon into diamonds, their value might fall below that of bricks.”
In relation to works of art and other unique items, here we see monopoly prices operating. Scarcity will mean demand completely outstrips supply. However, we must not mix up the question of value with that of price, which are two different things. Value is determined by the socially necessary labour-time encapsulated within the product, while market price, affected by supply and demand, always tends to fluctuate above or below this value. Value is the axis around which price revolves.
With unique items, their price is not determined by value, but simply by what people are prepared to pay for them. In practice, such things lie beyond the realm of the labour theory of value, which deals with commodities that can be produced or reproduced without limitations or restrictions. “No labour can increase the quantity of such goods,” wrote David Ricardo, “and therefore their value cannot be lowered by an increased supply.”
It is labour that forms the basis for the production and reproduction of the things that sustain life. It is socially necessary labour-time, expressed in value, which lies at the centre of a system based on generalised commodity exchange. Monopoly prices are therefore a product of specific circumstances, and do not reflect value as such.
The law of value
Marx dedicates a large number of pages of Capital to analysing the development of exchange-value, from the case of simple, isolated acts of exchange, where the value – i.e. the ratio of use-values exchanged – seems accidental, to the general form of value, whereby – through the great multitude of acts of exchange within society – the value of any one commodity can be expressed in relation to many others.
In a simple barter economy, there may be a degree of flexibility over the amount of one commodity exchanged for another in any individual, isolated act of exchange. The different quantities of labour-time congealed within the particular commodities are seemingly random, and in this sense, as indicated above, the value of a commodity appears accidental. As commodity exchange becomes generalised, however, each act of exchange loses its individual character, and the various ‘accidental’ values – i.e. labour-times – seen in these concrete acts average out and a general, objective value – i.e. ‘socially necessary labour-time’ – arises.
The general form of value arrives, therefore, historically at the point when the process of commodity production and exchange has become so universal that the relative values – that is, congealed labour-times – of commodities now present themselves, not as accidents, but as objective facts to buyers and sellers on the market.
“…in the midst of the accidental and ever-fluctuating exchange relations between the products, the labour-time socially necessary to produce them asserts itself as a regulative law of nature. In the same way, the law of gravity asserts itself when a person’s house collapses on top of him. The determination of the magnitude of value by labour-time is therefore a secret hidden under the apparent movements in the relative values of commodities. Its discovery destroys the semblance of the merely accidental determination of the magnitude of the value of the products of labour, but by no means abolished that determination’s material form.”
We see, therefore, how the law of value – like any law in nature, history and society – is not something timeless that is imposed from without, but something dialectical that emerges from the interactions within. ‘Necessity expresses itself through accident’, to use the German philosopher Hegel’s expression: the question of social necessity in relation to labour and value arises out of the multitude of ‘accidental’ exchanges taking place in the market. In the case of the law of value, this law only asserts itself at the historical point where commodity production and exchange is universal and dominant.
In this respect, whilst others in pre-capitalist societies had searched for an explanation as to the source of value, none were able to arrive at a complete understanding of labour as the source of value, for none lived in an historical period where commodity exchange, and thus the law of value, was fully dominant. As Marx discusses, Aristotle, the great Greek philosopher, arrived at an incomplete labour theory of value, but he was limited, not by his lack of genius, but by the historical conditions of slave society in which he lived:
“…Greek society was founded on the labour of slaves, hence had as its natural basis the inequality of men and of their labour-powers. The secret of the expression of value, namely the equality and equivalence of all kinds of labour because and in so far as they are human labour in general, could not be deciphered until the concept of human equality had already acquired the permanence of a fixed popular opinion. This however becomes possible only in a society where the commodity-form is the universal form of the product of labour, hence the dominant social relation is the relation between men as possessors of commodities. Aristotle’s genius is displayed precisely by his discovery of a relation of equality in the value-expression of commodities. Only the historical limitation inherent in the society in which he lived prevented him from finding out what ‘in reality’ this relation of equality consisted of.”
Finally, Marx arrives at the money form of value, in which a single commodity – originally exchanged as a commodity in its own right – becomes a universal equivalent, i.e. a universal yard stick against which the value of all other commodities can be expressed. The development of money is not brought about by a conscious plan, but by common practice and social interaction, behind the backs of the producers.
Historically, precious metals such as gold – itself extremely valuable because of the difficulty in producing and obtaining it – have played this role. This is due to concrete material reasons: metals such as gold were convenient universal forms of exchange as small, easily carried quantities of the metal were able to express a large amount of value. Rather than carrying around baskets of food, rolls of cloth, or herds of cattle, therefore, one could simply carry small bags of gold or silver. These precious metals come to represent the values of all other commodities and, in turn, become the money commodity.
Marx develops his analysis of money in chapter 3, but simply notes at this point that the money form of value is the logical conclusion of commodity production and exchange: “The simple commodity form is therefore the germ of the money-form.”
Value and commodity exchange
Commodities are use-values because they are useful to a purchaser, and they are values (i.e. exchange-values) because they contain human labour in general. This value, or exchange-value, is only revealed in exchange, when the proportions of one commodity are exchanged for another. What appears in exchange is the exchange of use-values, a pair of shoes are exchanges for a pair of trousers. Two commodities face each other with different use-values, but with an equality of value contained within them.
The important point that Marx emphasises is that value is ultimately a social relation – a relation between people, i.e. the labour of different individuals that, under a system of universal commodity production and exchange, expresses itself on the surface as a relationship between things. It is through these acts of exchange, therefore, that private, individual labour acquires a social character.
“The equality of the kinds of human labour takes on a physical form in the equal objectivity of the products of labour as values…
“…It is nothing but the definite social relation between men themselves which assumes here, for them, the fantastic form of a relation between things…
“Objects of utility become commodities only because they are the products of the labour of private individuals who work independently of each other…the labour of the private individual manifests itself as an element of the total labour of society only through the relations which the act of exchange established between the products, and, through their mediation, between the producers…
“It is only by being exchanged that the products of labour acquire a socially uniform objectivity as values, which is distinct from their sensuously varied objectivity as articles of utility.”
In this respect, Marx criticises the simplistic notion of the direct connection between labour and value presented by his predecessors, who saw value not as a relation between people, but as something absolute, determined from the actions of an ideal rational agent, as frequently represented by the example of Robinson Crusoe. The Crusoe example proposed that an isolated individual, such as a castaway on his island, could determine the value of products by simply noting the various amounts of time he expended in producing these things.
As Marx highlights, however, the property of value – and the nature of products as commodities – expresses a relative quantity that can only acquire an objective character through a process of social interaction – that is, through a general and universal process of exchange within society. Crusoe’s products – “exclusively the result of his own personal labour” – are, therefore, not commodities with values, but simply “directly objects of utility for him personally”. They are not produced for sale but simply to be consumed by himself.
The term ‘fetishism’, as used by Marx, is derived from ethnology, the study of early societies. At this time, people were not conscious of their social or natural conditions of life. As a result, they attributed phenomena to supernatural forces. They believed they could influence the powers of nature by superimposing onto their own activities the actions of gods and spirits. In their imagination, inanimate objects acquired human or superhuman abilities and became a fetish. Marx draws parallels between this and the actions of commodity-producing societies, where products have taken on a magical power; hence ‘commodity fetishism’.
Under a developed form of commodity production, producers work in isolation from each other. It is not until their products are exchanged that they discover whether or not their private labour constitutes a part of the total necessary labour of society. Only if the exchange is successful does it prove to be a socially necessary part of the whole. Commodity producers are unaware of this social relationship, but are nevertheless subject to it and act accordingly.
For the commodity producer, commodities seem to be exchanged by virtue of some mysterious natural characteristic of their own. These man-made things seem to have a life of their own and develop a power over human beings. This is a commodity fetish, which is then reinforced when commodities are routinely exchanged for money instead of through direct exchange. A coin or piece of paper now seems to possess the magical quality of being able to buy all available commodities. They appear to have these powers simply because they are pieces of metal or paper.
Producers simply run after money, each competing with one another in their search for this universal commodity. They appear to be independent of each other, but dependent upon money. Money rules their world – ruling society like a fetish.
As production is not consciously planned, their own products confront them as an alien power on the market. The exchange appears to be a relationship between mere things. In reality, the relationship of commodities is inverted: they express the relationship not between things, but between people themselves. But this is not transparent. The producers are blinded by the laws of the market.
Only when you have the free association of producers will this commodity fetishism disappear. Then people will no longer face each other as mere partners in exchange – as mere appendages of their commodities – but will instead be able to plan production collectively.
This analysis and explanation of the law of value leads to an important conclusion in Marx’s argument regarding value and commodities: the fact that such forms and laws are not timeless, but are historically determined and conditioned. Just as commodity production has arisen to become universal, so one day it will disappear, along with capitalism, and with it the law of value.
“The value-form of the product of labour is the most abstract, but also the most universal form of the bourgeois mode of production; by that fact it stamps the bourgeois mode of production as a particular kind of social production of a historical and transitory character. If then we make the mistake of treating it as the eternal natural form of social production, we necessarily overlook the specificity of the value-form, and consequently of the commodity-form together with its further developments, the money form, the capital form, etc…
“…the vulgar economists confine themselves to systematising in a pedantic way, and proclaiming for everlasting truths, the banal and complacent notions held by the bourgeois agents of production about their own world, which is to them the best possible one.”
It is only with the socialist transformation of society, when the means of production are commonly owned as part of a rational and democratic plan of production, that the social character of society’s labour will finally correspond to a social form of ownership. To the degree that common ownership of the means of production increases, so the dominance of commodity production and exchange will decrease. Rather than acts of exchange between separate individuals, society will instead be composed of men and women contributing to society ‘according to their ability’ and taking from the communal wealth ‘according to their need’.
The products of labour will no longer confront society as commodities, but simply as useful objects; thus the contradiction between use-value and exchange-value will also dissolve. For the first time, the relationship between things will be replaced by genuine relationships between people, and men and women will confront one-another as real human beings. The economy – previously a mysterious force, whose laws seemed to be imposed upon society – will no longer dominate over us; instead, we will be masters of our own destiny.
“With the seizing of the means of production by society, production of commodities is done away with, and, simultaneously, the mastery of the product over the producer. Anarchy in social production is replaced by systematic, definite organisation. The struggle for individual existence disappears. Then, for the first time, man, in a certain sense, is finally marked off from the rest of the animal kingdom, and emerges from mere animal conditions of existence into really human ones. The whole sphere of the conditions of life which environ man, and which have hitherto ruled man, now comes under the dominion and control of man, who for the first time becomes the real, conscious lord of nature, because he has now become master of his own social organisation. The laws of his own social action, hitherto standing face-to-face with man as laws of Nature foreign to, and dominating him, will then be used with full understanding, and so mastered by him. Man’s own social organisation, hitherto confronting him as a necessity imposed by Nature and history, now becomes the result of his own free action. The extraneous objective forces that have, hitherto, governed history, pass under the control of man himself. Only from that time will man himself, more and more consciously, make his own history — only from that time will the social causes set in movement by him have, in the main and in a constantly growing measure, the results intended by him. It is the ascent of man from the kingdom of necessity to the kingdom of freedom.”
24 p174-175, footnote 34
25 Frederick Engels, Socialism: Utopian and Scientific
2) Chapters 2-3: Money
Gold? yellow, glittering, precious gold?…
Thus much of this, will make black, white; foul, fair;
Wrong, right; base, noble; old, young; coward, valiant.
…What this, you gods? Why, this
Will lug your priests and servants from your sides,
Pluck stout men’s pillows from below their heads;
This yellow slave
Will knit and break religions; bless the accursed;
Make the hoar leprosy adored; place thieves,
And give them title, knee and approbation,
With senators on the bench; this is it,
That makes the wappen’d widow wed again:
… Come, damned earth,
Thou common whore of mankind.
(Shakespeare, Timon of Athens, Act 4, Scene 3)
Having analysed the concepts of the commodity and value in chapter 1, Marx now turns his attention to the question of money, explaining the various roles and functions that money plays in commodity production and exchange, and the relationship between money, commodities and value.
Importantly, it should be emphasised that Marx’s analysis is based on an attempt to understand the question of money from a materialist and dialectical perspective – that is, to chart the evolution of money from its historical origins through to its current form; and meanwhile to explain the essential and dynamic role of money in terms of the general motion of commodity production and exchange that underpins capitalism.
Though money is simply a special commodity, it has a specific role and function. Commodities no longer directly face one another in exchange but are instead exchanged for money.
The quote from Shakespeare’s Timon of Athens, which Marx provides in Capitalreveals how money – and in particular gold – has, throughout history, taken up a revered place within society. It seems both ubiquitous and omnipotent, a mystical force that we bow down before and which has power over us all. Our actual needs – both individual and societal – are relegated to the need for money – “thou common whore of mankind”.
However, as discussed previously, Marx explains in chapter 1 how the concept of money is the logical necessity of a generalised and universal system of commodity production and exchange; the conclusion of a system of private ownership, in which production is no longer for direct consumption but for exchange, and in which men and women confront each other no longer as people but as owners of commodities. The key to understanding the question of money, therefore, is to analyse the historical development of commodities: “The riddle of the money fetish is therefore the riddle of the commodity fetish, now become visible and dazzling to our eyes.”
In chapter 1, Marx explains how commodities – products of labour that are produced for exchange – have a dual nature. On the one hand they are use-values – things that have a utility in society. On the other hand, such commodities must have an exchange-value – a quantitative relationship to other commodities. But this dual nature also leads to a contradiction; a tension and separation between commodities as use-values and as exchange-values.
“For the owner, his commodity possesses no direct use-value. Otherwise, he would not bring it to market. It has use-value for others; but for himself its only direct use-value is as a bearer of exchange-value, and consequently, a means of exchange…All commodities are non-use-values for their owners, and use-values for their non-owners. Consequently, they must all change hands.”
For the owner of commodities, therefore, production is merely a means to an end – a way of obtaining other commodities that they do have a need for. What concerns the owner of a commodity is not the usefulness of the commodity per se, but that this commodity can be exchanged for other commodities. “Hence commodities must be realised as values before they can be realised as use-values.”
In this respect, those involved in production within a system of private ownership and production for exchange – that is, within a system of commodities – are constantly alienated from their labour; the things they produce are not useful to them, but simply for others.
Within primitive communities, where production is a communal process, such alienation does not exist and commodity production is limited to the fringe, namely to those objects that are exchanged with other communities. But the dynamics and laws of commodity production and exchange have a logic of their own that, once started, imposes itself on society. As Marx notes, “as soon as products have become commodities in the external relations of a community, they also, by reaction, become commodities in the internal life of the community.”
In other words, as soon as the products of labour are externally traded, thus comparing the labour-time contained within one community’s commodities with that contained within another’s, the same comparison necessarily begins between the products of labour internal to a community, which were previously not exchanged, but instead produced for the collective benefit of all. The laws of commodities thus begin to assert themselves within primitive society at a certain stage and the separation between use-value and exchange-value is established.
“In the course of time, therefore, at least some part of the products must be produced intentionally for the purpose of exchange. From that moment the distinction between the usefulness of things for direct consumption and their usefulness in exchange becomes firmly established. Their use-value becomes distinguished from their exchange-value .”
Whilst the individual owner does not see their commodity as a use-value for themselves, commodities must have a use-value in order to be exchanged. “For the labour expended on them only counts in so far as it is expended in a form which is useful for others…only the act of exchange can prove whether that labour is useful for others, and its product consequently capable of satisfying the needs of others.”The act of exchange, therefore, is the only proof of the social usefulness of any product of labour.
Meanwhile, it is only through the multiple acts of exchange within society that quantitative relationships between commodities – i.e. exchange-values – become established. “Their quantitative exchange-relation is at first determined purely by chance…the quantitative proportion in which the things are exchangeable becomes dependent on their production itself. Custom fixes their values at definite magnitudes.”
Marx’s analysis of the development of money, therefore, is based on an understanding of the development of the commodity, as outlined above. As commodity production and exchange becomes increasingly generalised, we see the general form of value emerge. Each individual producer wishes to exchange their particular product with the multitude of products found on the market. As this system becomes universal, there grows a social need for universal equivalent – for a single commodity that acts as a yardstick of measurement against which the value of all other commodities can be compared. This universal equivalent is the basis for money.
The concept of money, then, is the ultimate form of the alienation of producers from their labour. No longer do we see production for direct consumption; nor are commodities produced as exchange-values for the owner, to be simply traded to obtain other use-values. Now, instead, the producer demands money in exchange for their products – money that represents the most abstract and universal form of labour, devoid of any use-value for the owner, except its ability to universally represent the value of their own labour.
“Money necessarily crystallises out of the process of exchange, in which different products of labour are in fact equated with each other, and thus converted into commodities. The historical broadening and deepening of the phenomenon of exchange develops the opposition between use-value and value which is latent in the nature of the commodity… At the same rate, then, as the transformation of the products of labour into commodities is accomplished, one particular commodity is transformed into money.”
Means of exchange
So money emerges from the development of commodity production and exchange. But what determines the emergence of one particular commodity as the universal equivalent? “The difficulty,” Marx states, “lies not in comprehending that money is a commodity, but in discovering how, why and by what means a commodity becomes money.”
“What appears to happen is not that a particular commodity becomes money because all other commodities express their values in it, but, on the contrary, that all other commodities universally express their values in a particular commodity because it is money.”
Although the crystallisation of one commodity as money “is at first a matter of accident,”Marx explains how there is, nevertheless, a material basis for the development of certain commodities as money – in particular the precious metals, such as gold and silver. Such metals did not become money due to their aesthetic qualities but because of objective factors. On the one hand they are homogeneous and uniform – gold is gold is gold. On the other hand, they can be quantitatively divided and re-assembled into weights of variable magnitude, and are thus able to represent varying amounts of value. Added to this, metals are durable – a more easily perishable commodity would clearly not suffice as a universal equivalent.
Besides these useful properties of the precious metals, there lay one other important factor in their emergence as the commodity par excellence: the fact that, due to the large amount of labour required to produce a given quantity of gold or silver, small amounts of such metals could be used to represent large quantities of other, less valuable, commodities.
Behind this fact lies a key role of money within a system of commodity production and exchange: its role as a measure of value and a means of exchange – that is, as a universal measure of the socially necessary labour-time embodied within a commodity:
“[Money] thus acts as a universal measure of value, and only through performing this function does gold, the specific equivalent commodity, become money…
“…Money as a measure of value is the necessary form of appearance of the measure of value which is immanent in commodities, namely labour-time.”
Over time, however, as the total value of the commodities exchanged within society increases, and as these exchanges become more frequent, the objective need for money becomes so great that the actual value of the precious metal contained within coins and their nominal representation of value become divorced: “The denomination of the gold and its substance, the nominal content and the real content, begin to move apart.”
Money, from this point, becomes a mere token – a symbol of value. This, in turn, opens up a whole new world of possibilities. Now there is no limit to the amount of money that can be thrown into circulation:
“Relatively valueless objects, therefore, such as paper notes, can serve as coins in place of gold. This purely symbolic character of the currency is still somewhat disguised in the case of metal tokens. In paper money it stands out plainly. But we can see: everything depends on the first step.”
Today we see the logical conclusion of this process: not only have coins of gold and silver been replaced by less precious metals; not only have coins themselves been replaced by paper notes; but now we represent money as mere digital information – as numbers on a screen. No longer is there a need for physical tokens of value to exchange hands; instead we have electronic bank transfers.
Inflation and the money supply
In a barter system, we see commodity exchanged for commodity – that is, C-C. From this develops an exchange mediated by money, – that is, C-M-C. Money, as the universal equivalent of value, thus plays a simultaneous role as a means of circulation, turning the act of a single exchange into a process with two poles: a sale, in which the commodity C is exchanged for money M; and a purchase, in which money M is used to buy another commodity C. Of course, the sale ( C-M) for one is at the same time a purchase ( M-C) for the other; every seller is a buyer, and every buyer a seller. In total, we now arrive at the process of exchange: C-M-C. Commodities come in and out of circulation through the acts of production and consumption, but money is always left behind; “Circulation sweats money from every pore.”
Money, then, acts as the lubricant to the whole flow of commodity production and exchange, enabling universal trade and exchange between individuals or communities who need never meet, and breaking up the act of exchange in both time and space. It thus provides movement and motion, dynamism and change. Such a step marks a powerful leap in the potential for the market – and thus for the forces of production – to expand. But there are also dangers in this. The possibility now arises that selling and buying could fall apart into two distinct processes. This is the basis of capitalist crises.
“Circulation bursts through all the temporal, spatial and personal barriers imposed by the direct exchange of products, and it does this by splitting up the direct identity present in this case between the exchange of one’s own product and the acquisition of someone else’s into the two antithetical segments of sale and purchase.”
In the same way, electronic transfers today have opened up the market on a truly global scale, with a whole host of producers spread across the world now able to find a buyer for their goods through Amazon or eBay. The history of money, then, is a history of the objective need for the forces of production to develop and expand.
Whilst there is no apparent limit to the amount of money that can be put into circulation, it is nevertheless clear that this amount is not arbitrary. Money, in its role as a means of exchange, is a measure of value – the universal measure of value. The amount of money in circulation, therefore, must ultimately be linked to the total value of commodities in circulation – equivalent in money terms to the total of the prices of these commodities, and to the speed (the velocity or turnover) with which they change hands. If the quantity of commodities remains constant but the amount of notes in circulation doubles, then the price of each commodity will double also.
In this respect, the generally limited and stable amount of gold circulating around the world market helped to enforce gold’s role as a reliable standard of prices. “Hence the less the unit of measurement (here the quantity of gold) is subject to variation, the better the standard of price fulfils its office.”
Nevertheless, the use of precious metals as the money commodity or as a peg for currencies does not guarantee the stability of prices. This is demonstrated by the example of the Spanish Empire in the 16th Century, where, after flooding Spain with an abundance of gold and silver plundered from the colonies in South America, the Spanish rulers found themselves with an unstable situation of high inflation and low investment, which ultimately led to the collapse of the Spanish economy. As one proverb from the time wryly noted: “Everything is dear in Spain except silver.”
Similarly, today there are those who imagine that a return to the gold standard – that is, to a system whereby currencies are pegged to a fixed quantity of gold – would be an infallible defence against the dangers of inflation. But the gold standard is not a panacea. Ultimately the needs of commodity production and exchange impose themselves; the need for a greater circulation of money arises; and the rigid link between the money supply and a single commodity – be it gold or anything else – becomes a barrier to the growth of the economy and the development of the productive forces. This is what forced the development from coins of gold and silver – known as a gold specie standard – to a monetary system of paper notes backed up by gold; and this is what has led to abandonment of the gold standard altogether today.
Today, a nation’s central bank stands behind its currency. It has a monopoly over the issuing of banknotes. On every note is a promise to pay the bearer a certain amount of currency. If there is a loss of confidence in the banking system or currency, this can lead to a ‘run on the bank’, as happen with Northern Rock in 2007. The central bank or state is forced to step in to restore confidence.
The value of money, therefore, whilst being a quantitative relational expression, is not arbitrary or accidental, but lies on an objective material basis: as a representation of socially necessary labour-time. This important fact has equally important consequences, particularly in relation to the issue of inflation and the money supply that we see today.
Internationally, following the abandonment of the gold standard during the Great Depression, the Bretton Woods system was established, in which national currencies were fixed against the US Dollar, which in turn was “as good as gold” due to the fact that two-thirds of the world’s gold lay in the vaults of Fort Knox. However, following the global economic crisis in the late 1960s and early 1970s, the Bretton Woods agreement fell apart. Fixed exchange rates, as with the British adherence to an overvalued gold standard in the 1920s, or with the Greek economy in relation to the Euro today, became politically impossible in the wake of declining competitiveness. As long as there is a fixed exchange rate, devaluation of the currency to maintain competitiveness is not an option. Instead, workers are forced to pay for the declining competitiveness of their national economies by accepting wages cuts. Today, to try to avoid the political problems this causes, currencies’ exchange rates are able to float against one another, with central banks free to print money and devalue the currency. Nevertheless, workers still end up paying for their country’s economic decline since devaluation causes the price of imports to increase, and thus real wages decrease regardless.
Today, with the deepest crisis in the history of capitalism, central banks have resorted to the desperate measure of ‘quantitative easing’ – buying up financial assets and thereby increasing the money supply. In effect, such QE is just another way of printing money, posing the threat of increasing inflation down the line, like the “kings and princes” who after “centuries of continuous debasement of the currency…have in fact left nothing behind of the original weights of gold coins but their names.”
The collapse of demand which is part of the current crisis, however, means that – rather than leading to higher inflation – QE has simply added to the instability of the global economy. Cheap money is flooding markets and inflating speculative bubbles, particularly in emerging economies. Again, this comes back to the fundamental question regarding the monetary supply: the money in circulation must have a material basis: ultimately, a basis in terms of the real value – i.e. socially necessary labour-time – embodied within the commodities in circulation.
Means of payment
As discussed above, as a means of circulation, money opens up a world of possibilities for commodity production and exchange. Now the individual producer can exchange their particular product of labour for the most general and abstract form of labour – the universal equivalent. This, in turn, allows for value to be stored and hoarded, rather than spent immediately. Money can be saved and accumulated to enable larger purchases; and consumption over a longer period of time can be smoothed out against the ever fluctuating nature of production.
Alongside this, money develops a new role as a ‘means of payment’, acting as a promise by the buyer to pay in the future. “He therefore buys it before he pays for it. The seller sells an existing commodity; the buyer buys as the mere representative of money, or rather as the representative of future money. The seller becomes a creditor, the buyer becomes a debtor.”
The ability to hoard and save, to lend and borrow, introduces a dialectical contradiction into the general dynamic of commodity production, exchange, and circulation. Now it is possible to buy without having first sold; to own without actually paying anything in return. There is then a disconnect between the commodities exchanging hands and the actual ability to pay for these commodities. “The buyer converts money back into commodities before he has turned commodities into money.”
This disconnect tears apart ‘Say’s Law’ – the dominant idea held prior to Marx that the market would always be in equilibrium. According to Say’s Law, general crises of overproduction should be impossible, since every seller was also a buyer; every sale, therefore, should bring an equivalent purchase to the market. Now, however, we see that sellers can hoard. Their savings, in turn, form the basis for credit – for the lending to buyers who borrow.
We see, throughout history, how the lending of money in the form of credit is used to artificially expand the market; to allow the productive forces to continue to expand beyond the limits of capitalism; to enable society’s ability to produce to overcome the limited ability of the masses to consume. The system, however, cannot exceed its limits forever. At some point, as in the ‘Credit Crunch’ of 2008, a stretched elastic band must snap back or break. With the default on debts, the anarchy and chaos within the balance of payments becomes apparent. Creditors demand their repayments and refuse to lend any further. Promises to pay lose any meaning; only hard cash will suffice. Credit is reined in, bringing the motion of circulation – and thus production also – to a halt. The lack of credit does not cause a crisis; the crisis causes a lack of credit.
“This contradiction bursts forth in that aspect of an industrial and commercial crisis which is known as a monetary crisis. Such a crisis occurs only where the ongoing chain of payments has been fully developed, along with an artificial system for settling them. Whenever there is a general disturbance of the mechanism, no matter what its cause, money suddenly and immediately changes over from its merely nominal shape, money of account, into hard cash. Profane commodities can no longer replace it. The use-value of commodities becomes valueless, and their value vanishes in the face of their own form of value.”
With the role of money as means of payment, therefore, we see how money itself becomes a source of power. Those who accumulate and lend their money gain dominance over those who borrow and spend. The debtor must succumb to the diktat of the creditor. For example, the monarchs of the past eventually lost their power to the emerging bourgeoisie, the owners of capital, after indebting themselves fighting costly wars. But nowhere is this role of money as a social relation clearer than today, where the banks and financial markets hold the whole of society by the throat, and are demanding their pound of flesh.
The future of money
As can be seen in all areas of life, the ruling class strives to ensure its domination. It constantly promotes the myth that capitalism is for the best in the best of all possible worlds. As it was in the beginning, is now, and ever shall be: this is the hymn of the exploiters, who strive to reinforce the illusion that the current state of affairs represents the ‘natural’ and ‘ideal’ order, and is thus eternal and unchanging.
Marxists, by contrast, aim to be the most thorough materialists, understanding the origins of phenomena in terms of concrete material conditions and charting their historic development of change through contradiction. Through such a method, one can explain the real inner laws and motion of a process, and also understand how such phenomena will be affected by developments elsewhere in society.
In chapters 2-3 of Capital, volume one, Marx rigorously applies this method to the question of money, stripping away its seemingly mystical and magical qualities to reveal its real underlying nature. In the place of any reverence for money, Marx uncovers the material basis for money and thus exposes it for what it is: the necessary result of commodity production and exchange at a certain stage of human development.
What, then, is the future of money? Would there by money in a socialist society?
To answer this question, we must remember that the money arises as part of a system of commodity production and exchange. The existence of commodities, in turn, implies the existence of private property – of the private ownership over the product of labour. The first steps of a socialist society, however, would be to take over the key levers of the economy – the banks, the major monopolies, the infrastructure, and the land – and to place them under a rational and democratic plan of production; in other words, to socialise production and place the wealth of society in public hands.
With such a step, the vast majority of use-values in society would now be produced and owned in a social manner. No longer would there be a need for the private exchange of goods and services for profit; instead, people would contribute to society with their labour ‘according to their ability’ and take from the common wealth created ‘according to their need’. The products of labour, produced socially and owned socially, would thus lose their previous status as commodities.
Libertarian monetary experiments such as Bitcoin are doomed to fail because they see central banks – and their monopoly over the money supply – as the source of economic crises. Advocates of these ‘cryptocurrencies’ therefore imagine that the solution is to distribute the means by which money is created. But the real source of the problem under capitalism is the private ownership over the means of production – the means by which society’s wealth is created – and the system of production for profit that flows from this; that is to say, the problem is the capitalist system itself. Only by socialising the means of production under a democratic plan of production can we eradicate crises.
Of course, this socialisation of production would not happen immediately, as commodity production and exchange would still exist during a ‘transitional period’. Elements of capitalism, such as small producers and owners – the petit-bourgeoisie – would continue to exist for a period. But the main ‘commanding heights’ of the economy, the decisive levers, would be part of a socialist plan of production, and thus the majority of wealth would not be in the form of commodities. Over time, as the efficiency and superiority of the democratically planned economy proves itself, small producers would be convinced and incentivised to join this social plan, and thus all remnants of commodity production would eventually wither away.
Alongside this withering away of commodity production and exchange, the need for money would also wither away, beginning with housing rent, utilities and the basic necessities of life. Rather than acting as a representation of exchange-value – i.e. of socially necessary labour-time – tokens could instead be given to indicate entitlement to the common products of labour. With current technology, physical tokens could be replaced by mere digital information. The tremendous level of planning currently seen within giant multinationals in the name of profit could then be implemented on a global scale to rid us of the anarchy and chaos of the invisible hand of the market and ensure a world of plenty for all. And with the enormous productive forces at our fingertips on a world scale, there is no reason why we could not quickly move to a society of superabundance whereby all our needs would be fulfilled, without the need for money, safe in the knowledge that scarcity would be an historical aberration of the past.
We leave the final word on this matter to Leon Trotsky, the great Russian revolutionary:
“In a communist society, the state and money will disappear. Their gradual dying away ought consequently to begin under socialism. We shall be able to speak of the actual triumph of socialism only at that historical moment when the state turns into a semi-state, and money begins to lose its magic power. This will mean that socialism, having freed itself from capitalist fetishes, is beginning to create a more lucid, free and worthy relation among men. Such characteristically anarchist demands as the ‘abolition’ of money, ‘abolition’ of wages, or ‘liquidation’ of the state and family, possess interest merely as models of mechanical thinking.
“Money cannot be arbitrarily ‘abolished’, nor the state and the old family ‘liquidated.’ They have to exhaust their historic mission, evaporate, and fall away. The deathblow to money fetishism will be struck only upon that stage when the steady growth of social wealth has made us bipeds forget our miserly attitude toward every excess minute of labour, and our humiliating fear about the size of our ration. Having lost its ability to bring happiness or trample men in the dust, money will turn into mere bookkeeping receipts for the convenience of statisticians and for planning purposes. In the still more distant future, probably these receipts will not be needed. But we can leave this question entirely to posterity, who will be more intelligent than we are.”
1 Chapter 3, footnote 42
23 Leon Trotsky, Revolution Betrayed, chapter 4
3) Chapters 4-8: Surplus-value
Having charted the historical development of commodity production and money, Marx now turns his attention to the question that had stumped the classical economists: what is the source of profit within capitalism?
Up until this point in Capital, Marx deals mainly with historical processes and explanations of things that were generally already understood. For example, although not fully developed, the concept of a labour theory of value had already been proposed by Marx’s predecessors, the classical economists. Similarly, the classical economists, like Marx, understood capitalism to be a system of commodity production, based on private ownership, and driven by the profit motive. What none of the classical economists could answer or explain, however, was: where does profit come from?
What is capital?
In order to answer this question, Marx begins by asking: what is capital? How does this historical system arise? And what is it that differentiates capital from money or other commodities?
Simply put, money becomes capital only when it is used to purchase goods or labour which ends up in making a profit. If a shepherd sells wool for money to buy bread to eat, he wasn’t using this money as capital. However, when a merchant uses his money to buy wool in order to sell the wool at a higher price, this money is capital.
Prior to capitalism, capital was accumulated mainly through commerce – not simply the trade in goods, but plunder, exploitation, conquest and piracy.
Marx emphasises the importance of this historical development, in particular, the development of commodity production and exchange:
“The circulation of commodities is the starting-point of capital. The production of commodities and their circulation in its developed form, namely trade, forms the historic presuppositions under which capital arises. World trade and the world market date from the sixteenth century, and from then on the modern history of capital starts to unfold.”
The generalisation of commodity production and exchange; the development of a universal equivalent in the form of money; the division of labour in society; private ownership; the establishment of a world market: all these form, therefore, the prerequisites to the emergence of capital and of capitalism.
Marx explains the emergence of capital in more detail:
“The first distinction between money as money and money as capital is nothing more than a difference in their form of circulation. The direct form of the circulation of commodities is C-M-C, the transformation of commodities into money and the re-conversion of money into commodities: selling in order to buy. But alongside this form we find another form, which is quite distinct from the first: M-C-M, the transformation of money into commodities, and the re-conversion of commodities into money: buying in order to sell. Money which describes the latter course in its movement is transformed into capital, becomes capital, and, from the point of view of its function, already is capital.”
With more simple forms of commodity circulation, the overall aim of the producer is the fulfilment of their own needs, not to increase their wealth. Each individual produces in order that they sell; in turn, they sell in order that they may buy the things they need. These use-values are consumed once they are bought. The circuit C-M-C is ended with selling in order to buy and consume. “Consumption, the satisfaction of needs, in short use-value, is therefore its final goal.”
As explained, however, this money is not capital as it does not seek a profit. The leap from money to capital sees a qualitative change: no longer are commodities and consumption the start and end point of the cycle; instead, we see a cycle that begins and ends with money. In other words, we have the circuit M-C-M, buying in order to sell. The aim of this exchange is not obtaining use-values but only money, or exchange-value. “[T]he buyer lays out money in order that, as a seller, he may recover money…The money therefore is not spent, it is merely advanced.”
With the development of capitalism and the generalisation of commodity production and exchange, and the resultant development of money, production is no longer conducted for the purpose of fulfilling individual needs. Instead, the raison d’être for production and trade is profit: the creation of money from money. “The path M-C-M…proceeds from the extreme of money and finally returns to that same extreme. Its driving and motivating force, its determining purpose, is therefore exchange-value.”
The capitalist does not care for the actual needs in society. In as much as they care about fulfilling needs, it is only in order to sell their produce and realise their profits. The motor force for production therefore becomes the endless drive for profit:
“As the conscious bearer of this movement, the possessor of money becomes a capitalist. His person, or rather his pocket, is the point from which money starts, and to which it returns. The objective content of the circulation we have been discussing – the valorisation of value – is his subjective purpose, and it is only in so far as the appropriation of ever more wealth in the abstract is the sole driving force behind his operations that he functions as a capitalist, i.e. as capital personified and endowed with consciousness and a will. Use-values must therefore never be treated as the immediate aim of the capitalist; nor must the profit on any single transaction. His aim is rather the unceasing movement of profit-making.”
Thus the purpose of simple commodity production is the realisation of use-values – that is, the satisfaction of wants. In contrast, the purpose of the circulation of capital is the realisation of exchange-value. Of course, in this money-making process, if the capitalist ends up with the same money as he started, the whole exercise would have been pointless. It would therefore be more accurate to say that the circulation of capital is the expansion of exchange-value, and the creation of surplus-value. This is what Marx means by the ‘valorisation’ of capital, namely the increase in the value of capital assets through the application in production of value-forming labour.
Capital, then, is distinguished by its nature as self-reproducing wealth; money that begets money; value that creates more value. Therefore, as soon as money is directed at an activity that yields, or promises to yield, profit, that money becomes capital.
Buying cheap and selling dear
Now let us return to the question: by what process, then, does capital generate value from value? How does the circulation of capital become M-C-M’, where M’ exceeds M? The point is not simply to get money, but to enable the owner of money to obtain more money than originally advanced.
Up until Marx, the popular conception was that the profit within capitalism came from buying cheap and selling dear. In other words, that profit – or surplus value – is created simply through the act of exchange, entirely within the sphere of circulation.
Marx explains that this is false. The process of circulation is not a process of creation, but simply a means by which money is transformed into commodities and vice-versa. In the sphere of circulation, value changes form, but it is not created. Circulation, the exchange of commodities, consists of both a purchase and a sale. If there was an advantage in buying, this would be lost in the sale of these commodities. No net-surplus value is produced in the transaction, since one person’s gain is another’s loss. We witness not the creation of surplus value, but the transfer of value from one party to another. It is a case of swings and roundabouts.
Value is created not in circulation, but in the process of production. It is an expression of the socially necessary labour-time involved in production. However, the value contained in a commodity is only realised through the act of exchange, namely when it is sold. Circulation is therefore vital to the process, but nevertheless it produces no value, only serving to move existing value around. This is the function of the market.
The law of value – the laws of commodity production and exchange – therefore “necessarily involves the exchange of equivalents, provided.” This law, as discussed previously, is a generalisation that emerges from the many acts of exchange occurring universally in society. Whilst in any individual case there may be a divergence between the price at which a commodity is sold/bought and its value, on average commodities are exchanged on the basis of an equivalent quantity of value, namely the socially necessary labour-time contained within them.
“It is true that commodities may be sold at prices which diverge from their values, but this divergence appears as an infringement of the laws governing the exchange of commodities. In its pure form, the exchange of commodities is an exchange of equivalents, and thus it is not a method of increasing value.”
What Marx is saying here is that if exchange is governed by the law of equivalents, the circulation of commodities cannot be the source of surplus-value.
It must be noted that prices and values of commodities ultimately express the relationships between the labour of different individual producers. Therefore, as Marx explains, if commodities are consistently sold at prices above their actual costs, the result is just a general inflation, not the creation of any new value:
“Suppose then that some inexplicable privilege allows the seller to sell his commodities above their value, to sell what is worth 100 for 110, therefore with a nominal price increase of 10 per cent. In this case the seller pockets a surplus-value of 10. But after he has sold he becomes a buyer. A third owner of commodities now comes to him as seller, and he too, for his part, enjoys the privilege of selling his commodities 10 per cent too dear. Our friend gained 10 as a seller only to lose it again as a buyer. In fact the net result is that all owners of commodities sell their goods to each other at 10 per cent above their value, which is exactly the same as if they sold them at their true value. A universal and nominal price increase of this kind has the same effect as if the values of commodities had been expressed for example in silver instead of in gold. The money-names or prices of the commodities would rise, but the relations between their values would remain unchanged.”
The problem with the erroneous concept of obtaining profit by buying cheap and selling dear is that it assumes that there exists a group of people in society who are purely buyers and another group that are purely sellers; “that there exists a class of buyers who do not sell, i.e. a class of consumers who do not produce”. Such a concept derives from the old undialectical view of Marx’s predecessors, who failed to see the interconnectivity within the economy. In a universal system of commodity production and exchange, we are all buyers and sellers. Even the capitalists are both sellers and buyers: of course they sell a product, but they must first buy in raw materials, invest in machinery, and pay out wages to workers.
Whilst there can be individual cases of ‘cheating’ within any isolated act of exchange, such swindling cannot help to increase the amount of value within society as a whole. What is gained by cheating with one hand will simply be lost later with the other; one man’s loss is another’s gain and vice-versa. “The value in circulation has not increased by one iota; all that has changed is its distribution between A and B. What appears on one side as a loss of value appears on the other side as surplus-value; what appears on one side as a minus appears on the other side as a plus…The capitalist class of a given country, taken as a whole, cannot defraud itself.”This cheating, however, cannot explain the origin of surplus value.
When looking for the source of surplus value within capitalism, therefore, we cannot look at isolated acts of exchange, or in the realm of circulation, but must instead analyse production and exchange as a whole. “If equivalents are exchanged, no surplus-value results, and if non-equivalents are exchanged, we still have no surplus-value. Circulation, or the exchange of commodities, creates no value.”
If not in the sphere of circulation, then, where does surplus value come from?
“The money-owner, who is as yet only a capitalist in larval form, must buy his commodities at their value, sell them at their value, and yet at the end of the process withdraw more value from circulation than he threw into it at the beginning. His emergence as a butterfly must, and yet must not, take place in the sphere of circulation.”
Our capitalist must begin with money, purchase commodities, sell his product, and then end up with more money that he started with. Therefore, the increase of value must have something to do with the commodity itself. But what?
“In order to be able to extract from the consumption of a commodity, our friend the money owner, must be lucky enough to find within the sphere of circulation, on the market, a commodity whose use-value possesses the peculiar property of being a source of value, whose actual consumption is therefore itself an objectification of labour, hence a creation of value.”
In other words, there must be a commodity that the capitalist can buy that itself is able to create surplus value by its very consumption. And as Marx explains, “the possessor of money does find such a special commodity on the market: the capacity for labour, in other words labour-power.”
This ‘labour-power’ – the ‘capacity for labour’ – is possessed by the worker and stands for all kinds of intellectual and physical abilities. It is the only thing the worker possesses for sale. It is normally expressed in terms of a contract of employment between a worker and employer for a given period of time. For example, workers are employed on contracts that specify a number of hours per week or weeks per year that they are due to work for the boss. How efficiently or how hard they work in this time – that is, how much they actually produce in a given week or year – is then a question for the capitalist to work out. The capitalist pays for the worker’s time; it is then up to the capitalist to utilise this time as effectively as possible in order to produce as much as possible.
The qualitative leap forward by Marx, therefore, was to see that workers themselves are not only the buyers of commodities, but are also the sellers of a very special commodity: their labour-power – the ability to work. What the capitalist buys from the worker, therefore, is not their actual labour, i.e. the products of his work, but their ability or capacity to work. The purchase and consumption of this special value-creating labour-power commodity transforms the owner of money into a capitalist.
This social relationship between the worker as the seller of labour-power and the capitalist as the buyer of labour-power is qualitatively different from previous modes of production, such as slavery or feudalism. Under slavery, the labourer is nothing more than a tool – a commodity that is owned outright by the slave-owner. The slave does not sell their ability to work as a commodity; the slaves themselves are the commodity. Under feudalism, meanwhile, the serf works on the land and the land, in turn, is owned by the feudal landlord. For four days, say, they will work on the lord’s land and for two they can work on their allotted plot to produce their own livelihood.
Under capitalism, however, the worker does not belong to the capitalist, and appears to sell their labour-power of their own volition. The worker, therefore, is not “forced” to work for the capitalist; they may always choose to end any contract and seek employment elsewhere, if they can find any. “[H]e must be the free proprietor of his own labour-capacity, hence of his person. He and the owner of money meet in the market, and enter into relations with each other on a footing of equality as owners of commodities, with the sole difference that one is a buyer, the other a seller; both are therefore equal in the eyes of the law.”
Such a situation, where one class of people sells their ability to work to another, does not arise naturally. Whilst the worker is not “forced” to work for any individual capitalist, nevertheless, in order to survive, the working class as a whole must seek employment from the capitalist class as a whole. In other words, for the worker-capitalist relation to arise, there must first be a situation in which a class of people have no other means of survival but to sell their labour-power to another – that is, to work for a wage.
“[N]ature does not produce on the one hand owners of money or commodities, and on the other hand men possessing nothing but their own labour-power. This relation has no basis in natural history, nor does it have a social basis common to all periods of human history. It is clearly the result of a past historical development, the product of many economic revolutions, of the extinction of a whole series of older formations of social production.”
Thus in order for capitalism to thrive, the working class first had to be created – that is, there needed to be a section of the population who were not, like the serfs under feudalism, tied to working on the land, but who had nothing to sell for their survival other than their ability to work. Such a class of wage-labourers did not emerge smoothly, but was the result of violent upheavals whereby peasants were driven from the land and thrown into the newly developing towns and cities, compelled to work for a wage or face a life of pauperism.
Labour-power, therefore, was not always a commodity – for example, when it was consumed by the labourers themselves. But to consume one’s own labour-power is only possible if you are also the owner of the necessary means of production. Excluded from these means, the labourer is forced to sell their labour-power as a commodity on the market.
“The historical conditions of its [capital’s] existence are by no means given with the mere circulation of money and commodities. It arises only when the owner of the means of production and subsistence finds the free worker available, on the market, as the seller of his own labour-power. And this one historical precondition comprises a world’s history. Capital, therefore, announces from the outset a new epoch in the process of social production.”
The worker, then, sells the commodity of labour-power to the employer. “Like all other commodities,” Marx notes, “it has a value.” “How is that value determined?”
Marx explains: “The value of labour-power is determined, as in the case of every other commodity, by the labour-time necessary for the production, and consequently also the reproduction, of this specific article…in other words, the value of labour-power is the value of the means of subsistence necessary for the maintenance of its owner.”
The price of labour-power is represented by the wages paid to the working class. This wage, therefore, must be able to cover the necessary expenditure for the worker’s maintenance, including food, shelter, clothing, healthcare, education; that is necessary “to maintain him in his normal state as a working individual.”
When discussing wages and the value of labour-power it is important to note that Marx is always and everywhere, as when discussing the value of any other commodity, talking about a social average, not an isolated case. We are not, therefore, concerned with the wages needed to maintain a given individual, but the social wage needed to maintain the working class as a whole. In this respect, Marx emphasises that the value of labour-power must cover not only the expenditure of the individual worker, but also the worker’s family, and indeed the continued existence of the working class a whole. If wages – the price of labour-power – are pushed down below this socially necessary value, the capitalist will quickly find themselves with a dearth of workers and the market forces of supply and demand will work to push wages back up.
Similarly, by viewing the value of labour-power in terms of society as a whole, Marx explains the social and historical factors present in determining wages:
“[T]he number and extent of his so-called necessary requirements, as also the manner in which they are satisfied, are themselves products of history, and depend therefore to a great extent on the level of civilisation attained by a country; in particular they depend on the conditions in which, and consequently on the habits and expectations with which, the class of free workers has been formed. In contrast, therefore, with the case of other commodities, the determination of the value of labour-power contains a historical and moral element.”
The social wage necessary, therefore, is not simply that required for the bare minimal subsistence of the working class, but is that of a given social and historical epoch, varying from country-to-country and from epoch-to-epoch. This can be considered the ‘going rate’ at different times and in different countries.
On the one hand, therefore, higher wages are needed for the additional expenditures – such as the latest technologies and higher levels of education – that workers need to function within the fast pace of modern capitalism; on the other hand, the working class, through a history of class struggles, has raised the social expectation of what an average wage – and thus an average standard of living – should be.
The value of labour-power, therefore, comes back down to that of a social relation – ultimately of a class struggle between the workers and the capitalist class; a struggle for higher wages on the side of the workers, and greater profits on the side of the capitalists.
The process of production
The source of profit, then, is to be found inside the process of production. This profit, meanwhile, is realised through the act of circulation, namely, in the sale of commodities in the market place.
This process of production, Marx explains, is the unity of two sub-processes: the labour process and the valorisation process. Marx starts by examining the labour process in its most generalised and abstracted form: as “a process between man and nature” in which “he acts upon external nature and changes it.”
“The simple elements of the labour process are (1) purposeful activity, that is work itself, (2) the object on which that work is performed, and (3) the instruments of that work.”
We see here how Marx does not distinguish between different types of labour. In particular, he highlights that “it is not what is made but how, and by what instruments of labour, that distinguishes different economic epochs.”
Today we hear the ridiculous proposition from bourgeois academics that the working class does not exist in the advanced capitalist countries because of the destruction of industry and ‘blue-collar’ jobs in these countries. The working class certainly exists. How else does electricity reach our homes or workplaces? How does water flow through our taps? Who drives public transport? Who serves us in the shops? Without the working class nothing would happen. Marx, however, does not romanticise any particular section of the working class or any particular form of industry.
There are millions under capitalism today involved in the ‘service sector’ and in ‘white-collar’ jobs who are not only wage-labourers, but who have also been forced to organise, unionise, and take collective action in defence of their conditions. Unlike the capitalists, they do not own the means of production and are forced to sell their labour-power in order to live. They are exploited as before, in that they receive less in wages than that which they produce for their employer.
Again, we see that the definition of the working class is a question of their relationship to the means of production, and is not simply a label to be pinned to on certain groups on the basis of a subjective appraisal.
In the process of production, the products of previous labour – existing use-values – are combined and turned into new use-values. “The same use-value is both the product of a previous process, and a means of production in a later process. Products are therefore not only results of labour, but also its essential conditions.”And it is this application of labour that gives life and vitality to use-values; without labour, objects will rust and decay over time, losing their usefulness and thus their quality as use-values. “Living labour must seize on these things, awaken them from the dead, change them from merely possible into real and effective use-values.”
The process of production is therefore also a process of consumption – productive consumption. However, Marx distinguished between this productive consumption – consumption of use-values for the creation of new use-values – and unproductive or ‘individual’ consumption, which whilst using up use-values, does not create any new use-values. Clearly this definition of productive or unproductive is from the standpoint of capitalism. “Such productive consumption is distinguished from individual consumption by this, that the latter uses up products as means of subsistence for the living individual; the former, as means of subsistence for labour.”
Such a distinction is important in light of modern Keynesian ideas of government stimulus. There are those who believe that a depressed economy can be resuscitated by simply paying workers to perform laborious but unproductive activities, whether it be digging holes in the ground, building roads to nowhere, or creating and dropping bombs. But such activity merely consumes use-values without creating any new use-value; it wastes productive forces without creating any new ones, acting not as source of real wealth, but as an almighty drain on the economy.
As explained, if equivalents are exchanged (and even if this rule is violated) surplus-value cannot arise from the act of exchange. It has to arise in production. Value is created by labour. The commodity employed to create value is labour-power. We therefore see the distinction between labour-power (the commodity) and labour (the use-value of labour-power).
By what means is the capitalist able to extract a surplus from his workforce? For instance, if the capitalist advances £1,000 in raw materials, machinery, and wages, then surely the total value of the product is merely equal to this £1,000. How does the capitalist class as a whole extract a surplus from the productive process?
Marx outlines the various arguments put forward by the apologists of capitalism to justify the role of the capitalists within society and their right to obtain a profit. Profit is said to be the reward to the capitalist for ‘taking a risk’; the compensation for providing means of production, for supplying jobs and means of subsistence to the working class; the payment for ‘overseeing’ the process of production.
Of course, such arguments are nothing but a “whole litany…simply meant to pull the wool over our eyes.”They are an attempt to justify this dog-eat-dog society. An army of consultants and advisers limit the so-called risks taken by the capitalists. The bigger the capitalist the less is the risk. Equally, far from providing workers with jobs and wages, the capitalists today are responsible for mass unemployment, demanding brutal austerity from their political representatives in power. What’s more, these wealthy ladies and gentlemen rarely play any role in production at all; far from ‘overseeing’ production, they are more divorced from production than ever, lying on some beach in the Bahamas, loosely connected to the real world through phone calls to their financial managers.
But, as Marx notes, the capitalists themselves are not the ones who feel the need to justify their money-making. “He [the capitalist] does not care twopence for it. He leaves this and all similar subterfuges and conjuring tricks to the professors of political economy, who are paid for it. He himself is a practical man, and although he does not always consider what he says outside his business, within his business he knows what he is doing.”
The capitalists are blinded by their own illusions. Their only interest is making money. They have a very hazy understanding of the source of surplus value. All they know is that they need to purchase labour-power from the worker. They know they have to squeeze as much surplus labour out of the workers. They know that they can sell the commodities produced by the workers for a greater amount than that paid to the worker in the form of wages. Surplus value, in other words, is simply the unpaid labour of the working class.
Under capitalism, exploitation is disguised. Our task is to reveal it. For example, if a worker and their family needs the subsistence created from the product of four hours labour, the wages they receive will be the money equivalent to four hours of labour. Thus in the first four hours of the working day, the worker creates new value equal to their wages. If the working day came to an end at that point, the capitalist would receive no surplus value. But the working day is not four hours but eight hours. The extra four hours is when the surplus value is created. So the production of surplus value is nothing more than the prolongation of work beyond the time needed to reproduce the value of labour-power.
“[T]he past labour embodied in the labour-power and the living labour it can perform, and the daily cost of maintaining labour-power and its daily expenditure in work, are two totally different things. The former determine the exchange-value of the labour-power, the latter is its use-value. The fact that half a day’s labour is necessary to keep the worker alive during 24 hours does not in any way prevent him from working a whole day. Therefore the value of labour-power, and the value which that labour-power valorises in the labour-process, are two entirely different magnitudes; and this difference was what the capitalist had in mind when he was purchasing the labour-power.”
“If we now compare the process of creating value with the process of valorisation, we see that the latter is nothing but the continuation of the former beyond a definite point. If the process is not carried beyond the point where the value paid by the capitalist for the labour-power is replaced by an exact equivalent, it is simply a process of creating value; but if it is continued beyond that point, it becomes a process of valorisation.”
“The trick has at last worked: money has been transformed into capital.
“Every condition of the problem is satisfied, while the laws governing the exchange of commodities have not been violated in any way. Equivalent has been exchanged for equivalent.”
Constant capital and variable capital
The labour of the worker is the source of value, and, in turn, the unpaid labour of the worker is the source of surplus value and therefore of profit. As the production process is also used to turn old use-values into new ones – what happens to the exchange-value of the old use-values contained within the raw materials and depreciation of machines, etc.? Marx explains:
“The workers adds fresh value to the material of his labour by expending on it a given amount of additional labour…On the other hand, the values of the means of production used up in the process are preserved, and present themselves afresh as constituent parts of the value of the product…The value of the means of production is therefore preserved by being transferred to the product.”
In other words, during the production process the worker uses up old use-values (raw materials, depreciation, etc.), whose value is transferred through to the new product. Through the worker’s labour, new products containing new values are also produced. Again, the source of all new value is the result of the extra socially necessary labour-time added in production.
“By the simple addition of a certain quantity of labour, new value is added, and by the quality of this added labour, the original values of the means of production are preserved in the product.”
The previous use-values – raw materials, wear and tear of machinery, etc. – that are consumed in the process of production contain previous socially necessary labour-time. While raw and auxiliary materials are completely consumed in production, all their value reappears in the new commodity, while instruments of labour (machinery), which are consumed gradually, transfer their value bit-by-bit as their use-value is worn away.
Here Marx makes the important distinction between ‘constant’ and ‘variable’ capital. Since all the capital advanced for the purchase of means of production simply transfers its value to the new commodities, without a change in its amount, Marx calls this ‘constant’ capital. Namely, those parts that “[do] not undergo any quantitative alteration of value in the process of production,”but simply transfer their value to the commodity. However, the capital advanced for the purchase of labour-power enters into the creation of surplus value. As this expands its value in the process of production, Marx calls this component ‘variable’ capital: “that part of capital which is turned into labour-power” and which “both reproduces the equivalent of its own value and produces an excess, a surplus-value, which may itself vary, and be more or less according to circumstances.”
It is only the variable capital, the application of new labour that adds value in the production process. This living labour creates new values. Materials used up in production only transfer their value through to the new product; meanwhile, machinery and equipment used to produce a multitude of commodities transfer their value over to the new products gradually over the lifetime of their productive use. This can be described as dead labour, as opposed to living labour of variable capital.
If a commodity could be produced purely by automation, taking in materials and transforming them into new products simply using machinery without any labour, then – presuming that the law of value was free to operate – such a commodity would have a value equal to that of the materials and machinery used in its production. Equally, if a product can be obtained from nature without any labour – for example, by simply picking it up from the ground or plucking it from the tree – then it has no exchange-value.
Under capitalism, competition and the drive for greater profits forces the capitalists to continually try to reduce both the constant and variable parts of their capital advanced. By reducing either or both, an individual capitalist can sell their commodity at a price below the current social average value, thus undercutting their competitors, gaining a greater market share, and creating super-profits. This competitive process is what drove capitalism forward in its heyday, allowing it to develop the means of production to extraordinary levels, with the continual reinvestment of profits into new science, technology, and techniques that reduce the costs of constant capital, whilst also increasing the productivity of labour and thus producing more use-values for a given quantity of variable capital.
But this progressive quality of capitalism at a certain point also turns into its opposite and creates the conditions for its own crises. With the replacement of labour by machinery to competitively reduce costs, a dual problem occurs.
Firstly, it is only the application of labour – i.e. of variable capital – that has the power to create new value and thus surplus-value. A production line solely consisting of machines would simply transfer bit-by-bit into commodities the huge investments made in terms of constant capital. A fully automated plant would still have been created by human labour, but could only transfer its own fixed value. As labour is replaced by machinery within the productive process, therefore, there is a downward pressure on the surplus-value (and thus the profits) that the capitalist class are able to obtain.
The same is true of all machinery, no matter how sophisticated. Nevertheless, despite automation, a plant will need to be maintained, supervised, repaired or replaced by human labour. This will of necessity be very highly skilled labour, which would transfer even more value. Where lines or branches of industry are automated, they can capture greater amounts of surplus-value by producing below the socially necessary average, sharing in the total mass of surplus-value created in society according to their share of the total capital. But the automated plant can only function as part of social production, not as isolated parts.
The idea of total automation, where the working class is excluded altogether from production, is a nonsense. It is the variable capital – the wages paid to workers – that forms the demand for the commodities produced within the capitalist mode of production. This is the second problem created by the replacement of labour with machinery: as workers are made redundant by machines, who will have the money to buy the goods being churned out? Robots, for all their productivity and efficiency, cannot buy things.
Thus, we see how capitalism sows the seeds for its own demise. This does not arise due to the individual qualities or mistakes of the capitalists, but as a result of the coercive laws and inner logic of capitalism itself. Only by replacing these laws of production with a different set of laws – of those based on a rational and democratic plan of production; driven by the fulfilment of society’s needs, not by profit – can we put an end to the continual crises of overproduction that capitalism inflicts upon humankind, throwing us back into a state of barbarism and poverty amidst plenty.
2 p247-248, our emphasis
4) Chapters 9-11: exploitation
In chapters 4-8 the secret is revealed: the profit that drives capitalism forward is nothing more than the unpaid labour of the working class, arising from the fact that the value paid (by the capitalist) for labour-power (in the form of wages) is less than the value produced (and appropriated by the capitalist) through the consumption of this labour-power.
Having outlined the question in its general theoretical form, Marx now looks at the issue more concretely, opening up the roof of the factory and peering in to examine the conditions inside – conditions that reveal how the capitalists extract ever greater quantities of surplus-value from the working class. What we see when we peek behind this magician’s curtain is a brutal history of exploitation and class struggle.
The rate of exploitation
To explain his ideas, Marx uses a series of figures and symbols. We know that capital is divided between constant capital and variable capital. The value of a product is made up from the value transferred from the means of production, plus the value created by the expenditure of labour. Surplus-value is created when the value created in production exceeds the value of labour-power. In other words, the value of a commodity ( C’) is made up from constant capital ( c) + variable capital ( v) + surplus-value ( s). Marx therefore uses the equation C’ = c + v + s, where the actual value created in production is ( v + s).
Firstly, however, Marx defines an important quantity – or ratio – in relation to the question of surplus-value: the rate of surplus-value, or rate of exploitation by capital. This is defined by the ratio of the surplus-value produced by the worker to the value of the labour-power (wages) paid by the capitalist. This, as a fraction, can be represented as s/v.
The variable capital, v, the value of labour-power involved in the production process, Marx notes, can also be thought of as the necessary labour – the labour necessary to produce value equal to that of the labourer’s subsistence. As Marx notes, however, with the division of labour within society, the worker does not, of course, produce their own means of subsistence directly; rather they produce commodities for the market that have a value equivalent to this means of subsistence.
The remainder of the working day is devoted to the production of surplus-value. The additional labour beyond necessary labour, therefore, is surplus labour. Surplus labour is present in all forms of class society. Indeed, the potential for surplus labour is the prior condition for class society, as it is only with the production of a surplus that a minority of exploiters can live – without working themselves – off the labour of others. What distinguishes capitalism as a mode of production, therefore, is not the presence of surplus labour, but the particular way in which this is generated – i.e. through wage-labour – and appropriated. As Marx notes:
“What distinguishes the various economic formations of society – the distinction between for example a society based on slave-labour and a society based on wage-labour – is the form in which this surplus labour is in each case extorted from the immediate producer, the worker.”
The working day is therefore divided up between necessary labour and surplus labour. This ratio is equal to the rate of surplus-value, or s/v. To use the words of Marx, it is “an exact expression for the degree of exploitation of labour-power by capital, or of the worker by the capitalist.”It is the working class that produces all the value in society; and yet, under capitalism, they receive only a fraction of this value back in the form of wages. The class struggle is, therefore, a struggle over this surplus in society.
The question of time
Since value is an expression of socially necessary labour-time, the rate of surplus-value, whilst representing the ratio of the surplus labour to the necessary labour, is ultimately a ratio of times: namely, the time that the worker works to produce the value of their labour-power, compared to the time that the worker works unpaid – free labour from the perspective of the capitalist.
Of course, however, in buying the worker’s labour-power, the capitalist has paid for this time, and by doing so, they have the right to appropriate the products made in this time. The task of the capitalist is therefore to try and maximise the length of time that the worker works – to maximise the length of the working day and thus increase the rate of exploitation, the ratio of the surplus labour-time compared to the necessary labour-time, also written as the fraction s/v.
For the capitalist, all time spent by the worker not working – all leisure time granted to the worker – seems like wasted money. Importantly, during such times, the machinery and infrastructure that the capitalist has paid for – the constant capital – lies idle also. The drive of the capitalist, again, therefore, is to maximise the length of the working day.
“As a capitalist, he is only capital personified. His soul is the soul of capital. But capital has one sole driving force, the drive to valorise itself, to create surplus-value, to make its constant part, the means of production, absorb the greatest possible amount of surplus labour. Capital is dead labour which, vampire-like, lives only by sucking living labour, and lives the more, the more labour it sucks. The time during which the worker works is the time during which the capitalist consumes the labour-power he has bought from him. If the worker consumes his disposable time for himself, he robs the capitalist.”
“The prolongation of the working day beyond the limits of the natural day, into the night, only acts as a palliative. It only slightly quenches the vampire thirst for the living blood of labour. Capitalist production therefore drives, by its inherent nature, towards the appropriation of labour throughout the whole of the 24 hours in the day.”
Regardless of the personal morality of this or that business owner, the laws of competition – the laws of capitalism – force this drive upon all capitalists. Every capitalist must take part in this race to the bottom or face losing their profits to someone else. As Marx comments:
“Capital therefore takes no account of the health and the length of life of the worker, unless society forces it to do so. Its answer to the outcry about the physical and mental degradation, the premature death, the torture of over-work, is this: Should that pain trouble us, since it increases our pleasure (profit)? But looking at these things as a whole, it is evident that this does not depend on the will, either good or bad, of the individual capitalist. Under free competition, the immanent laws of capitalist production confront the individual capitalist as a coercive force external to him.”
This highlights the problems faced by the Utopian Socialists, such as Robert Owen, who preceded Marx and Engels, and who thought that socialism could be brought about purely through education and by appealing to the ‘eternal truths’ of morality, justice, and reason. Similarly, this explains the limitations of trying to build ‘socialism in one factory’, as Owen himself attempted to achieve. An individual business owner may be kind and philanthropic, treating their workers kindly and paying them well, as Owen did, but such an owner will still be subject to the laws of competition and production for profit, and thus will be forced to cut labour costs to those of their competitors or risk being booted out of business. The problems of capitalism, therefore, are not simply a result of the greed of individual capitalists, but are inherent contradictions within the laws of capitalism itself.
Alongside this drive by the capitalist to extend the working day in the name of profits, Marx notes, “there arises the voice of the worker”, who wishes to curtail the extension of the working day, which leads to overwork and resultant injury. By increasing the hours of the working day and trying to extract ever more surplus labour from the worker, the capitalist causes the physical and mental degradation of the worker, and by extension, through competition, of the working class as a whole. The call of the worker, therefore, is: “I demand a normal working day because, like every other seller, I demand the value of my commodity.”
Limits, therefore, are placed on the length of working day at either end. At a minimum, the working day must be long enough to cover the value of the labour-power – i.e. to cover the wages paid to the worker. This time itself varies from place to place, depending on the value of labour-power, which, as discussed previously, is socially and historically determined, dependent on the productivity within society and the level of living standards that any particular society has become accustomed to.
At the other end of the scale, the working day has a maximum limit. Firstly, it is clearly impossible for the working day to be longer than 24 hours. More importantly, there is a limit imposed by the need to maintain the physical and mental state of the working class. In extending the working day too far, the capitalist not only risks diminishing the productivity of his workers through fatigue, but also risks the possibility of a violent and militant backlash from the accumulation of anger that builds up amongst workers who are pushed to their own personal limits.
As Marx notes, “limiting conditions are of a very elastic nature…So we find working days of many different lengths, of 8, 10, 12, 14, 16, and 18 hours.” The length of the working day, therefore, ultimately reduces itself to a class struggle – as a battle of living forces: between the capitalist class who wish to extract the maximum amount of labour from the labour-power they have purchased; and the working class, who wishes to work no longer than necessary. The class struggle, in other words, is a struggle over time.
“We see then that, leaving aside certain extremely elastic restrictions, the nature of commodity exchange itself imposes no limit to the working day, no limit to surplus labour. The capitalist maintains his rights as a purchaser when he tries to make the working day as long as possible, and, where possible to make two working days out of one. On the other hand, the peculiar nature of the commodity sold implies a limit to its consumption by the purchaser, and the worker maintains his right as a seller when he wishes to reduce the working day to a particular normal length. There is here therefore an antinomy, of right against right, both equally bearing the seal of the law of exchange. Between equal rights, force decides. Hence, in the history of capitalist production, the establishment of a norm for the working day presents itself as a struggle over the limits of that day, a struggle between collective capital, i.e. the class of capitalists, and collective labour, i.e. the working class.”
The history of the working day
Marx spends a large part of chapter 10 using historical records and factory reports to look at the concrete ways in which the capitalists have sought to extend the working day, from introducing the shift system in order to ensure that the process production is unceasing and uninterrupted, to biting into the leisure time of the worker and taking away from them any breaks:
“[I]n its blind and measureless drive, its insatiable appetite for surplus labour, capital oversteps not only the moral but even the merely physical limits of the working day. It usurps the time for growth, development and healthy maintenance of the body. It steals the time required for the consumption of fresh air and sunlight. It haggles over the meal-times, where possible incorporating them into the production process itself, so that food is added to the workers as to a mere means of production, as coal is supplied to the boiler, and grease and oil to the machinery.”
In doing so, Marx comments, the capitalists erode away the physical and mental health of the worker. Today, with shorter working days, a weekend of leisure time every week, and longer life expectancies, we might imagine that such talk by Marx is a thing of the past. Of course, this is not the case.
Firstly, however, we must ask, how did the concept of ‘the weekend’ – that is, of two days paid leisure time – and of a 40-hour week even come into existence? For such ‘luxuries’ have not always existed; as Marx explains, the working day would frequently be 12 hours or more, and the only day of rest would be Sunday – the Lord’s Day. The reality is that this leisure time, like all other progressive reforms, was won by the working class through struggle; through organisation and action. Only by threatening the profits of the capitalist class has the working class been able to win and secure such measures.
Marx spends a great deal of chapter 10 outlining the history of the working day, detailing how, “The establishment of a normal working day is the result of centuries of struggle between the capitalist and the worker,”from the Factory Acts of 1833, 1844, and 1847, to the Chartist movement of 1846-1848 and the fight for the Ten Hour Act.
Secondly, the capitalists today are continually trying to take such reforms away and extend the working day wherever possible. For decades there has been a drive by the capitalists to extract ever more labour from the working class in the form of unpaid overtime, which has become an expected norm in most workplaces, with the capitalists using competition between workers and the threat of unemployment to force workers to put in ever more hours every week. The latest estimates from the TUC indicate that the average worker puts in almost eight hours per week of unpaid overtime, with an estimated value (i.e. profit to the capitalist) of £34bn per year. In addition, we see the erosion of all personal time during the working day, with ‘tea’ and even lunch breaks now seemingly a thing of the past.
This enormous quantity of overtime put in by workers lies in contradiction to the mass unemployment existing in society, with capitalism unable to provide jobs, despite there clearly being overwork falling on the shoulders of those who are employed. How can it be that millions are unemployed, and yet millions more are forced to work 50-60 hours per week or take on two or three jobs just to make ends meet?
“Staff across Britain work among the longest hours in Europe – and are not even paid for much of the extra time they put in,” stated TUC General Secretary, Frances O’Grady, in relation to the figures above. “If there really is much too much work to go round, employers might want to consider taking on new staff. There are 2.3 million unemployed people across the UK who would be glad of the chance.”
Alongside this, with the growth of giant corporations, modern technology, and the pressure of competition on small businesses, there is again a drive for production and distribution to break through all physical or temporal limits, with shops open 24/7, online shopping and overnight delivery, and zero-hour contracts to guarantee the ‘flexibility’ of labour.
Finally, whilst the sort of physical degradation and work-induced illness that Marx describes in the 19th Century might be a thing of the past, today we instead see a proliferation of mental illness, stress, depression, and social problems caused by the pressures of overwork. For example, statistics show that stress now accounts for 40% of all cases of work-related illness; and whilst the total number of working days lost to sickness has decreased between 2009-2016 (from 146 million to 137 million), the number of days lost due to stress, depression, and anxiety has increased (from 12.3 million to 15.8 million). Elsewhere, over half of those involved in academic research in the UK say that heavy workloads are having an impact on their mental health; meanwhile, 57% of teachers in Britain say that they are thinking of leaving the profession as a result of increased hours, with primary school teachers and secondary school teachers now working an average of 60 and 56 hours per week respectively.
The competition and pressure under capitalism has, in other words, led to a state where workers are increasingly alienated from their labour, from their fellow workers, and from society in general. In place of mental stimulation and cultural enrichment, we instead see only feelings of isolation and anxiety. The work-induced premature deaths seen in Marx’s time have been replaced today by a lifetime of toil, stress, and depression.
Quantity and quality
Marx makes two additional important points regarding the question of surplus labour and surplus-value in this section. Firstly, he ridicules the argument of the important ‘Last Hour’ put forward by the English bourgeois economist Nassau W. Senior. Professor Senior argued that laws in the Factory Act of 1833 that imposed a reduction in the working day of one hour – the famous ‘Last Hour’ – would see the profits of the cotton business owners disappear.
Senior’s argument, Marx showed, was fundamentally flawed, for it assumed that the worker spent much of his day reproducing the values of the constant capital involved in the production process. But as explained previously, the value embodied within constant capital – the accumulated dead labour of previous workers – is not destroyed in the process of production, but is simply transferred over from the old products to the new. This is the case for both the machinery and the tools utilised, as well as for the raw materials used.
“You are altogether on the wrong track, if you think that he loses a single moment of his working day in reproducing or replacing the values of the cotton, the machinery and so on. On the contrary, it is because his labour converts the cotton and the spindles into yarn, because he spins, that the values of the cotton and spindles go over to the yarn of their own accord. This is a result of quality of his labour, not its quantity.”
The value within the constant capital, therefore, appears on both sides of the balance sheet and cancels out. All socially necessary labour-time involved in the productive process adds new value to the end product, which is in addition to the previous accumulated labour contained within the raw materials, machinery, etc. that is the product of past efforts. The hours of the working day, therefore, are not split into c + v + s (constant, variable, and surplus), but are merely split into v + s, the variable and the surplus.
The result is that a reduction in the working day has a far less detrimental effect on the profits of the capitalists than that posed by Senior. As is the case now, Senior’s argument was nothing more than bourgeois hysteria, designed to raise a hue and a cry about legislation that, whilst mildly reducing the burden on workers, was ultimately a threat to the profits of the capitalists.
Later, in chapter 11, Marx draws a distinction between the rate of surplus-value and the mass of surplus-value, the latter quantity simply being the former multiplied by the total variable capital advanced. The mass of surplus-value (and therefore the mass of profits) for the capitalist, therefore, depends on the degree of exploitation and the number of workers being exploited.
This helps to explain the relationship between investment, productivity, exploitation, and employment. By investing in machinery to increase productivity, the capitalist can increase the degree of exploitation, allowing workers to produce more in a given time period. Fewer workers then need to be employed to produce the same amount, allowing labour costs to be lowered and profits to be increased. The capitalist, then, can lower the prices of their goods below the social average, undercutting competitors and gaining market share. This process forms a key part of the capitalist competition that drives capitalism forward in its heyday to develop the means of production – a tendency that turns into its opposite as capital becomes concentrated in fewer and fewer hands, turning competition into monopoly and progress into regression.
This also has important consequences for today in Britain, where there seems to be a ‘productivity puzzle’: compared to pre-crisis levels, the numbers in employment are at record levels (although there are important factors behind this), but yet GDP (national wealth) is relatively low; this implies a drop in productivity in the UK economy since the crisis.
How then are British businesses maintaining their profits, if productivity is low and yet unemployment is also relatively low? The key is that wages are low too, thus a larger number of workers can be employed for a given quantity of variable capital. In other words, cheap labour is being employed in the UK today instead of investing in efficiency, machinery, and automation. Rather than investing and developing the means of production, the parasitic capitalists are simply taking advantage of low wages to make a quick profit.
Finally, Marx explains the dialectical relationship between money and capital – a relationship of quantity and quality. Not all money is capital. But at what point does an accumulation of money and wealth become capital?
In short, money becomes capital at a point when the owner of wealth is able to survive purely by living off the labour of others. An owner of a small quantity of money may only be able to employ a single worker, who in turn may only produce enough to cover their own means of subsistence and a small fraction of the money-owner’s means of subsistence. As the quantity of money in the hands of the owner grows, the workforce can expand until eventually a point is reached whereby the money-owner can survive by living off the work of others.
Similarly, as the productivity of labour increases, the ratio of surplus to necessary labour increases, and thus the amount of workers needed to maintain a single capitalist decreases. This again relates to the degree of exploitation and the relationship between the rate and mass of surplus-value.
An end to toil
Under capitalism, the question is always posed in such a way: how many workers does capitalism require for its maintenance? The answer we so frequently find is: far fewer than the total population. Hence the permanent scar of mass unemployment that blights society. Such is the absurdity of capitalism, under which the development of the means of production and the increase of science, technology, and productivity only lead to increasing profits at one end and increasing misery at the other.
Instead of having the contradiction of mass unemployment alongside 50-60 hour weeks for those in employment, why isn’t the technology and machinery in society used to share work out evenly amongst the population and lower the hours of the working week for everyone? Full employment could exist alongside a 30 or even 20 hour week. But this is incompatible with capitalism and profit-making.
Today, with a high level of potential productivity, thanks to the possibilities inherent in modern technology and automation, we could reduce this necessary labour to only a few hours a day, or even less. Eventually, with the continued development of science and technology, this could be reduced even further and the idea of ‘work’ as we know it could be done away with completely. Our concerns should not be work, but how to enjoy our lives to the full, free from this burden. In the 1960s, TV programmes pondered what, with the advent of automation, we would do with all the leisure time at our disposal. But rather than having more free time, thanks to capitalism we have less time.
Under capitalism, where production is only for profit, this indeed remains a utopia. Only a rational and democratic plan of production – that is, a socialist system in which society’s needs come before personal profits – can make this dream a reality.
But as Marx highlights, no gain in leisure time for the working class has ever come without an organised struggle. The task, therefore, is to educate, agitate, and organise, and to fight for the revolutionary transformation of society.
“The history of the regulation of the working day in certain branches of production, and the struggle still going on in others over this regulation, prove conclusively that the isolated worker, the worker as ‘free’ seller of his labour-power, succumbs without resistance once capitalist production has reached a certain stage of maturity. The establishment of a normal working day is therefore the product of a protracted and more or less concealed civil war between the capitalist class and the working class.”
“For ‘protection’ against the serpent of their agonies, the workers have to put their heads together and, as a class, compel the passing of a law, an all-powerful social barrier by which they can be prevented from selling themselves and their families into slavery and death by voluntary contract with capital.”
5) Chapters 12-14: Productivity, Co-operation, and the Division of Labour
Previously, in chapter 10, having explained that the source of profits lies in the unpaid labour of the working class, Marx demonstrated how the capitalists squeeze greater profits from workers by extending the hours of the working day. Now Marx turns his attention towards how the capitalists increase their profits whilst maintaining the same length of the working day.
The former method of increasing profits, arising from a lengthening of the working day, Marx refers to as the production of absolute surplus-value. The additional surplus-value obtained within a given length of the working day, in contrast, Marx terms relative surplus-value.
Relative surplus-value and productivity
How, then, do the capitalists go about producing an increase in the relative surplus-value? For a given length of the working day, the total value produced is also a given, since value (exchange-value) is the result of socially necessary labour-time. This labour-time, as explained earlier in Capital, can be split into: the necessary labour, in which the worker creates the value needed to cover the cost of their labour-power, namely wages; and the surplus labour, in which the worker is effectively working for free for the capitalist, creating surplus-value.
The only way to increase the amount of surplus-value without altering the length of the working day, therefore, is to increase the amount of surplus labour compared to the necessary labour. This can also be expressed in an increase of the ratio s:v, or in other words, in an increase in the rate of exploitation, s/v. But to increase this ratio without changing the total value produced (determined by the length of the working day) implies only one thing: a reduction in v, the value of labour-power – the necessary labour-time.
This reduction in the value of labour-power, in turn, means a reduction in the value of those commodities that form the means of subsistence for workers – i.e. a reduction in the socially necessary labour-time needed to produce the commodities consumed by the working class. And as Marx notes:
“…this is impossible without an increase in the productivity of labour…by an alteration in his [the worker’s] tools or in his mode of working, or both. Hence the conditions of production of his labour, i.e. his mode of production, and the labour process itself, must be revolutionised…to endow a given quantity of labour with the power of producing a greater quantity of use-value.”
“The technical and social conditions of the process and consequently the mode of production itself must be revolutionised before the productivity of labour can be increased. Then, with the increase in the productivity of labour, the value of labour-power will fall, and the portion of the working day necessary for the reproduction of that value will be shortened.”
In short, what we are talking about here is simply squeezing more labour out of the worker in the same space of time as before. This is called the intensification of labour. The capitalist who is able to produce more use-values within a given quantity of labour, develops a competitive advantage. Such a producer is able to sell his product at a price above its individual value, resulting in increased surplus-value.
It is through increasing the productivity of labour, therefore, that the capitalists increase relative surplus-value and thus their profits; and this is done by developing the means of production and revolutionising the productive process with new technology and techniques. In effect, the worker reproduces the value of their labour-power in less time.
Of course, the advantage for the individual capitalist only exists as long as the rest of their competitors remain with the old techniques. As soon as the rest catch up, the social value of the product falls to the new value based on the latest methods of production.
This, then, is the motivation affecting all capitalists that forces them to introduce new technology – to out-compete one another so as to gain a temporary advantage and super-profits.
Order out of chaos
It is necessary to separate, however, the general process and the overall result from the selfish interest of each individual capitalist. As Marx explains, “The general and necessary tendencies of capital must be distinguished from their forms of appearance.”Whilst a general increase in productivity will lead to a decrease in the value of labour-power and thus an increase in relative surplus-value, this general result is not the motive behind the actions of the individual capitalist.
The individual capitalist does not have the intention of cheapening the social value of labour-power. Rather, the capitalist increases productivity within their business in order to produce more for less; to cheapen the cost of the commodities they produce and thus produce at a cost below that of the social average. By doing so, the individual capitalist can outcompete their rivals, sell at a price below their competitors, capture market share, and make super-profits.
The laws of competition within capitalism, however, force all capitalists to act in a similar manner. Each particular attempt to increase productivity, arising from the motive of private profit, therefore contributes to a general process of increasing productivity within society.
“While it is not our intention here to consider the way in which the immanent laws of capitalist production manifest themselves in the external movement of the individual capitals, assert themselves as the coercive laws of competition, and therefore enter into the consciousness of the individual capitalist as the motives which drive him forward, this much is clear: a scientific analysis of competition is possible only if we can grasp the inner nature of capital, just as the apparent motions of the heavenly bodies are intelligible only to someone who is acquainted with their real motions, which are not perceptible to the senses.”
The capitalists, however, are constantly chasing their own tails, for the super-profits they individually obtain in the short-term from increasing productivity in their firm are lost as soon as this increase in productivity becomes generalised; as competition forces others to adopt the same methods.
“[T]his extra surplus-value vanishes as soon as the new method of production is generalised, for then the difference between the individual value of the cheapened commodity and its social value vanishes. The law of the determination of value by labour-time makes itself felt to the individual capitalist who applies the new method of production by compelling him to sell his goods under their social value; this same law, acting as a coercive law of competition, forces his competitors to adopt the new method.”
The laws of competition, imposing themselves as a force on the capitalists, nevertheless arise out of the individual actions and interactions of the capitalists themselves. The accidental wills of the capitalists assert themselves as a necessary tendency to increase productivity; an order emerges in the economy out of the chaotic and anarchic motion of the many individuals involved.
This process, in the heyday of capitalism, was responsible for an enormous development of the productive forces, increasing the wealth in society at a rate never previously seen in history. However, it is precisely the anarchic nature of this process that leads to the absurd contradictions we see under capitalism today: of mass unemployment alongside people working two or three jobs; of homelessness alongside empty homes.
Capitalism has developed science and technology to an extraordinary level; but it is not able to utilise this development in the interests of ordinary people. Rather than increasing the leisure time of the working class, the increases of productivity in society have simply led to greater profits for a tiny elite, while imposing a greater burden on the rest of us.
“The shortening of the working day, therefore, is by no means what is aimed at in capitalist production, when labour is economised by increasing its productivity. It is only the shortening of the labour-time necessary for the production of a definite quantity of commodities that is aimed at…The objective of the development of the productivity of labour within the context of capitalist production is the shortening of that part of the working day in which the worker must work for himself, and the lengthening, thereby, of the other part of the day, in which he is free to work for nothing for the capitalist.”
The capitalist, then, strives to revolutionise the process of production, introducing new, more efficient technologies and techniques. Marx explains how, historically, capitalism has achieved this increase in productivity. On the one hand, there is a constant investment in new machinery, tools, and technology – Marx elaborates on this in later chapters. On the other hand, there is change in the methods and techniques employed in the productive process, with increasing efficiency coming from new forms of organisation.
Historically, Marx explains, there has been a vast improvement in the general productivity of labour brought about by bringing many individuals under one roof, integrating many individual labours into a single process of production. At first we see workshops, then manufacturing and the rise of the factory. ‘Economies of scale’ emerge – improvements in efficiency brought about by the communal use of resources and infrastructure – that serve to lower costs. “The effect is the same as if the means of production had cost less. This economy in the application of the means of production arises entirely out of their joint consumption in the labour process by many workers.”
Importantly, we find that the joint action of many individuals in co-operation achieves more than a simple multiplication of their isolated and individual efforts. Dialectically, like the organs of a body that work together to give life to the human body, we find that co-operation in production means a result that is more than a formal sum of its parts.
“Just as the offensive power of a squadron of cavalry, or the defensive power of an infantry regiment, is essentially different from the sum of the offensive or defensive powers of the individual soldiers taken separately, so the sum total of the mechanical forces exerted by isolated workers differs from the social force that is developed when many hands co-operate in the same undivided operation…Not only do we have here an increase in the productive power of the individual, by means of co-operation, but the creation of a new productive power, which is intrinsically a collective one.”
For co-operation in the workplace to occur, however, there must be a collective plan of production within the workplace; a common process composed of individuals acting under a single directive. This, under capitalism, implies the common employment of many workers under a single capitalist; and this, in turn, implies a certain concentration of capital – the concentration of the ownership of the means of production in a single pair of hands, upon which many workers can be set to work.
“As a general rule, workers cannot co-operate without being brought together; their assembly in one place is a necessary condition for their co-operation. Hence wage-labourers cannot co-operate unless they are employed simultaneously by the same capital, the same capitalist, and therefore unless their labour-powers are bought simultaneously by him.”
“Hence, concentration of large masses of the means of production in the hands of individual capitalists is a material condition for the co-operation of wage-labourers, and the extent of co-operation, or the scale of production, depends on the extent of this concentration.”
The co-operation enabled by this concentration of capital, meanwhile, enables the capitalist to increase productivity, lower costs, become more competitive, gain market share, and thus increase the concentration of capital even further. Hence the tendency within capitalism for the free market of competition to turn into its opposite: monopoly.
Capitalism, therefore, relies on the co-operation of workers; on the bringing together of many workers into a social process of labour. This same process of co-operation that capitalism requires for the sake of profits, however, also helps to forge the weapon that is needed to overthrow the capitalist system: the organisation of the working class.
“As the number of the co-operating workers increases, so too does their resistance to the domination of capital, and, necessarily, the pressure put on by capital to overcome this resistance.”
By being brought together and freed from a life of isolated labour, the conditions of capitalist production create class consciousness and, in turn, class organisation. And – as with the dialectical manner in which the combined efforts of many workers achieves more than the accumulation of their individual efforts – it is through their unity and organisation that the working class becomes a powerful force, capable of transforming society.
Capitalism, therefore, by creating the conditions for the organisation of the working class, creates its own gravediggers. Hence the drive today by the capitalists to try and prevent workers from organising, from the abolition of the ‘closed shop’ (whereby trade unions could prevent non-unionised labour from being employed) to the need for postal ballots – rather than workplace votes – in order to call a strike. Hence also the constant attempts by the capitalists to atomise and isolate workers through outsourcing, sub-contracting, privatisation, and freelancing.
Division of labour
The division of labour within society does not originate with capitalism, but is present in even the most primitive forms of society. As Engels notes in his work The Origins of the Family, Private Property, and the State, the first division of labour develops in society on the basis of the physiological differences between the sexes. As discussed previously, the division of labour within society is the prerequisite to the development of commodity production and exchange – the division of labour into separate producers, producing for exchange rather than for personal consumption.
Capitalism takes this division of labour and intensifies it further: on the one hand, capitalism increases the productivity of labour through ever-increasing specialisation, breaking up the productive process into smaller and smaller repetitive tasks; on the other hand, as capitalist production expands, different – previously isolated – trades and sectors are brought under a common plan of production. In a dialectical, seemingly contradictory manner, therefore, capitalism divides workers up, only to then place them alongside each other again.
“The mode in which manufacture arises, its growth out of handicrafts, is therefore twofold. On the one hand it arises from the combination of various independent trades, which lose that independence and become specialised to such an extent that they are reduced to merely supplementary and partial operations in the production of one particular commodity. On the other hand, it arises from the co-operation of craftsmen in one particular handicraft; it splits up that handicraft into its various detailed operations, isolating these operations and developing their mutual independence to the point where each becomes the exclusive function of a particular worker. On the one hand, therefore, manufacture either introduces division of labour into a process of production, or further develops that division; on the other hand it combines together handicrafts that were formerly separate. But whatever may have been its particular starting-point, its final form is always the same – a productive mechanism whose organs are human beings.”
Capitalism, then, turns the individual worker into just another cog in the machine. Commodity production becomes not the result of individual production, but of social, collective production. The worker is further alienated from their labour – no worker can point at a product and say “I produced that”. A commodity is produced by many hands. “[T]he specialised worker produces no commodities. It is only the common product of all the specialised workers that becomes a commodity.”
At the same time, co-operation creates a discipline amongst workers, forcing them to attain a certain rhythm and level of efficiency in order to fit in with the other agents involved in the common process of production. Individual will is subsumed by the interdependent needs of the total productive process. Therefore, whilst the law of value and socially necessary labour operate through the market forces of competition, it is through co-operation that the concept of necessary labour-time asserts itself within the workplace.
“It is clear that the direct mutual interdependence of the different pieces of work, and therefore of the workers, compels each one of them to spend on his work no more than the necessary time. This creates a continuity, a uniformity, a regularity, an order, and even an intensity of labour, quite different from that found in an independent handicraft or even in simple co-operation. The rule that the labour-time expended on a commodity should not exceed the amount socially necessary to produce it is one that appears, in the production of commodities in general, to be enforced from outside by the action of competition: to put it superficially, each single producer is obliged to sell his commodity at its market price. In manufacture, on the contrary, the provision of a given quantity of the product in a given period of labour is a technical law of the process of production itself.”
The anarchic nature of capitalism, operating blindly under private ownership and the laws of competition, creates its own contradictions. On the one hand, the division of labour in society – i.e. the relative importance of different industries and activities – is regulated through the invisible hand of the market; through the exchange of commodities. On the other hand, the division of labour within the workplace is regulated and directed consciously by a single capitalist. Within capitalism, therefore, we see the contradictory tendencies of competition within the market and yet organisation and planning within the firm; a contradiction between the needs of society and the needs of the individual capitalist.
“The division of labour within society is mediated through the purchase and sale of the products of different branches of industry, while the connection between the various partial operations in a workshop is mediated through the sale of the labour-power of several workers to one capitalist, who applies it as combined labour-power. The division of labour within manufacture presupposes a concentration of the means of production in the hands of one capitalist; the division of labour within society presupposes a dispersal of those means among many independent producers of commodities…
“…The planned and regulated a priori system on which the division of labour is implemented within the workshop becomes, in the division of labour within society, an a posteriori necessity imposed by nature, controlling the unregulated caprice of the producers, and perceptible in the fluctuations of the barometer of market prices.”
Frederick Engels, in his pamphlet Socialism: Utopian and Scientific, noted the same contradiction within capitalism between the immense level of planning that takes place within each firm and business – planning that is put in place for the sake of increasing profits – and the incredible anarchy that exists between firms and businesses. This contradiction, Engels explained, is only a reflection of the contradiction between the incredibly socialised nature of production under capitalism – in which all producers are part of a common world system of commodity production and exchange – and the private ownership over the means of production and private appropriation of the products of production.
“The contradiction between socialised production and capitalistic appropriation now presents itself as an antagonism between the organisation of production in the individual workshop and the anarchy of production in society generally.”
The irony, Marx notes, is that it is the very same ladies and gentlemen who preach about ‘freedom’, ‘liberty’, ‘individuality’, and above all ‘the market’, that are the ones who – within their businesses – demand the very opposite: organisation, authority, and co-operation. The defenders of the free market – the ones who so vehemently oppose any socialist plan of production within society as a whole – are at the same time the most ardent supporters of a plan of production within the firm. As ever, therefore, we see the utter hypocrisy of the bourgeois, whose ‘freedoms’ and ‘rights’ are only ever freedoms and rights for themselves; the bourgeois freedom to exploit the labour of others. Everyone else must accept their subjugation to the needs of capital.
“The same bourgeois consciousness which celebrates the division of labour in the workshop, the lifelong annexation of the worker to a partial operation, and his complete subjection to capital, as an organisation of labour that increases its productive power, denounces with equal vigour every conscious attempt to control and regulate the process of production socially, as an inroad upon such sacred things as the rights of property, freedom and the self-determining ‘genius’ of the individual capitalist. It is very characteristic that the enthusiastic apologists of the factory system have nothing more damning to urge against a general organisation of labour in society than that it would turn the whole of society into a factory.”
It is this contradiction at the heart of the capitalist system – between socialised production and private appropriation – that ultimately turns the initial progressiveness of capitalism into its opposite; into a system that can no longer develop or utilise the productive forces in society. Competition and private ownership, having provided the motor force behind the development of the means of production in the heyday of capitalism, now present themselves as enormous barriers to the development of science, technology, and industry; as enormous fetters on the progress of society and humanity – fetters that periodically plunge society into a state of overproduction, crisis and barbarism.
We have an incredible array of scientific knowledge and technology at our fingertips, and yet capitalism is unable to utilise this. Technologies such as 3D printing, artificial intelligence, and other automation techniques open up the possibility of completely revolutionising production and, in turn, society as a whole. But under capitalism, this remains mere potential, with the application of new machinery and technology leading not to increased living standards, but simply to ever-increasing unemployment, insecurity and overwork at one end, and the accumulation of profits at the other.
We leave the final word to Engels:
“[The] solution can only consist in the practical recognition of the social nature of the modern forces of production, and therefore in the harmonising with the socialised character of the means of production. And this can only come about by society openly and directly taking possession of the productive forces which have outgrown all control, except that of society as a whole. The social character of the means of production and of the products today reacts against the producers, periodically disrupts all production and exchange, acts only like a law of Nature working blindly, forcibly, destructively. But with the taking over by society of the productive forces, the social character of the means of production and of the products will be utilised by the producers with a perfect understanding of its nature, and instead of being a source of disturbance and periodical collapse, will become the most powerful lever of production itself.”
16 Engels, Socialism: Utopian and Scientific, chapter 3, emphasis in the original
18 Engels, Socialism: Utopian and Scientific, chapter 3
6) Chapter 15: The Machine
Having discussed how the capitalists are able to increase profits by improving productivity through the application of new organisational means within the workplace, Marx now turns his attention towards the most revolutionary of developments within capitalism: the machine.
Whilst the development and application of machinery within the productive process was a revolutionary step forward, Marx begins chapter 15 of Capital on Machinery and Large-Scale Industry by explicitly stating the purpose of the application of such machinery on a capitalist basis: to increase the profits of the capitalists.
“Like every other instrument for increasing the productivity of labour, machinery is intended to cheapen commodities and, by shortening the part of the working day in which the worker works for himself, to lengthen the other part, the part he gives to the capitalist for nothing. The machine is a means for producing surplus-value.”
The focus of the capitalist when introducing machinery into the workplace, therefore, is not to lighten the load of the worker, nor to reduce the hours of the working day, but to increase the productivity of labour within the workplace and thus substitute workers with machines.
The effect for the individual capitalist is to reduce the cost of the commodities that are being produced, with the hope of being able to reduce prices below that found on the market. If this feat can be achieved, then market share can be captured by the capitalist and super-profits can be earned.
The laws of competition within capitalism, however, force every other capitalist to follow suit; each capitalist must attempt to keep up with the pace of technology in industry or face extinction. Thus, the application of pioneering machinery within the workplace becomes generalised, and the effect is a general increase in productivity across industry, which in turn results in a general cheapening of commodities – i.e. a reduction in their values due to a reduction of the socially necessary labour-time needed to produce them.
Whilst this is not the starting aim of the individual capitalist, this general result means a cheapening of the value of labour-power, which is determined by the value of those commodities needed to maintain the working class and their families: food, shelter, clothing, healthcare, education, etc., etc. This, then, is the how the application of machinery leads to a general increase in surplus-value for the capitalist class: by cheapening commodities in general, the value of labour-power is reduced; relative surplus-value is thereby gained by reducing the part of the working day in which the worker must perform necessary labour, and increasing the part of the working day in which surplus labour is performed – labour that is performed for free from the perspective of the capitalist.
From the beginning, therefore, Marx makes clear the contradiction of machinery within the confines of a system of production for profit: the development and application of technology and technique – that is, the development of the means of production – no longer translates to improved living standards for the vast majority of society, but is merely a means by which a tiny minority enriches themselves. The application of machinery and new technology under capitalism does not liberate us, but enslaves us.
The dialectical development of machinery
Marx begins his analysis of machinery by outlining its general historical development. The question of machinery is, in essence, a question of automation – of reducing the socially necessary labour-time required for any given process. “The machine, therefore, is a mechanism, that, after being set in motion, performs with its tools the same operations as the worker formerly did with similar tools.”
The spread of machines in one industry, in turn, paved the way for – and indeed required – the use of machines in others. Eventually, the size and scale of the machines used necessitated the development of machines that were themselves produced using other machines.
The method of historical materialism, as outlined by Marx and Engels, explains that the motor force of society is the development of the means of production – the development of industry, science, technology and technique. If any given society cannot do this, then it will – eventually – be overthrown, conquered, or replaced by one that can.
At root, the development of the productive forces is a process of humankind’s mastery over nature, of harnessing the forces bequeathed to us by our surroundings. In relation to industry, Marx explains that it was not the invention of the steam engine that enabled the Industrial Revolution, but rather it was the revolutionary development of machinery that made a similar revolution in the source of power necessary.
Here we see the dialectical materialist method of Marx fully at work. In many versions of history, the improvements of the steam engine by Scottish engineer James Watt are painted as being the fundamental cause of the Industrial Revolution, and, by extension, the primary factor behind the rise of British capitalism and the ensuing industrial and economic dominance of British imperialism. Without the individual genius of Mr Watt, it seems, the whole of history would be different!
But the improvements made to the steam engine by Watt were merely an historical ‘accident’, in the sense that they might have easily have been made by anyone else. Behind this accident, however, lay the driving necessity to develop machinery and liberate industry from the confines imposed by nature in terms of a power source. The development of steam power removed the reliance on water power and so enabled industry to be moved to other locations more freely; with steam power, the primary factor became access to coal, the source of the energy needed to generate steam. Today, with the development of electrical power, industry has been even further liberated from these natural restrictions, and is frequently moved – with the rise of globalisation – to wherever the cheapest labour can be found.
“The steam-engine itself, such as it was at its invention during the manufacturing period at the close of the seventeenth century, and such as it continued to be down to 1780, did not give rise to any industrial revolution. It was, on the contrary, the invention of machines that made a revolution in the form of steam-engines necessary. As soon as man, instead of working on the object of labour with a tool, becomes merely the motive power of a machine, it is purely accidental that the motive power happens to be clothed in the form of human muscles; wind, water or steam could just as well take man’s place.”
Labour and machines
The role of the machine is to amalgamate the various tasks and processes that are found in a given industry; to combine the functions of the different tools held by different workers within one body.
“The machine, which is the starting-point of the industrial revolution, replaces the worker, who handles a single tool, by a mechanism operating with a number of similar tools and set in motion by a single motive power, whatever the form of that power. Here we have the machine, but in its first role as a simple element in production by machinery.”
Having discussed the role of the co-operation and the division of labour within manufacture in chapters 13-14, Marx now explains how, with the application of machinery, this organisation of workers within the factory is now internalised within the workings of single machine or set of interconnected machinery. “Here we have again the co-operation by division of labour which is peculiar to manufacture, but now it appears as a combination of machines with specific functions.”
Such a transition from labour to machinery is, in turn, a transition from the subjective variation of efficiency and skill amongst workers to an objective level of efficiency within the productive process. The pace and rhythm of the productive process, once dependent on the random variety of skill amongst the workers, is now replaced by the definite order and speed of the machine, which presents itself as an objective fact to the worker.
“The collective working machine, which is now an articulated system composed of various kinds of single machine, and of groups of single machines, becomes all the more perfect the more the process as a whole becomes a continuous one…in other words, the more its passage from one phase to another is effected not by the hand of man, but by the machinery itself. In manufacture, the isolation of each special process is a condition imposed by the division of labour itself, whereas in the fully developed factory the continuity of the special processes is the regulating principle.”
“As machinery, the instrument of labour assumes a material mode of existence which necessitates the replacement of human force by natural forces, and the replacement of the rule of thumb by the conscious application of natural science. In manufacture the organisation of the social labour process is purely subjective: it is a combination of specialised workers. Large-scale industry, on the other hand, possesses in the machine system an entirely objective organisation of production, which confronts the workers as a pre-existing material condition of production. In simple co-operation, and even in the more specialised form based on the division of labour, the extrusion of the isolated worker by the associated worker still appears to be more or less accidental. Machinery…operates only by means of associated labour, or labour in common. Hence the co-operative character of the labour process is in this case a technical necessity dictated by the very nature of the instrument of labour.”
Man vs the machine
The application of machinery in the productive process is not automatic, however. The purpose of machinery, from the perspective of the capitalist, is to cheapen the commodities being produced. This can only happen if the cost of the machinery is less than the cost of the workers that the machinery is intended to replace, as Marx explains:
“The use of machinery for the exclusive purpose of cheapening the product is limited by the requirement that less labour must be expended in producing the machinery than is displaced by the employment of that machinery…the limit to his using a machine is therefore fixed by the difference between the value of the machine and the value of the labour-power replaced by it.”
“Since the division of the day’s work into necessary labour and surplus labour differs in different countries, and even in the same country at different periods, or in different branches of industry; and further, since the actual wage of the workers sometimes sinks below the value of his labour-power, and sometimes rises above it, it is possible for the difference between the price of the machinery and the price of the labour-power replaced by that machinery to undergo great variations, while the difference between the quantity of labour needed to produce the machine and the total quantity of labour replaced by it remains constant.”
The use of machinery, therefore, is always dependent on the relative price of machinery versus that of wages. Where the labour movement is weak and wages are low, the relative cost of employing workers is less; investment in machinery will therefore be less also, keeping productivity at a low level. Hence the spread of globalisation, with capitalism taking advantage of the low-cost labour and paltry wages of textile workers in Bangladesh or factory workers in China.
Rather than developing the means of production by investing in technological research and new machinery, therefore, we see how capitalism – with its need to continuously increase profits – holds society back and keeps industry on a low level of productivity. This contradiction, however, is not confined to industry in developing countries, but can be seen today even in advanced capitalist countries like Britain: investment is at historically low levels, with businesses instead taking advantage of relatively low wages to employ many workers in jobs that could be automated. Whilst this may temporarily keep unemployment rates at low levels, the result has been a drop in productivity since the crisis began. In the long term, this can only mean stagnation in the economy and declining standards of living for ordinary workers.
On the other hand, where workers are organised and strong, helping to push up wages, investment in new technology will be greater. Hence the enormous development of machinery and investment in new technology during the Second World War and the post-war period, where the labour supply was limited, strengthening the hand of the workers and putting an upward pressure on wages. In such a situation, Marx explains, the threat of replacing labour with machinery is used by the capitalists to pacify workers:
“But machinery does not just act as a superior competitor to the worker, always on the point of making him superfluous. It is a power inimical to him, and capital proclaims this fact loudly and deliberately, as well as making use of it. It is the most powerful weapon for suppressing strikes, those periodic revolts of the working class against the autocracy of capital.”
Instead of seeing a harmonious development of workers and technology, therefore, we see how there is a constant race, competition, and antagonism between workers and machines under capitalism. “The instrument of labour, when it takes the form of a machine, immediately becomes a competitor to the worker himself.”
By automating the tasks of the worker, the machine replaces skilled labour with unskilled, stripping the worker of any privileged position they might have had as a result of education and experience. In place of specialisation and skill, we see the creation of a vast mass of homogeneous unskilled labour, intensifying the competition between workers, and placing a further downward pressure on wages.
“The division of labour develops this labour-power in a one-sided way, by reducing it to the highly particularised skill of handling a special tool. When it becomes the job of the machine to handle this tool, the use-value of the worker’s labour-power vanishes, and with it its exchange-value. The worker becomes unsaleable, like paper money thrown out of currency by legal enactment. The section of the working class thus rendered superfluous by machinery, i.e. converted into a part of the population no longer directly necessary for the self-valorisation of capital, either goes under in the unequal contest between the old handicraft and manufacturing production and the new machine production, or else floods all the more easily accessible branches of industry, swamps the labour-market, and makes the prices of labour-power fall below its value…When machinery seizes on an industry by degrees, it produces chronic misery among the workers who compete with it. Where the transition is rapid, the effect is acute and is felt by great masses of people.”
Today, with the development of new technologies, particularly in the fields of artificial intelligence, machine learning, and voice recognition, a similar process is going on in front of our eyes to that which Marx describes in relation to the 19th Century: the better-paid professions of the middle-classes and the more skilled layers of the working class are facing the threat of extinction due to automation. Indeed, a recent study by academics from Oxford University suggests that nearly half of today’s professions could be eliminated by automation over the next two decades, including many white-collar jobs, such as accountancy, legal work, and technical writing; hence why some commentators, such as MIT economists McAfee and Brynjolfsson, are talking about a new ‘race against the machine’.
Historically, it is this race and competition between workers and machines that has led to movements such as the Luddites – a rebellion, through the destruction of machinery, against the existential threat posed by new technology.
“Hence the character of independence from and estrangement towards the worker, which the capitalist mode of production gives to the conditions of labour and the product of labour, develops into a complete and total antagonism with the advent of machinery. It is therefore when machinery arrives on the scene that the worker for the first time revolts savagely against the instruments of labour.”
Today, as in Marx’s time, anyone who dares to mention the contradiction of how, under capitalism, the application of new technology leads to unemployment is labelled a Luddite who is against social progress and the use of technology in general. As Marx mockingly explains:
“And this is the point relied on by our economic apologists! The contradictions and antagonisms inseparable from the capitalist application of machinery do not exist, they say, because they do not arise out of machinery as such, but out of its capitalist application. Therefore, since machinery in itself shortens the hours of labour, but when employed by capital it lengthens them; since in itself it lightens labour, but when employed by capital it heightens its intensity; since in itself it is a victory of man over the forces of nature but in the hands of capital it makes man the slave of those forces; since in itself it increases the wealth of the producers, but in the hands of capital it makes them into paupers, the bourgeois economist simply states that the contemplation of machinery in itself demonstrates with exactitude that all these evident contradictions are a mere semblance, present in everyday reality, but not existing in themselves, and therefore having no theoretical existence either. Thus he manages to avoid racking his brains any more, and in addition implies that his opponent is guilty of the stupidity of contending, not against the capitalist application of machinery, but against machinery itself.
“No doubt the bourgeois economist is far from denying that temporary inconveniences may result from the capitalist use of machinery. But where is the medal without its reverse side! Any other utilisation of machinery than the capitalist one is to him impossible. Exploitation of the worker by the machine is therefore identical for him with exploitation of the machine by the worker. Therefore whoever reveals the real situation with the capitalist employment of machinery does not want machinery to be employed at all, and is an enemy of social progress!”
The argument of the capitalist apologists, therefore, is this: yes, the application of machinery and new technologies might displace workers in one industry; but this should only liberate workers to allow them to work in new, even more productive and technologically advanced industries. This is the argument of ‘creative destruction’ – that old industries must be destroyed in order to allow new ones to flourish.
But, as Marx explains, under capitalism this process develops in a chaotic and anarchic way, due to the way in which it is driven forward, not by a rational plan of production across society, but by competition and the thirst for individual profit. Instead of smoothly transitioning from the old to the new, with education and training provided to allow workers to develop new skills and move into new, emerging industries, workers in the old industries are instead thrown onto the scrapheap and forced into a bitter struggle for survival. Whole towns, cities, and regions are left blighted with a permanent scar of mass unemployment. One only has to look at the former mining areas in Britain, which today still suffer from the forced closure of the pits by the Thatcher government, to see the real effects of so-called ‘creative destruction’. There has been plenty of destruction, and very little creation.
“The real facts, which are travestied by the optimism of the economists, are these: the workers, when driven out of the workshop by the machinery, are thrown onto the labour-market. Their presence in the labour-market increases the number of labour-powers which are at the disposal of capitalist exploitation…this effect of machinery, which has been represented as a compensation for the working class, is, on the contrary, a most frightful scourge. For the present I will only say this: workers who have been thrown out of work in a given branch of industry can no doubt look for employment in another branch…even if they do find employment, what a miserable prospect they face! Crippled as they are by the division of labour, these poor devils are worth so little outside their old trade that they cannot find admission into any industries except a few inferior and therefore over-supplied and underpaid branches. Furthermore, every branch of industry attracts each year a new stream of men, who furnish a contingent from which to fill up vacancies, and to draw a supply for expansion. As soon as machinery has set free a part of the workers employed in a given branch of industry, the reserve men are also diverted into new channels of employment, and become absorbed in other branches; meanwhile the original victims, during the period transition, for the most part starve and perish.”
From a revolutionary force to a fetter
At its height, capitalism was a revolutionary force. Competition and the drive for profits smashed through all the previous barriers to the development of the productive forces, playing an enormously progressive role in society from the perspective of creating the material conditions for socialism:
“Modern industry never views or treats the existing form of a production process as the definitive one. Its technical basis is therefore revolutionary, whereas all earlier modes of production were essentially conservative. By means of machinery, chemical process and other methods, it is continually transforming not only the technical basis of production but also the functions of the worker and the social combinations of the labour process. At the same time, it thereby also revolutionises the division of labour within society, and incessantly throws masses of capital and of workers from one branch of production to another.”
Machinery played a vital role in this process, as Marx describes: not only by paving the way for large-scale industry with its economy of scale, but also by breaking down the physical barriers that stood in the way of increasing profits by simply forcing workers to labour harder and longer. Now greater surplus-value could be extracted by increasing productivity without having to push workers beyond their physiological limits.
“At last the critical point was reached. The basis of the old method, sheer brutality in the exploitation of the workers, accompanied by a more or less systematic division of labour, no longer sufficed for the extending markets and for the still more rapidly extending competition of the capitalists. The hour of the machine had struck.”
At the same time, the development of machinery, new technologies, and large-scale industry, also created the conditions for a change in the superstructures in society – in particular, in the family structure and the relationship between the sexes:
“However terrible and disgusting the dissolution of the old family ties within the capitalist system may appear, large-scale industry, by assigning an important part in socially organised processes of production, outside the sphere of the domestic economy, to women, young persons and children of both sexes, does nevertheless create a new economic foundation for a higher form of the family and of relations between the sexes.”
Under socialism, the technologies and large-scale organisation created under capitalism could be used to socialise the tasks of domestic labour – childcare, cooking, cleaning, and laundry – in order to liberate both women and men from these burdens. Housework would not have to be shared, but would be abolished altogether.
Under capitalism, however, such possible changes remain mere potentials. Working class women today under capitalism are doubly exploited, both for the surplus-value they produce during the working day and for the unpaid domestic labour they perform in the home. Nevertheless, by bringing women out of the isolation of the home and into the workplace, organised together alongside men under one roof as one class, capitalism has created its own gravediggers: the common struggle of working women and men, who will go about creating a society that is not only free of classes, but that is free of all oppression.
Whilst capitalism played a revolutionary role in the past, in terms of developing the productive forces, this always came with a human cost, as explained above, due to the contradictory way in which progress takes place within a system of private ownership and competition.
“We have seen how this absolute contradiction (namely the contradiction between the revolutionary technical basis of large-scale industry and the form it takes under capitalism) does away with all repose, all fixity and all security as far as the worker’s life-situation is concerned; how it constantly threatens, by taking away the instruments of labour, to snatch from his hands the means of subsistence, and, by suppressing his specialised function, to make him superfluous. We have seen, too, how this contradiction bursts forth without restraint in the ceaseless human sacrifices required from the working class, in the reckless squandering of labour-powers, and in the devastating effects of social anarchy. This is the negative side.”
Alongside this human tragedy that capitalism creates, there arise also contradictions within the system itself. All the forces that propelled society forward in the earlier period of capitalism – namely private ownership, competition, and the production for profit – turn into their opposite and become an enormous fetter on the development of the productive forces. The nation state too, also created by capitalism, becomes a barrier.
On the one hand, by replacing labour with machinery, capitalism kills the goose that lays the golden egg, for it is only the application of labour itself that can create surplus-value for the capitalist. The tendency for workers to be displaced by machines, therefore, gives rise to a tendency for the rate of profit to fall, which Marx explains in volume three of Capital.
On the other hand, this same process of automation and the resultant unemployment that it creates means that the capitalists are also cutting away the very branch they are sitting on, for it is the wages of those in work that forms the demand – i.e. the market – for the goods that capitalism produces. While Marx correctly concentrates on production as the source of surplus-value in the first volume of Capital, this surplus can only be realised in the market, through the circulation of capital (which he explains in detail in volume two). Hence the viscous cycle that capitalism generates in times of recession, with unemployment creating a further lack of demand, which means a further curtailing of production, and thus a further reduction in jobs, and so on and so forth.
At the root of this is the contradiction of overproduction, arising from the limits of private ownership and production for profit. Since profits are nothing more than the unpaid labour of the working class – the surplus-value generated by the workers – there is a permanent contradiction within capitalism whereby the productive forces outstrip the market: the ability of the system to produce extends far beyond the ability of the workers to buy back what is produced.
While the capitalists temporarily overcome this contradiction by reinvesting their profits into new machinery, into new means of production, this simply generates greater and greater productive capacity. As a result of private ownership and competition, this ‘solution’ only leads to further instability and even greater crisis.
“The factory system’s tremendous capacity for expanding with sudden immense leaps, and its dependence on the world market, necessarily give rise to the following cycle: feverish production, a consequent glut on the market, then a contraction of the market, which causes production to be crippled. The life of industry becomes a series of periods of moderate activity, prosperity, overproduction, crisis and stagnation.”
Alongside these crises in the economy, capitalism simultaneously destroys not only the lives of those who produce the wealth in society, the working class, but also the environment upon which we depend:
“Moreover, all progress in capitalist agriculture is a progress in the art, not only of robbing the worker, but of robbing the soil; all progress in increasing the fertility of the soil for a given time is a progress towards ruining the more long-lasting sources of that fertility. The more a country proceeds from large-scale industry as the background of its development…the more rapid is this process of destruction. Capitalist production, therefore, only develops the techniques and the degree of combination of the social process of production by simultaneously undermining the original sources of all wealth – the soil and the worker.”
These words, written by Marx in the 19th Century to describe capitalism’s ruining of the soil, could so easily be used to describe the general ecological crises and destruction of the environment we see today due to capitalism’s insatiable desire for profits.
It every respect, the economic progress we see under capitalism is accompanied by social contradictions and antagonisms. Whilst creating the potential for a fundamental change in society, the forces that push society forward become fetters – enormous barriers that prevent the fulfilment of this potential fundamental change. The task, therefore, is to smash through these barriers and remove these limits to progress; to abolish the system of private ownership and production for profit that stands in our way; in short – to fight for the socialist transformation of society.
“[Capitalism] destroys both the ancient and the transitional forms behind which the dominion of capital is still partially hidden, and replaces them with a dominion which is direct and unconcealed. But by doing this it also generalises the direct struggle against its rule. While in each individual workshop it enforces uniformity, regularity, order and economy, the result of the immense impetus given to technical improvement by the limitation and regulation of the working day is to increase the anarchy and the proneness to catastrophe of capitalist production as a whole, the intensity of labour, and the competition of machinery with the worker. By the destruction of small-scale and domestic industries it destroys the last resorts of the ‘redundant population’, thereby removing what was previously a safety-value for the whole social mechanism. By maturing the material conditions and the social combinations of the process of production, it matures the contradictions and antagonisms of the capitalist form of that process, and thereby ripens both the elements for forming a new society and the forces tending towards the overthrow of the old one.”
7) Chapters 16-22: Wages
Marx, having explained the origins of profit and the means by which the capitalists increase these profits, now delves further into the question of surplus-value and looks also at the issue of wages. The conclusion is clear: within the capitalist system – a system of wage labour and capital – the benefits of scientific, technological, and industrial progress will always overwhelming flow towards the capitalists.
Productive and unproductive labour
Marx begins his further analysis of surplus-value by looking at the development of the labour process and examining the question of productive and unproductive labour. The history of the labour process is one that flows from the individual to the social; from the particular to the general. The labour process is transformed from that of private individuals to that of a social, collective process. “The product is transformed from the direct product of the individual producer into a social product, the joint product of a collective labour.”
This transformation from the individual to the collective, in turn, Marx explains, involves a change in the concept of what is deemed to be ‘productive’ labour. Under capitalism, where production is a social process, conducted in the name of profit, the question of productivity can no longer be seen from the perspective of the individual worker, but must be analysed from the perspective of capital itself. Since the purpose of capital is to create surplus-value, the worker under capitalism can only be deemed productive if they are able to generate surplus-value – to create a surplus of products, above and beyond that needed by labour itself.
This seems topsy turvy. You would normally speak of productive labour as something that produces useful things or services for the benefit of society. But the capitalist system does not see it like that. From the perspective of capitalism, that which makes money is productive and that which does not is unproductive.
“Capitalist production is not merely the production of commodities, it is, by its very essence, the production of surplus-value. The worker produces not for himself, but for capital. It is no longer sufficient, therefore, for him simply to produce. He must produce surplus-value. The only worker who is productive is one who produces surplus-value for the capitalist, or in other words contributes towards self-valorisation of capital…
“The concept of a productive worker therefore implies not merely a relation between the activity of work and its useful effect, between the worker and the product of his work, but also a specifically social relation of production, a relation with a historical origin which stamps the worker as capital’s direct means of valorisation. To be a productive worker is therefore not a piece of luck, but a misfortune.”
This important distinction between productive and unproductive labour under capitalism – a scientific distinction made on the basis of a materialist analysis of social, class relations – helps to explain and understand the actions of the capitalists today and the instability of the capitalist system itself. On the one hand, we see the drive by the capitalists to create new markets for exploitation through privatisation and outsourcing. On the other hand, we see also the extremely unstable foundations of British capitalism, which has for decades based itself on the completely unproductive and parasitic financial sector – a sector that, instead of generating surplus-value, merely sucks it out of the rest of the system and creates fictitious capital by attempting to make money from money.
To be productive within capitalism, then, a worker must not only be able to produce a surplus, but must do so in relation to capital – to generate surplus-value. The task facing the capitalists is to set about increasing this surplus-value created, either in absolute terms – by increasing the overall length of the working day – or in relative terms – by shortening the necessary labour-time relative to the fixed length of the working day, i.e. by reducing the time it takes for the worker to create commodities with equal value to those required to meet their own needs.
Productivity, intensity, and the working day
The progressiveness of capitalism in its heyday was based on its ability to develop the productive forces by reinvesting profits into new technologies and techniques in an attempt to increase productivity and thus increase relative surplus-value. Earlier modes of production – such as slavery or feudalism – were not conducive to such a drive for increased productivity. Why would a slave-master invest in new machinery and tools when they have access to an abundance of cheap labour in the form of slaves? Similarly for the case of the feudal lord and the peasant. And how could the collective process of production be developed and economies-of-scale be achieved under the conditions of petty production – of individual, atomised, and isolated labour – that existed prior to capitalism in societies based on small-scale peasant economies and cottage industries? As Marx and Engels comment in the Communist Manifesto:
“The bourgeoisie cannot exist without constantly revolutionising the instruments of production, and thereby the relations of production, and with them the whole relations of society. Conservation of the old modes of production in unaltered form was, on the contrary, the first condition of existence for all earlier industrial classes. Constant revolutionising of production, uninterrupted disturbance of all social conditions, everlasting uncertainty and agitation distinguish the bourgeois epoch from all earlier ones. All fixed, fast-frozen relations, with their train of ancient and venerable prejudices and opinions, are swept away, all new-formed ones become antiquated before they can ossify. All that is solid melts into air; all that is holy is profaned; and man is at last compelled to face with sober senses his real conditions of life, and his relations with his kind.”
Marx spends chapter 17 analysing the relationship between the working day, the intensity of labour, and the productivity of labour, and the effect these have on the relative magnitudes of the surplus-value generated and the price paid for labour-power – i.e. wages.
Marx draws an important distinction between the productivity of labour and the intensity of labour. An increase in either will result in a greater mass of commodities being created within a given space of time. However, with an increase in the intensity of labour, this greater mass of use-values is accompanied by a greater total amount of value created in the course of a given period of time. This arises from the fact that value (exchange-value) is based on the amount of socially necessary labour-time – the labour-time required to produce a commodity for a given social average intensity of labour. With an increase in productivity, however, a greater mass of commodities – of use-values – is accompanied by a decrease in the value of these commodities, since the socially necessary labour-time required to produce each commodity is now, on average, reduced.
For a given length of the working day and intensity of labour, the capitalist can only increase profits by increasing the relative surplus-value generated, and this means increasing the productivity of labour. The effect of increased productivity, as explained previously, is to reduce the time taken to produce the commodities that are required for the maintenance of the working class – in other words, to reduce the value of labour-power itself, and so increase the ratio of surplus labour-time to necessary labour-time.
Marx notes, however, that, “It is the value and not the mass of these means of subsistence that varies with the productivity of labour.” It is possible, therefore, “that owing to an increase in the productivity of labour both the worker and the capitalist may simultaneously be able to appropriate a greater quantity of means of subsistence, without any change in the price of labour-power or in surplus-value.”
This is the basis behind the argument that ‘wealth trickles down’ – the justification for the capitalist system given by its own apologists, who reassure us that ‘a rising tide lifts all boats’. It is true, as Marx points out, that, thanks to an increase in the productivity of labour, the living standards of both the worker and the capitalist can increase. In this sense, the ‘real wages’ of the worker – that is, the basket of goods that the worker can purchase with their wages – may improve over time. But, as Marx goes on to explain, the ‘relative wages’ of the worker – the share of the total wealth in society going to labour – will nevertheless decrease.
“In this way it is possible, given increasing productivity of labour, for the price of labour-power to fall constantly and for this fall to be accompanied by a constant growth in the mass of the worker’s means of subsistence. But in relative terms, i.e. in comparison with surplus-value, the value of labour-power would keep falling, and thus the abyss between the life-situation of the worker and that of the capitalist would keep widening.”
This is the situation society finds itself in today, with capital everywhere taking an ever larger share of the pie, and with growing inequality between rich and poor in all countries. It is fashionable these days to point out the obvious: that the inherent tendency within capitalism is towards an ever-increasing gap between capital and labour. What’s more, as a result of the capitalist crisis and the downward pressure on wages due to mass unemployment and the competition between workers for jobs, it is not only relative wages that have decreased – real wages, and even nominal wages, have also decreased for many workers in the advanced capitalist countries too.
The bourgeois commentators today have noted the decline in wages, and frequently assert that the way to reverse this situation is for businesses to invest in new machinery, technology, and research and development, and therefore increase productivity. In this way, as explained above, the capitalists can increase real wages, whilst still ensuring that profits rise also.
This is all well and good; the glaring problem is, however, that the capitalists at the current time are unwilling and unable to invest – in fact, investment in the advanced capitalist countries is at historic lows. Rather than reinvesting to develop the productive forces, big business is sitting on piles of idle money. The global capitalist system is awash with cheap money, excess capacity and a glut of commodities that cannot be sold; and it is this enormous contradiction of overproduction which means that productivity is not rising, for to invest and increase productivity would mean to produce even more commodities that need to be sold on an already saturated market. This, more than anything, demonstrates the fundamental barrier to development that private ownership, competition, and production for profit have become.
Under capitalism, we see that increases in productivity, far from increasing living standards and reducing the length of the working day, are only used to increase profits for the capitalists. This enormous contradiction – of ever increasing technology and technique at society’s disposal alongside growing toil and unemployment for workers and youth – demonstrates the monstrous limitations of the capitalist system.
“Only the abolition of the capitalist form of production would permit the reduction of the working day to the necessary labour-time. But even in that case the latter would expand to take up more of the day, and for two reasons: first, because the worker’s conditions of life would improve, and his aspirations become greater; and second, because a part of what is now surplus labour would then count as necessary labour, namely the labour which is necessary for the formation of a social fund for reserve and accumulation.”
The existence of this contradiction – with mass unemployment existing simultaneously alongside overwork – also answers the completely fallacious argument put forward by the apologists of capitalism in claiming that it is the most ‘efficient’ of all economic systems. As Marx notes, in reality capitalism is the most inefficient and wasteful of systems, with millions idle in unemployment because the capitalists cannot find a profitable use for their labour, whilst stockpiles of goods are accumulated and destroyed because they cannot be sold on a market that is beyond saturation due to the enormous excess capacity and overproduction that exists on a world scale.
“The capitalist mode of production, while it enforces economy in each individual business, also begets, by its anarchic system of competition, the most outrageous squandering of labour-power and of the social means of production, not to mention the creation of a vast number of functions at present indispensable, but in themselves superfluous.”
Wages: the price of labour-power
Marx then moves onto the question of wages, exploring how they are determined, and how this expresses itself in the real world of capitalist production. The most important clarification is that wages are merely the price for a commodity – the commodity of labour-power, which the worker sells to the capitalist for the ‘going rate’ on the market.
Like the price of all other commodities, wages will oscillate above or below the value of labour-power due to supply and demand: where there is an abundance of workers, but only limited opportunities for employment, the capitalists will be in a position to make workers compete against each other, and wages will be pushed down. Vice-versa, when the economy is booming and there is full employment, the demand for workers can be high enough to push wages upwards. This was largely the case in the post-war period, where migrant workers were actually encouraged to come to Britain from its colonies in order to provide a greater abundance of labour-power. Similarly, in such periods, as discussed previously, the capitalists will use the threat of replacing workers with machines to drive down wages. On the other side, where workers are organised, with strong trade unions, higher wages can be won.
Importantly, however, like the price of all other commodities, wages will – in the absence of any restrictions – only oscillate around a ‘natural price’ – that is, around the value of the commodity itself, the value of labour-power. And like all other commodities, the value of labour-power, as explained previously, is determined by the socially necessary labour-time needed to produce this commodity. In the case of labour-power, this means the average labour-time necessary to produce the means of subsistence for the working class and their families: food, shelter, clothing, healthcare, education, etc. – the level of which is socially and historically determined, varying both in time and space. The laws of supply and demand influence the price of a commodity, but these fluctuations in price are always around an axis. That axis is the value of the commodity.
“If demand and supply balance, the oscillation of prices ceases, all other circumstances remaining the same. But then demand and supply also cease to explain anything. The price of labour, at the moment when demand and supply are in equilibrium, is its natural price, determined independently of the relation of demand and supply. It was therefore found that the natural price was the object which actually had to be analysed.
“…As with other commodities this value was then further determined by the cost of production. But what is the cost of production….of the worker, i.e. the cost of production of producing or reproducing the worker himself?”
Marx raises the question of the cost of production, but what is this? Clearly the cost of a house is made up from the cost of bricks, cement, plaster, wood, etc., and the labour of the construction workers involved. The cost of bricks can be reduced to the cost of raw materials, depreciation and the wages of the workers involved in their production. Therefore, the buildings, machines, raw materials, etc., were in turn all produced by human labour. So the costs of commodities can be boiled down to the labour-time involved in their production. The cost of production is made up of, what Marx calls, dead and living labour. This is the real price of things.
In posing such a question, Marx highlights an important distinction within capitalism: wages do not represent the price of labour, but the price or cost of labour-power. Workers do not sell their labour to the capitalist – i.e. the actual work they perform or the commodities they produce; rather, they sell their labour-power – i.e. their ability to work for a certain period of time. So workers are not paid for their labour but their labour-power. It is then up to the capitalist to extract as much labour from the worker within the agreed time.
“It is not labour which directly confronts the possessor of money on the commodity-market, but rather the worker. What the worker is selling is his labour-power. As soon as his labour actually begins, it has already ceased to belong to him; it can therefore no longer be sold by him. Labour is the substance, and the immanent measure of value, but it has no value itself.”
Labour, then, has no value, but it possesses a unique property of being able to generate value. As Marx explains, to talk about the ‘value of labour’ is tautological, for value is nothing more than general labour – socially necessary labour-time. There is a clear difference between the commodity (labour-power) and the function, i.e. use-value, of that commodity (labour). In the case of the worker, “the use-value supplied by the worker to the capitalist is not in fact his labour-power but its function, a specific form of useful labour, such as tailoring, cobbling, spinning, etc. That this same labour is, on the other hand, the universal value-creating element and thus possesses a property by virtue of which it differs from all other commodities, is something which falls outside the frame of reference of the everyday consciousness.”
“…what they [the classical political economists] called the ‘value of labour’ is in fact the value of labour-power, as it exists in the personality of the worker, and it is as different from its function, labour, as a machine is from the operations it performs.”
As Marx explains, by creating a confusion between labour and labour-power, the system of wage-labour hides from view the exploitation of the worker. Any clear distinction in the working day between the necessary labour and the surplus labour disappears. It appears that the worker is simply paid ‘a fair day’s pay for a fair day’s work’.
“The wage-form thus extinguished every trace of the division of the working day into necessary labour and surplus labour, into paid labour and unpaid labour. All labour appears as paid labour.”
This was not the case in feudal times: the peasant would work on the land that belonged to the lord; for a certain number of days they produced for the landlord, whilst for the other days they worked for their own maintenance. In ancient times, under slavery, the exploitation is even more transparent, as Marx comments:
“In slave labour, even the part of the working day in which the slave is only replacing the value of his own means of subsistence, in which he therefore actually works for himself alone, appears as labour for his master. All his labour appears as unpaid labour. In wage-labour, on the contrary, even surplus labour, or unpaid labour, appears as paid. In the one case, the property-relation conceals the slave’s labour for himself; in the other case the money-relation conceals the uncompensated labour of the wage-labourer.”
“We may therefore understand the decisive importance of the transformation of the value and price of labour-power into the form of wages, or into the value and price of labour itself. All the notions of justice held by both the worker and the capitalist, all the mystifications of the capitalist mode of production, all capitalism’s illusions about freedom, all the apologetic tricks of vulgar economics, have as their basis the form of appearance discussed above, which makes the actual relation invisible, and indeed presents to the eye the precise opposite of that relation.”
Time-wages and piece-wages
Marx then develops his analysis of wages by exploring the different forms in which wages are paid, in particular the difference between time-wages and piece-wages. Time-wages are simply wages based on a set amount for a certain period of time, e.g. per hour; piece-wages, meanwhile, are wages based on the actual output of the worker.
As explained above, the wage-form hides the exploitation of the worker. In the case of time-wages, we see that by paying an hourly rate the capitalist helps to conceal the division between necessary and surplus labour. Yet an hourly rate can still be determined. “The unit of measurement for time-wages, the price of the working hour, is the value of a day’s labour-power divided by the number of hours in the average working day.”This use of an hourly rate, in turn, allows the capitalist to exploit workers even more:
“Since this unit is determined by the ratio of the daily value of labour-power to the working day of a given number of hours, it naturally loses all meaning as soon as the working day ceases to contain a definite number of hours. The connection between the paid and the unpaid labour is destroyed. The capitalist can now wring from the worker a certain quantity of surplus labour without allowing him the labour-time necessary for his own subsistence. He can annihilate all regularity of employment, and according to his own convenience, caprice, and the interest of the moment, make the most frightful over-work alternate with relative or absolute cessation of work.”
We see this form of brutal exploitation clearly today, where work is increasingly of a precarious and temporary nature. This finds its most acute expression in the case of zero-hour contracts, which have become ubiquitous throughout industry, particularly in the case of services. The division between surplus and necessary labour becomes almost meaningless, since workers are on such low hourly rates and are given such a small number of hours that they cannot earn enough to even cover their own necessary requirements.
Alongside this, we see a proliferation of overtime, which has become an expected norm for many workers. Frequently this is unpaid, leaving the capitalists to benefit from such free labour. Where overtime is paid, it may be done so at a higher hourly rate, although this has been progressively been reduced in the recent period. However, as Marx comments, this may normally be accompanied by a lower hourly rate for normal times, with the overall result that workers are forced into working overtime in order to earn enough to survive.
“The increase in the price of labour when the working day is extended beyond a certain normal limit takes place in various British industries in such a way that the low price of labour during the so-called normal time compels the worker to work during the better paid overtime, if he wishes to obtain a sufficient wage at all.”
Piece-wages, Marx notes, are “only a modified form of the time-wage.”The worker is paid based on the quantity of products (‘pieces’) they produce in a given time, with an average quality of the product expected. “Only the labour-time which is embodied in a quantity of commodities laid down in advance and fixed by experience counts as socially necessary labour-time and is paid as such.”
The use of piece-wages, in turn, allows the capitalist to increase the intensity of labour, by providing an ‘incentive’ for workers to work harder, produce more, and thus be paid more. Rather than being paid at a standard rate across the board, individual workers can earn more than their fellow brothers and sisters. This encouraged household working, with the whole family and children helping to make the pieces. The competition created is, in fact, a race to the bottom; in reality, it is always the capitalist who benefits, for the increased intensity of labour merely means greater profits for them.
“Given the system of piece-wages, it is naturally in the personal interest of the worker that he should strain his labour-power as intensely as possible; this in turn enables the capitalist to raise the normal degree of intensity of labour more easily.”
“But the wider scope that piece-wages give to individuality tends to develop both that individuality, and with it the worker’s sense of liberty, independence and self-control, and also the competition of workers with each other. The piece-wage therefore has a tendency, while raising the wages of individuals above the average, to lower this average itself.”
The existence of piece-wages also helps to demonstrate the hypocrisy of the capitalists when they claim that productivity increases are of benefit to the living standards of workers. If the worker was genuinely being paid on the basis of their output, then as productivity increases, the earnings of the worker should increase also. But, in reality, the worker on piece-wages is not being paid on the basis of their output, but for a definite amount of labour-time required to produce a given level of output. For those on piece-wages, therefore, the actual earnings of the worker may decrease as productivity increases, for the time taken to produce a given unit of output will be reduced. This demonstrates the clear disconnect between the productivity in industry and the living standards in society.
“In other words, the piece-wage is lowered in the same proportion as the number of pieces produced in the same time rises, and therefore in the same proportion as the amount of labour-time employed on the same piece falls. This change in the piece-wage, so far purely nominal, leads to constant struggles between the capitalist and the worker, either because the capitalist uses it as a pretext for actually lowering the price of labour, or because an increase in the productivity of labour is accompanied by an increase in its intensity, or because the worker takes the outward appearance of piece-wages seriously, i.e. he thinks his product is being paid for and not his labour-power, and he therefore resists any reduction of wages which is not accompanied by a reduction in the selling price of the commodity…
“The capitalist rightly rejects such pretensions as being gross errors as to the nature of wage-labour. He cries out against this presumptuous attempt to lay taxes on the progress of industry, and declares roundly that the productivity of labour does not concern the worker in the least.”
International competition and the world market
Marx finishes his analyses on wages by examining the differences in wages between different countries. In reality, we see a great variation in the average wage across different countries, determined by a whole host of factors, including the average productivity and intensity of labour within a given state, the different costs of the means of subsistence, the relative strength of the labour movement and workers’ organisation, and so on.
“What appears within the movement of wages as a series of varying combinations may appear for different countries as a set of simultaneous differences in national wage-levels. In comparing wages in different nations, we must therefore take into account all the factors that determine changes in the amount of the value of labour-power; the price and extent of the prime necessities of life in their natural and historical development, the cost of training the workers, the part played by the labour of women and children, the productivity of labour, and its extensive and intensive magnitude.”
The various differences between the average wage levels of different countries, in turn, express themselves in terms of the international competitiveness of industry. Where wage levels are low or productivity is high, this will feed through to lower prices relative to other similar commodities on the world market. Demand for goods from the more competitive countries will increase, boosting their exports.
There is, however, generally an automatic feedback that limits this process: the commodities bought from any exporting country must be paid for in the currency of that country, which in turn boosts demand for that currency and increases the price of the exporting nation’s currency relative to others. The strong exporter now finds the price of its imports increasing, and so the cost of its own production increasing also, putting an upward pressure on prices and a downward pressure on the competitiveness of the nation’s industry. For workers, the result is inflation and a decrease in their real wages.
The overall result on a world scale is a fierce international competition between the capitalists of different nations, who all seek to cut workers’ wages in their own countries in order to maintain and improve their industrial competitiveness – i.e. to maintain and increase their market share and their profits. Workers of different countries are thus engaged, against their will, in a race to the bottom: ‘accept lower wages or we will lose our industries and jobs to other countries’ – this is the hypocritical rallying cry of the bourgeois politician, who whilst warning workers of the threat of international competition on the one hand, supports the multinational big businesses that exploit the workers of all countries with the other.
Once again we see how, alongside the limitation of private ownership over the means of production, the nation state has become a massive barrier to the development of the productive forces and of society in general. On a capitalist basis, it will always be the bourgeoisie who enjoy the fruits of globalisation, whilst the working class as a whole – divided along national lines and set against one another – will face only greater and greater exploitation.
The fact that workers in different countries face the same boss in multinational corporations also increases solidarity across borders. With the international character of capitalism, the class struggle becomes an international struggle, laying the basis for world revolution. Only with international socialism can we eradicate disease, hunger, misery, and poverty. Only on the basis of an international revolution will there be an end to imperialist wars and the poison of chauvinism that capitalism ferments. Only with a global socialist plan of production will the vast majority across the world be able to raise their standards of living and live in harmony with one-another and with the planet that we share. Never before have the final words by Marx and Engels in the Communist Manifesto been more relevant:
“The proletarians have nothing to lose but their chains. They have a world to win. Workers of all countries: unite!”
8) Chapters 23-25: Accumulation
Capitalism is a dynamic system: “Money never sleeps,” says Marx. For capital to act as capital, it must continuously be in motion – continually seeking to create value from value. It is to this overall dynamic of capital which Marx now turns his attention.
The capitalist system is built upon the basis of private ownership and production for profit. In the preceding chapters, Marx outlines the source of profit within the capitalist system: the unpaid labour of the working class. It is not enough, however, for the capitalists simply to make a profit; they must at the same time reproduce the conditions that give rise to this profit, forming a constant process of money-making and exploitation.
“Whatever the social form of the production process, it has to be continuous, it must periodically repeat the same phases. A society can no more cease to produce than it can cease to consume. When viewed, therefore, as a connected whole, and in the constant flux of its incessant renewal, every social process of production is at the same time a process of reproduction.”
Wage labour and capital
What are the conditions that lead to the creation of profit and how can they be reproduced? At root, as Marx notes, it is capital itself that must be produced and reproduced – that is, the capital-labour relation itself:
“The capitalist process of production, therefore, seen as a total, connected process, i.e. a process of reproduction, produces not only commodities, not only surplus-value, but it also produces and reproduces the capital-relation itself; on the one hand the capitalist, on the other the wage-labourer.”
Capitalism, then, must maintain the capitalist as a capitalist and the worker always as a worker. In a dialectical manner, once started, this capital-labour relationship develops a logic of its own. What starts off as an apparent historical accident becomes a self-reinforcing tendency. Alienating the workers from the product of their labour, the capital-labour relation at the same time creates and reinforces the dominance of the capitalist class over the working class. The wealth that the workers produce, appropriated and invested as capital by the capitalists, becomes the instrument of the workers’ own oppression.
“…what at first was merely a starting-point becomes, by means of nothing but the continuity of the process, by simple reproduction, the characteristic result of capitalist production, a result which is constantly renewed and perpetuated. On the one hand, the production process incessantly converts material wealth into capital, into the capitalist’s means of enjoyment and his means of valorisation. On the other hand, the worker always leaves the process in the same state as he entered it – a personal source of wealth, but deprived of any means of making that wealth a reality for himself.
“…Therefore the worker himself constantly produces objective wealth, in the form of capital, an alien power that dominates and exploits him; and the capitalist just as constantly produces labour-power…in short, the capitalist produces the workers as a wage-labourer. This incessant reproduction, this perpetuation of the worker, is the absolutely necessary condition for capitalist production.”
“That process, however, takes good care to prevent the workers, those instruments of production who are possessed of consciousness, from running away, by constantly removing their product from one pole to the other, to the opposite pole of capital…The Roman slave was held by chains; the wage-labourer is bound to his owner by invisible threads.”
We see, therefore, that all the talk by the liberal apologists of capitalism about the ‘freedom of the individual’ is a mere illusion. For all the ‘choice’ and ‘liberty’ that capitalism supposedly offers, in the final analysis a worker must sell their labour-power to the capitalist and work for a wage. Meanwhile, any democratic rights the worker may possess are cast aside as soon as they enter the workplace, where the boss’ word is final. Any veneer of freedom, as Marx notes, “is maintained by a constant change in the person of the individual employer, and by the legal fiction of a contract.”
“Capitalist production therefore reproduces in the course of its own process the separation between labour-power and the conditions of labour. It thereby reproduces and perpetuates the conditions under which the worker is exploited. It incessantly forces him to sell his labour-power in order to live, and enables the capitalist to purchase labour-power in order that he may enrich himself. It is no longer a mere accident that capitalist and worker confront each other in the market as buyer and seller. It is the alternating rhythm of the process itself which throws the worker back onto the market again and again as a seller of his labour-power and continually transforms his own product into a means by which another man can purchase him.”
Reproduction and accumulation
Capital is ‘self-valorising value’. In other words, it is wealth which is capable of replicating and enhancing itself through the application of value-forming labour in production. But for capital to continue to generate new value and surplus-value, this surplus-value must itself be reinvested back into production – that is, surplus-value must be reconverted into capital. In other words, the capitalist must reinvest the profits of production back into new means of production. As Marx explains, this “employment of surplus-value as capital, or its reconversion into capital, is called accumulation of capital.”
As explained previously, and re-emphasised by Marx, no new value be created through the act of exchange itself. Exchange does not create value, but merely realises it. “All the transactions in the market can accomplish is the interchange of the individual components of this annual product, their transfer from one hand to another. They cannot increase the total annual production, nor can they alter the nature of the objects produced.”
But once surplus-value is realised, it can be immediately converted into new capital – that is, by reinvesting profits into new means of production – and capital moves from merely reproducing itself, to expanding and growing. Investment for the sake of profit, then, is the motor force behind growth under capitalism.
Such a fact is often glossed over by politicians who talk about ‘growth’ as though it were a tap that could be turned on and off at will. In reality, growth within the confines of capitalist production will always be limited by the needs of capital: to make and realise a profit. Where profits cannot be made, investment will stop; and when investment stops, growth ceases. At such points, the driving force of profit turns into its opposite and becomes an enormous barrier to development; the economy, and society with it, is plunged into crisis, and millions suddenly find themselves surplus to the requirements of capital, thrown onto the scrapheap of unemployment.
As long as investment continues, a virtuous circle develops, with capital begetting yet more capital and accumulation paving the way to further accumulation.
“The ownership of past unpaid labour is thenceforth the sole condition for the appropriation of living unpaid labour on a constantly increasing scale. The more the capitalist has accumulated, the more is he able to accumulate.”
The accumulation of wealth by the capitalists, therefore, is not the result of cheating, corruption, or force, but arises precisely due to the dynamics, laws and logic of capitalism itself. As Marx comments, “the laws of appropriation or of private property…become changed into their direct opposite through their own internal and inexorable dialectic.”What begins as a fair exchange between the capitalist and the worker, ‘the exchange of equivalents’ in which the capitalist buys the labour-power of the worker in return for a wage, now turns into a means by which the capitalist clearly appropriates a surplus – that is, obtains more than they have paid for.
“…property turns out to be the right, on the part of the capitalist, to appropriate the unpaid labour of others or its product, and the impossibility, on the part of the worker, of appropriating his own product. The separation of property from labour thus becomes the necessary consequence of a law that apparently originated in their identity.
“Therefore, however much the capitalist mode of appropriation may seem to fly in the face of the original laws of commodity production, it nevertheless arises, not from a violation of these laws, but, on the contrary, from their application.”
The capital-labour relation, then, does not stand in contradiction to the laws of private property, but rather, arises out of them – that is, from the laws of commodity production and exchange. But these same laws of production and exchange, as Marx explains, are themselves the result of the capital-labour relation:
“As long as the laws of exchange are observed in every single act of exchange – taken in isolation – the mode of appropriation can be completely revolutionised without in any way affecting the property rights which correspond to commodity production…
“This result becomes inevitable from the moment there is a free sale, by the worker himself, of labour-power as a commodity. But it is also only from then onwards that commodity production is generalised and becomes the typical form of production; it is only from then onwards that every product is produced for sale from the outset and all wealth produced goes through the sphere of circulation. Only where wage-labour is its basis does commodity production impose itself upon society as a whole; but it is also true that only there does it unfold all its hidden potentialities…To the extent that commodity production, in accordance with its own immanent laws, undergoes a further development into capitalist production, the property laws of commodity production must undergo a dialectical inversion so that they become laws of capitalist appropriation.”
The question of accumulation under capitalism, therefore, is inextricably linked to the question of private ownership and commodity production. The concentration of wealth in the hands of a few is not a cancerous growth on the body of capitalism that can be painlessly cut away, but is an organic part of the capitalist system itself. Inequality is merely the symptom; capitalism the real disease.
Productive and unproductive consumption
In addition to Marx’s comments above, one might add that this process of production and reproduction is, at the same time, a process of consumption; for to maintain the system of profit, capitalism must, vitally, be able to maintain the working class itself, the goose that lays the golden egg. Such maintenance requires, in turn, the working class to consume.
Marx notes that the worker consumes in two senses:
“While producing he consumes the means of production with his labour, and converts them into products with a higher value than that of the capital advanced. This is his productive consumption…On the other hand, the worker uses the money paid to him for his labour-power to buy the means of subsistence; this is his individual consumption.”
For the capitalist, this latter consumption – the individual consumption of the worker – appears as a necessary expenditure or cost in the process of production, “just as coal and water are supplied to the steam-engine, and oil to the wheel.”Therefore, the capitalist tries to reduce the outlay of this expenditure, in the same way as they would try to increase the efficiency of any machine by reducing the energy required for its running. But this consumption is vital and cannot be avoided. “His means of consumption are then merely the means of consumption of a means of production; his individual consumption is directly productive consumption.”
In contrast to this productive consumption, both of the means of production and the workers’ means of subsistence, there also exists ‘unproductive consumption’. What is meant by this is the consumption of commodities for the capitalist’s own use and enjoyment, which therefore does not feed back into the productive process in order to create new value.
“The commodities the capitalist buys with a part of the surplus-value for his own consumption do not serve as means of production or means of valorisation…Instead of transforming surplus-value into capital, he rather consumes or expends it as revenue when he purchases those commodities…”
This is wasteful expenditure rather than productive investment from the point of view of capitalist accumulation. Acting as “capital personified”, the capitalist’s “motivating force is not the acquisition and enjoyment of use-values, but the acquisition and augmentation of exchange-values…Only as a personification of capital is the capitalist respectable,”because it is only in this form that he develops the productive forces.
“Accumulate, accumulate! That is Moses and the prophets!…Therefore save, save, i.e. reconvert the greatest possible portion of surplus-value or surplus product into capital! Accumulation for the sake of accumulation, production for the sake of production: this was the formula in which classical economics expressed the historical mission of the bourgeoisie in the period of its domination…If, in the eyes of classical economics, the proletarian is merely a machine for the production of surplus-value, the capitalist too is merely a machine for the transformation of this surplus-value into surplus capital.”
Those who do not invest and reinvest in order to keep up with the latest technologies and techniques, therefore, will be left behind. It is precisely this, the reinvestment and development of the means of production as a result of competition, that gives capitalism – and the capitalist as “capital personified” – any historical justification.
“…competition subordinates every individual capitalist to the immanent laws of capitalist production, as external and coercive laws. It compels him to keep extending his capital, so as to preserve it, and he can only extend it by means of progressive accumulation.”
“He is fanatically intent on the valorisation of value; consequently he ruthlessly forces the human race to product for production’s sake. In this way he spurs on the development of society’s productive forces, and the creation of those material conditions of production which alone can form the real basis of a higher form of society, a society in which the full and free development of every individual forms the ruling principle.”
Today, however, investment everywhere has dried up, with the capitalists instead hoarding cash as a result of the enormous excess capacity that exists on a world scale – a reflection of the contradiction of overproduction. Hoarding, as Marx comments, is not the aim of the capitalists, but precisely an indication that their system has ground to a halt.
“The exclusion of money from circulation would constitute precisely the opposite of its valorisation as capital, and the accumulation of commodities in the sense of hoarding them would be sheer foolishness. In fact the accumulation of commodities in great masses is the result either of a bottleneck in circulation or of overproduction.”
Despite a whole host of new technologies that have the potential to transform society, as The Economist notes in a special report, “the digital revolution has yet to fulfil its promise of higher productivity and better jobs…the digital economy, far from pushing up wages across the board in response to higher productivity, is keeping them flat for the mass of workers while extravagantly rewarding the most talented ones.”
Capitalism, then, has ceased long ago to play any progressive role and has outlived its historical task – to develop the forces of production and take society forward. In short, the capitalist system no longer has any justification and should be swept away in favour of “a society in which the full and free development of every individual forms the ruling principle,” as Marx would say.
Investment, productivity, and wages
Whilst the capitalist, by force of competition, is driven to forgo extravagance in favour of reinvestment, the desire for personal enrichment nevertheless remains. As Marx notes, “there develops in the breast of the capitalist a Faustian conflict between the passion for accumulation and the desire for enjoyment.”
This reinvestment, however, with money ploughed back into new technologies and techniques, is at the same time the key to resolving this conflict within the heart of the capitalist. The role of such investment is to develop science; to refine the machinery and methods employed in industry; ultimately to increase the productivity of labour, such that “the value and mass of the means of production set in motion by a given quantity of labour increase as the labour becomes more productive.”
In this way, the stock of capital grows and accumulation increases, and “the consumption of the capitalist may accordingly increase without any decrease in the fund for accumulation.”In other words, with investment and increasing productivity, the size of the economic pie grows, and with it, the mass of profits increases also. As a result, the capitalists can continue to make their lifestyles ever more luxurious whilst consuming only a small overall proportion of the wealth generated.
“Thus the more that capital increases by means of successive accumulations, the more does the sum of value increase that is divided into a fund for consumption and a fund for accumulation. The capitalist can therefore live a more pleasant life, and at the same time ‘renounce’ more.”
The same logic – of a growing pie meaning more to share amongst everyone – is frequently cited by the capitalists as the way to increase real wages: the so-called ‘trickle-down’ theory of economics. If productivity is increasing and the economy is growing, then wages can be increased without it ‘affecting investment’ (i.e. threatening their profits). Or so the argument goes.
But such an argument is flawed in two respects. On the one hand, whilst real wages may increase in an absolute sense as a result of a general increase in the stock of society’s wealth, relative wages – that is, the share of the total wealth in society going to labour – nevertheless decrease. Such a tendency is being observed today where – due to globalisation and the intensification of world competition between workers, the role of automation and labour-saving machinery, and the political onslaught against workers’ organisations and trade union rights – the dominance of capital over labour has increased across the board. As the Economist comments in its special report:
“Over the past 30 years or so…the share of income going to labour has fallen steadily the world over.
“Recent work…puts the global decline in labour’s share since the early 1980s at roughly five percentage points, to just over half of national income. This seems to hold good within sectors and across many countries, including fast-growing developing countries like China…”
On the other hand, the fact is that real wages have seen little rise, despite economic growth and productivity increases, and in many countries haven’t even increased at all, as The Economist explains:
“Between 1991 and 2012 the average annual increase in real wages in Britain was 1.5% and in America 1%…That was less than the rate of economic growth over the period and far less than earlier decades. Other countries fared even worse. Real wage growth in Germany from 1992 to 2012 was just 0.6%; Italy and Japan saw hardly any increase at all. And, critically, those averages conceal plenty of variation. Real pay for most workers remained flat or even fell, whereas for the highest earners it soared.”
“…despite a slowdown in productivity growth, pay has lagged badly behind productivity growth. From 2000 to 2011, according to America’s Bureau of Labour Statistics, real output per person rose by nearly 2.5% a year, whereas real pay increased by less than 1% per year.”
Over the last decade, real wages in Britain have actually fallen. In fact, according to the Resolution Foundation, it has been the biggest fall for any comparable decade in more than 200 years. You would have to go back to the era of the Napoleonic Wars and the Peterloo Massacre, a time when trade unions were illegal, to find such a dire situation for workers’ pay.
Despite the best arguments and claims of the bourgeois commentators and defenders of capitalism, therefore, their system is failing to deliver for the vast majority even on their own terms. Of course, at the same time, profits have never been higher; the dominance of capital over labour continues.
Inequality and accumulation
The very dynamic and motion of capital, therefore, is one of growth and expansion.
“As simple reproduction constantly reproduces the capital-relation itself, i.e. the presence of capitalists on the one side, and wage-labourers on the other side, so reproduction on an expanded scale, i.e. accumulation, reproduces the capital-relation on an expanded scale, with more capitalists, or bigger capitalists, at one pole, and more wage-labourers at the other pole.”
If this motion of capital stops, the system goes into reverse, throwing society backwards with it. At the other end of the scale though, there are situations where capital runs ahead of itself – where “the requirements of accumulating capital may exceed the growth in labour-power or in the number of workers.”At such times, market forces step in and act to push wages up, as was the case in the immediate post-war period.
This dynamic, however, contains a countervailing tendency – a self-correcting feedback within itself. In the case that wages might rise as a result of a rapid expansion of capital, the effect will be a cut in the rate of profit, leading to a slowdown in investment and consequently a fall in the demand for labour. In the words of Marx, “accumulation slackens as a result of the rise in the price of labour, because the stimulus of gain is blunted.”
In the final analysis, as Marx emphasises, the wealth generated in society must go either to labour or to capital – to wages or to profits. Any increase in the share going to labour means a decrease in the share going to capital; this depends upon the class struggle, hence the bitter struggles over unionisation and wage rises seen all over the world.
The capitalist system, therefore, cannot – and will not – simply self-destruct or peacefully grow over into a new, more egalitarian form. Wages can only rise so far – and no further – simply through the power of market forces. Any rise in wages due to the supply of labour and capital’s demand for it will never be so extreme as to eliminate profits altogether:
“A rise in the price of labour, as a consequence of the accumulation of capital, only means in fact that the length and weight of the golden chain the wage-labourer has already forged for himself allow it to be loosened somewhat…
“…The production of surplus-value, or the making of profits, is the absolute law of this mode of production. Labour-power can be sold only to the extent that it preserves and maintains the means of production as capital, reproduces its own value as capital, and provides a source of additional capital in the shape of unpaid labour…
“…it is clear that at the best of times an increase in wages means only a quantitative reduction in the amount of unpaid labour the worker has to supply.”
While we would fight for every increase in wages, it is a continuous struggle against the pressures of the capitalists to force down wage rates. Calls to increase wages are resisted tooth-and-nail by the capitalists, who point out that rising wages will dent investment – i.e. their profits. This is the basis of the class struggle. However, reform of the wages system can only go so far; ultimately it must be abolished.
“The law of capitalist production which really lies at the basis of the supposed ‘natural law of population’ can be reduced simply to this: the relation between capital, accumulation and the rate of wages is nothing other than the relation between the unpaid labour which has been transformed into capital and the additional paid labour necessary to set in motion this additional capital…it is rather, at bottom, only the relation between the unpaid and the paid labour of the same working population…
“…The rise of wages is therefore confined within limits that not only leave intact the foundations of the capitalist system, but also secure its reproduction on an increasing scale…It cannot be otherwise in a mode of production in which the worker exists to satisfy the need of the existing values for valorisation, as opposed to the inverse situation, in which objective wealth is there to satisfy the worker’s own need for development. Just as man is governed in religion by the products of his own brain, so, in capitalist production, he is governed by the products of his own hand.”
Concentration, centralisation, and competition
Once begun, the process of accumulation is self-reinforcing. “Every accumulation becomes the means of new accumulation.”
“With accumulation of capital…the specifically capitalist mode of production develops, and, with the capitalist mode of production, the accumulation of capital.”
Within this process of accumulation, however, there are also the dual dynamics of concentration, on the one hand, and competition on the other; concentration of wealth in the hands of capital rather than labour, and at the same time competition between different capitalists.
“Accumulation…presents itself on the one hand as increasing concentration of the means of production, and of the command over labour; and on the other hand as repulsion of many individual capitals from one another.”
The historic role of capitalism was to concentrate the means of production; to abolish the old feudal ways of scattered, petty production and create large-scale industries – economies of scale in which efficiency and productivity increases as a result of bringing different elements of production under a common direction.
“It is concentration of capitals already formed, destruction of their individual independence, expropriation of capitalist by capitalist, transformation of many small into few large capitals.”
This centralisation of the means of production is at the same time the necessary result of competition. Competition forces the capitalists to achieve economies of scale, in order to increase productivity, drive down costs and provide a competitive advantage. This necessarily requires “an increase in the minimum amount of individual capital necessary to carry on a business under its normal conditions”, and so the larger capitals gradually drive the smaller from the field and eventually swallow them up.
This includes mergers and acquisitions, through which big businesses subsume their competitors in a given industry, expand into new sectors, or takeover their suppliers below and distributors above in the chain of production; such processes are known respectively as horizontal and vertical integration in the language of bourgeois economics. Such centralisation, in turn, creates “new and powerful levers of social accumulation.”
“Capital grows to a huge mass in a single hand in one place, because it has been lost by many in another place. This is centralisation proper, as distinct from accumulation and concentration…
“…The battle of competition is fought by the cheapening of commodities. The cheapness of commodities depends, all other circumstances remaining the same, on the productivity of labour, and this depends in turn on the scale of production. Therefore the larger capitals beat the smaller.”
Alongside this process of centralisation, the credit system also becomes increasingly dominant, eventually becoming “a new and terrible weapon in the battle of competition and is finally transformed into an enormous social mechanism for the centralisation of capitals.”
The free market of competition, by its very nature, therefore, turns into its opposite – that is, into the dominance of monopolies in every sector and across sectors. The antagonism between centralisation and competition remains at the heart of the capitalism system, reflected in the contradiction between the immense levels of organisation and planning within a given business, and the anarchy of the market, which operates without any co-ordination or plan, but only on the basis of the blind forces of competition.
The task of socialist revolution is to resolve this contradiction: not by turning back the wheel of history and trying to artificially create smaller businesses and corporations – as is suggested, for example, by those politicians who advocate breaking up the banks; but by taking these major monopolies that capitalism has created into public ownership, under democratic workers’ control and management, and integrating them into a general, rational, socialist plan of production.
The reserve army of labour
Whilst there may be exceptional periods, as in the immediate post-war period, when rapid growth allows for the needs of capital to exceed the available supply of labour, this is not the norm. Mass unemployment is the real normality in capitalist society, whether in booms or slumps.
As accumulation increases, there is a tendency for the ‘organic composition’ of capital to grow, where the accumulated labour of the past – crystallised in constant capital – increases in proportion to the investment in living labour. In other words, as production develops and profits are ploughed back into investment, we see an ever increasing amount of machinery and raw materials in comparison to the workers employed. Although the overall population – and thus the total number of workers – increases with the growth of production, the dominance of machines over human beings increases also.
The result, Marx notes, is that society consistently finds itself in a position where there are men and women who are surplus to the needs of capital – a surplus population:
“…it is capitalist accumulation itself that constantly produces, and produces indeed in direct relation with its own energy and extent, a relatively redundant working population, i.e. a population which is superfluous to capital’s average requirements for its own valorisation, and is therefore a surplus population.”
This “surplus population” of unemployed, Marx comments, acts as an “industrial reserve army”, expanding and contracting with the ever-changing pace and rhythm of capitalist production itself, reducing in periods of boom and a growing in times of slump. Capitalism knows of no dynamic other than that of chaotic motion: of booms and slumps; “expansion by fits and starts of the scale of production”, followed by “its equally sudden contraction”.
In this way, the reserve army of labour becomes a “condition for the existence of the capitalist mode of production”: “a mass of human material always ready for exploitation by capital in the interests of capital’s own changing valorisation requirements”; a reserve for the capitalist system, available to absorb the sudden shocks and spurts of growth in production.
Conditions have changed somewhat, however, since Marx wrote Capital. In discussing the industrial reserve army, Marx was describing a human reservoir of labour, the level of which would rise and fall with the boom-slump cycle of capitalism. But, as with the Great Depression of the 1930s, during today’s even greater crisis we see a different phenomenon: no longer that of a reserve army of labour, but a permanent scar of mass unemployment due to an organic crisis of capitalism. Imposed on the boom and slump cycle is the general crisis of ‘secular stagnation’.
The enforced idleness on the part of the ‘surplus population’, however, exists in a dialectical unity with its opposite: namely, the over-work on the part of those remaining in work. Millions cannot find employment, and yet others have to work in multiple jobs just to get by. The two condition each other: the reserve army of labour is used to create competition between workers and put a downward pressure on the wages of those in work. Meanwhile, the harder the capitalist can make their workers labour, the fewer workers the capitalist must employ. ‘Work for less or I will get someone else to do your job and you will not work at all!’ – this is the chorus of the bosses, with their industrial reserve army behind them.
“The over-work of the employed part of the working class swells the ranks of its reserve, while, conversely, the greater pressure that the reserve by its competition exerts on the employed workers forces them to submit to over-work and subjects them to the dictates of capital. The condemnation of one part of the working class to enforced idleness by the over-work of the other part, and vice versa, becomes a means of enriching the individual capitalists, and accelerates at the same time the production of the industrial reserve army on a scale corresponding with the progress of social accumulation.”
Whilst the capitalists can decide who will work and who will not, workers are clearly not given the same freedom to restrict the supply of their labour. The only chance they have of doing this is to combine into trade unions. Hence the hue and cry raised by the bosses and their representatives in parliament and the press about any regulations imposed by trade unions, with the whole might of the capitalist state being used to eliminate any barrier to the supply of labour. The bosses must not be denied access to cheap labour!
“…as soon as, by setting up trade unions, etc., they try to organise planned co-operation between the employed and the unemployed in order to obviate or to weaken the ruinous effects of this natural law of capitalist production on their class, so soon does capital and its sycophant, political economy, cry out at the infringement of the ‘eternal’ and so to speak ‘sacred’ law of supply and demand.”
Alongside the general rise and fall of wages due to the expansion and contraction of production, and its corresponding rise and fall in the demand for labour relative to the surplus population available, there are also, explains Marx, “the local oscillations of the labour-market in a particular sphere of production” – that is, a rise and fall of the wages available in particular industries, “which accompany the distribution of the working population into the different spheres of outlay of capital, according to its varying needs.”
Just as the oscillations in the price of a commodity indicate the relative supply and demand of different commodities and provide a signal to the capitalist of where investments should be channelled, the relative change in wages in different industries acts, under capitalism, to direct labour into different sectors.
Today, as in the time of Marx, we have the contradiction of mass unemployment alongside an abundance of needs in society that are not fulfilled. Clearly, on a rational basis, there is work that needs to be done to fulfil these needs; likewise, there are people looking for work – and yet this work remains undone and those looking for work remain idle. The problem, the capitalists tell us, is not the lack of people looking for work, but their willingness to work. They must be forced or coerced into taking the first job that comes along. They also complain of the lack of people with the right skills for the work that is available. The solution, therefore, is education, as The Economist report asserts:
“The best hope for reducing the glut of less-skilled labour is to transform some of it into the more-skilled sort through higher spending on education. In the 19th and 20th centuries it took significant public investment to ensure that newly-industrialised economies had a supply of labour with the right qualifications. Something similar is needed today.”
But, as Marx notes, it is capitalism that creates this very conundrum, on the one hand by automating industry and creating this “glut of less-skilled labour”; and, on the other hand, by reducing the very funding for education that is needed to help workers learn new skills to move from the old industries and into the new.
“That the natural increase of the number of workers does not satisfy the requirements of the accumulation of capital, and yet, at the same time, exceeds those requirements, is a contradiction inherent in capital’s very movement. Capital demands more youthful workers, fewer adults. This contradiction is no more glaring than the other contradiction, namely that a shortage of ‘hands’ is complained of, while, at the same time, many thousands are out of work, because the division of labour chains them to a particular branch of industry.”
Whilst the accumulation and growth of capital may increase the demand for labour, workers in old industries are thrown onto the scrapheap due to the development of new technologies and processes that make their skills redundant and obsolete.
“Capital acts on both sides at once. If its accumulation on the one hand increases the demand for labour, it increases on the other the supply of workers by ‘setting them free’, while at the same time the pressure of the unemployed compels those who are employed to furnish more labour, and therefore makes the supply of labour to a certain extent independent of the supply of workers.”
Advances in production and technology, therefore, do not liberate us, but are used under capitalism to enslave us. Man is in a race against the machine. We do not control production; production controls us.
“On the basis of capitalism, a system in which the worker does not employ the means of production, but the means of production employ the worker, the law by which a constantly increasing quantity of means of production may be set in motion by a progressively diminishing expenditure of human power, thanks to the advance in the productivity of social labour, undergoes a complete inversion, and is expressed thus: the higher the productivity of labour, the greater is the pressure of the workers on the means of employment, the more precarious therefore becomes the condition for their existence, namely the sale of their own labour-power for the increase of alien wealth, or in other words the self-valorisation of capital. The fact that the means of production and the productivity of labour increase more rapidly than the productive population expresses itself, therefore, under capitalism, in the inverse form that the working population always increases more rapidly than the valorisation requirements of capital.”
All the increases in wealth and productivity do not translate into an equivalent increase in living standards and leisure time. On the contrary, as explained above, in recent times, not only is the share of wealth in society going to labour decreasing, but real wages have also declined. Meanwhile, workers work harder than ever. The development of the productive forces has not meant the general betterment of society and humanity, but instead only the enrichment of the few at the expense of the many.
The Economist sums up the situation today in their report, describing a world where growing inequality in society and an ever-widening chasm between the rich and the rest are seen as a result of automation and technological innovation:
“Technology has created a growing reservoir of less-skilled labour while simultaneously expanding the range of tasks that can be automated. Most workers are therefore being forced into competition between each other and against machines. No wonder their share of the economic pie has got smaller, in developing economies as well as in the rich world.”
What a nonsensical and contradictory world we live in under capitalism, where mass unemployment and underemployment exists alongside overwork; where living standards fall whilst technology advances; where leisure time is reduced despite an abundance of automation and time-saving devices. This is the economics of the mad house!
It is this contradiction which Marx called “the absolute general law of capitalist accumulation”: the inevitable product of a productive process that is completely interconnected and social in its scope, but in which the means of production are privately owned and the wealth generated is privately appropriated. As Marx so eloquently summarises and concludes:
“Within the capitalist system all methods for raising the social productivity of labour are put into effect at the cost of the individual worker; all means for the development of production undergo a dialectical inversion so that they become means of domination and exploitation of the producers; they distort the worker into a fragment of a man; they degrade him to the level of an appendage of a machine, they destroy the actual content of his labour by turning it into a torment; they alienate from him the intellectual potentialities of the labour process in the same proportion as science is incorporated in it as an independent power; they deform the conditions under which he works, subject him during the labour process to a despotism the more hateful for its meanness; they transform his life-time into working-time, and drag his wife and child beneath the wheels of the juggernaut of capital… But all methods for the production of surplus-value are at the same time methods of accumulation, and every extension of accumulation becomes, conversely, a means for the development of those methods. It follows therefore that in proportion as capital accumulates, the situation of the worker, be his payment high or low, must grow worse. Finally, the law which always holds the relative surplus population or industrial reserve army in equilibrium with the extent and energy of accumulation rivets the worker to capital more firmly than the wedges of Hephaestus held Prometheus to the rock. It makes an accumulation of misery a necessary condition, corresponding to the accumulation of wealth. Accumulation of wealth at one pole is, therefore, at the same time accumulation of misery, the torment of labour, slavery, ignorance, brutalisation and moral degradation at the opposite pole, i.e. on the side of the class that produces its own product as capital.”
22 4th October 2014
27 4th October 2014
9) Chapters 26-33: The Origins of Capitalism
In chapters 23-25, Marx explained how capitalist relations – through their own inner laws and dynamics – are able to reproduce themselves, whilst at the same time extending and expanding the system. In doing so, a growing quantity of wealth accumulates in the hands of the capitalist class, and an ever widening chasm opens up between rich and poor – between capital and labour.
Marx emphasises, in particular, that this accumulation of profits and increasing domination of capital over labour is not the result of any theft or violation of the ‘laws of exchange’. Exploitation and inequality are not the result of cheating; profits are not obtained at the point of a sword or the barrel of a gun. The exchange of labour-power and wages is an exchange of equivalents. The workers’ wages reflect, on average, the value of their labour-power, as has been explained in earlier chapters. No recourse to ‘force’ or ‘might’ is necessary to explain the situation of exploitation and inequality that society faces today. It is the result of the self-perpetuating laws and logic of the capitalist system itself.
“The great beauty of capitalist production consists in this, that it not only constantly reproduces the wage-labourer as a wage-labourer, but also always produces a relative surplus population of wage-labourers in proportion to the accumulation of capital. Thus the law of supply and demand as applied to labour is kept on the right lines, the oscillation of wages is confined within limits satisfactory to capitalist exploitation, and lastly, the social dependence of the worker on the capitalist, which is indispensable, is secured.”
Once set in motion, therefore, exploitation and inequality become an inevitable tendency within capitalism. But, Marx asks, what is the initial impulse that allows such a dynamic to begin in the first place? Despite what the ruling class and their apologists in politics and academia may claim today, the laws of capitalist production and exchange have clearly not existed for all eternity. Indeed, as Engels explains in his great work on The Origin of the Family, Private Property and the State, even class society in general is a relatively recent phenomena; for the vast majority of human history, mankind was organised into tribal communities in which the means of production were held in common ownership, which he called ‘primitive communism’.
How then, did the seemingly never-ending circle of capitalist accumulation initially arise? In what way was an initial disparity and inequality created to allow for the laws of capitalism to become established? It is to this question of ‘primitive accumulation’ – “an accumulation which is not the result of the capitalist mode of production but its point of departure” (p873) – that Marx now turns in chapters 26-33.
For Marx’s peers, “primitive accumulation plays approximately the same role in political economy as original sin does in theology.”For the bourgeoisie, their privileged position in society is as unquestionably natural, divine, and eternal as the motion of the planets, resulting from the hand and will of God himself. If there is evil or injustice in the world, it is not the fault of capitalism, but apparently the curse of human nature.
“Long, long ago there were two sorts of people; one, the diligent, intelligent and above all frugal élite; the other, lazy rascals, spending their substance, and more, in riotous living…Thus it came to pass that the former sort accumulated wealth, and the latter sort finally had nothing to sell except their own skins. And from this original sin dates the poverty of the great majority who, despite all their labour, have up to now nothing to sell but themselves, and the wealth of the few that increases constantly, although they have long ceased to work.”
The working class, then, so we are told, must accept their lot and be condemned to a lifetime of misery, merely because of the frivolity of their forefathers. Above all, the capitalist system remains sacrosanct, beyond reproach. The poor are to blame for being poor. This, in essence, is the argument of the ruling class, both at the time of Marx and, in the shape of the right-wing political representatives today.
The real origins of capitalist accumulation, however, as Marx notes, are far from this ‘peaceful’ and ‘natural’ ideal that the bourgeoisie imagines. Whilst accumulation and inequality may flow from capitalist relations themselves once established, “In actual history,” explains Marx, “it is a notorious fact that conquest, enslavement, robbery, murder, in short, force, play the greatest part”in establishing such relations in the first place. “As a matter of fact, the methods of primitive accumulation are anything but idyllic.”
What exactly are the relations Marx is referring to? At heart, they all revolve around the central relation between capital – value that begets more value – and labour. Not all money and wealth is capital, however. “In themselves, money and commodities are no more capital than the means of production and subsistence are. They need to be transformed into capital.”This transformation of money into capital – the establishment of capitalist relations – requires the owners of wealth to be able to find a very unique commodity on the market: the commodity of labour-power, which alone has the ability to create surplus-value, i.e. more value than it itself contains.
And who is it that sells such a commodity? Only the ‘free’ worker – that class of the dispossessed, who have nothing to sell but their ability to work for others. “Free workers, in the double sense that they neither form part of the means of production themselves, as would be the case with slaves, serfs, etc., nor do they own the means of production, as would be the case with self-employed peasant proprietors.”
For capitalist relations to take hold of society, therefore, a working class must come into being, and this “presupposes a complete separation between the workers and the ownership of the conditions for the realisation of their labour.” “As soon as capitalist production stands on its own feet, it not only maintains this separation, but reproduces it on a constantly extending scale. The process, therefore, which creates the capital-relation can be nothing other than the process which divorces the worker from the ownership of the conditions of his own labour.”
“…property in money, means of subsistence, machines and other means of production does not as yet stamp a man as a capitalist if the essential complement to these things is missing: the wage-labourer, the other man, who is compelled to sell himself of his own free will…capital is not a thing, but a social relation between persons which is mediated through things.”
“We know that the means of production and subsistence, while they remain the property of the immediate producer, are not capital. They only become capital under circumstances in which they serve at the same time as means of exploitation of, and domination over, the worker…
“…So long, therefore, as the worker can accumulate for himself – and this he can do so long as he remains in possession of his means of production – capitalist accumulation and the capitalist mode of production are impossible.”
At the root of this dilemma facing the early capitalists was the difference between individual (personal) property and capitalist private property: the former, “which rests on the labour of the producer himself”, and the latter, which rests “on the exploitation of the labour of others.”For capitalism to dominate society – whether it is in the transformation of society from feudalism, or in establishment of capitalist relations in the colonies – it must abolish the petty small-scale production of the self-sufficient individual, and replace it with a system of production based on the exploitation of others.
Therefore, the secret of primitive accumulation, Marx explains, “is nothing else than the historical process of divorcing the producer from the means of production. It appears as ‘primitive’ because it forms the pre-history of capital, and of the mode of production corresponding to capital.”
The creation of the ‘free worker’ and the rise of the bourgeoisie
As Marx notes, “the economic structure of capitalist society” has neither existed from time immemorial nor appeared fully formed from nowhere as if by divine revelation, but “has grown out of the economic structure of feudal society”. “The dissolution of the latter set free the former.”In other words, the working class required for capitalist relations was created from the material bequeathed by the preceding society – that of feudalism; a society where the vast majority were serfs tied to the land, peasants tending to their own plots, or labourers trapped inside the protected guilds.
The task of creating ‘free workers’, therefore, was “on the one hand…their emancipation from serfdom and from the fetters of the guild…But, on the other hand, these newly freed men became sellers of themselves only after they had been robbed of all their own means of production, and all the guarantees of existence afforded by the old feudal arrangements.”The mass of petty proprietors (the peasants, artisans, and craftsman, etc.) had to be transformed into wage-labour. In short, the masses had not only to be released from the grip of the landlord and the guild, but also expropriated of their own property, ripped from the land, and driven into hands of the emergent bourgeoisie – the owners of wealth in the newly created towns and industries. “And this history, the history of their expropriation, is written in the annals of mankind in letters of blood and fire.”
At the same time, the nascent capitalist class could not simply dictate the terms of this process. Whilst the creation of ‘free workers’ was necessary for capital, it was by no means beneficial to the guild masters and the feudal lords, whose wealth and power were based on the existing property relations. The establishment of capitalist relations, therefore, required a fierce political struggle between the old ruling classes and the more dynamic emergent bourgeoisie.
“In this respect, the rise of the industrial capitalists appears as the fruit of a victorious struggle both against feudal power and its disgusting prerogatives, and against the guilds, and the fetters by which the latter restricted the free development of production and the free exploitation of man by man.”
In England, the revolutionary events surrounding the Civil War of the 1640s saw the bourgeoisie assert themselves politically through Parliament in order to wrestle power from the monarchy, whilst in France, the Great Revolution of 1789-1799 overthrew the old feudal monarchy and aristocracy, establishing the French Republic, based on bourgeois law and bourgeois rights. In America, the national bourgeoisie took power through not one, but two revolutions: firstly, through the War of Independence against the British in the late-18th century; and later in the American Civil War between the states of the North, which based themselves on capitalist relations, and those of the South, which defended slavery.
Indeed, this last example most aptly demonstrates the qualitative – revolutionary – shift required to establish the dominance of capitalist relations: as long as slavery existed in the Southern states, the capitalism of the North would remained hemmed in, for it required the existence of “free workers” across America – that is, of men and women who were neither the property of others, nor the owners of any property themselves – in order to grow and expand.
Today, bourgeois politicians and academics do not hesitate in labelling Marxists as blood-thirsty maniacs due to their desire to see a revolutionary change in society, equating the process of revolution with violence, death and anarchy. And yet, as Marx notes, the apologists of capitalism retain a “stoical peace of mind” in the face of the “most shameless violation of the ‘sacred rights of property’ and the grossest acts of violence against persons, as soon as they are necessary in order to lay the foundations of the capitalist mode of production.”
Whilst accusing Marxists of wanting ‘violent’ revolution, the defenders of capitalism today forget their own extremely violent past. Capitalism has never and nowhere arisen peacefully, but rather comes into this world “dripping from head to toe, from every pore, with blood and dirt”.
Cromwell, Robespierre, and Lincoln: all of these revolutionary leaders did not hesitate to use force and might in their fight to overthrow feudalism and slavery, and thus establish the modern bourgeois society that we know today.
The agricultural revolution
By the 16th century, feudalism was already tottering in Europe, particularly in England. The growth of international trade which had begun in the Middle Ages had been transformed into an intercontinental trade network following the discovery of the Americas and this, as well as the abundance of silver and gold carried in Spanish galleons, brought a powerful alien invader into the heart of the parochial feudal economy: money. As Engels explained in his manuscript on The Decline of Feudalism and the Rise of the Bourgeoisie (1884):
“Long before the ramparts of the baronial castles were breached by the new artillery, they had already been undermined by money…”
“How deeply the foundations of the feudality had been weakened and its structure corroded by money around the end of the fifteenth century, is strikingly evident in the lust for gold which possessed Western Europe at this time. It was gold that the Portuguese sought on the African coast, in India and the whole Far East; gold was the magic word which lured the Spaniards over the ocean to America; gold was the first thing the whites asked for when they set foot on a newly discovered coast. But this compulsion to embark on distant adventures in search of gold, however feudal were the forms which it took at first, was nonetheless basically incompatible with feudalism, the foundation of which was agriculture and the conquests of which were directed at the acquisition of land. To this it must be added that shipping was definitely a bourgeois business, a fact which has stamped every modern navy with an anti-feudal character.”
By this process, market forces penetrated into the countryside, challenging the old feudal privileges and protections and undermining the old system from within. But this alone cannot beget the central capital-labour relation which characterises capitalist production; without wage-labour, as Marx explains, there can be no capital.
Therefore, one of the main historical prerequisites for the development of capitalism was the creation of a dispossessed class of wage-labourers that could serve the needs of the emerging bourgeoisie in the growing towns. (Later on, as Marx explains, the bourgeoisie in the more advanced capitalist countries were also faced with the same task when attempting to establish capitalist relations in the colonies.)
Marx takes England, the ‘locus classicus’ – classic ground – of the capitalist mode of production, as his main historical example in demonstrating how the process of creating the ‘free worker’ concretely unfolded. In the transformation from feudalism to capitalism in England, this process of creating the ‘free worker’ took place predominantly through the expropriation of the agricultural population, in what is often referred to as the ‘enclosure of the commons’.
Much of the land in England had remained officially as ‘open fields’ and ‘common land’ up until the 16th century. From this time onwards, the process of enclosure became more widespread, with these open fields and commons being divided up, fenced off, and handed over to wealthy private landlords. Those who had previously relied upon the use of the common land were forcibly evicted, frequently through means that were bloody and violent, leaving them as vagabonds with nothing to live on.
Marx notes the importance of the Reformation in this respect, in which land was taken from the monasteries and “sold at a nominal price to speculating farmers and townsmen”, whilst at the same time ordinary people were forced from the soil:
“The process of forcible expropriation of the people received a new and terrible impulse in the sixteenth century from the Reformation, and the consequent colossal spoliation of the church property. The Catholic church was, at the time of the Reformation, the feudal proprietor of a great part of the soil of England. The dissolution of the monasteries, etc., hurled their inmates into the proletariat.”
Once the bourgeoisie had gained political power, the law – far from protecting people against these acts of eviction – became a tool precisely for this forcible eviction, with the Enclosure Acts of the 18th and 19th centuries acting as a “Parliamentary form of…robbery”: “decrees by which the landowners grant themselves the people’s land as private property, decrees of expropriation of the people.”
“The spoliation of the Church’s property, the fraudulent alienation of the state domains, the theft of the common lands, the usurpation of feudal and clan property and its transformation into modern private property under circumstances of ruthless terrorism, all these things were just so many idyllic methods of primitive accumulation. They conquered the field for capitalist agriculture, incorporated the soil into capital, and created for the urban industries the necessary supplies of free and rightless proletarians.”
Attacks on the poor
Whilst some of the newly created ‘free workers’ were able to become paid wage-labourers, many of the dispossessed, having been driven from the land and into the towns, found themselves transformed from peasants into paupers. Despite ending up in a state of destitution through no fault of their own, such people were nevertheless punished for stalking the land with no shelter or means of living. As Marx notes:
“The fathers of the present working class were chastised for their enforced transformation into vagabonds and paupers. Legislation treated them as ‘voluntary’ criminals, and assumed that it was entirely within their powers to go on working under the old conditions which in fact no longer existed.”
After the infamous ‘Poor Law’ was introduced in 1834, those who could not support themselves or find paid employment were forced into the workhouse. The poor, in other words, were being punished for being poor. As it was then, so it is now, with the right-wing media and politicians demonising those who – having been thrown onto the scrapheap by capitalism, which is unable to provide jobs, decent pay, and affordable housing – have become reliant on welfare or food banks in order to survive.
As Marx notes, the initial flood-tide of the dispossessed entering the towns was not naturally attuned to a life of wage-labour. The discipline required by the capitalist mode of production had to be drilled into the newly-formed working class. “Thus were the agricultural folk first forcibly expropriated from the soil, driven from their homes, turned into vagabonds, and then whipped, branded and tortured by grotesquely terroristic laws into accepting the discipline necessary for the system of wage-labour.”
In the early formation of capitalism, as Marx explains, the “rising bourgeoisie needs the power of the state, and uses it to ‘regulate’ wages, i.e. to force them into the limits suitable for making a profit, to lengthen the working day, and to keep the worker himself at his normal level of dependence. This is an essential aspect of so-called primitive accumulation.”Once again, we see how the supposedly ‘natural’ laws of capitalism were anything but in the early days of this system. Those who praise the superiority of the market today, with the apparently omnipotent and omniscient forces of supply and demand, fail to mention that, in its origins, the ‘invisible hand’ required the iron fist of the state in order to survive – that is, for the bourgeois order to thrive.
Over time, however, the explicit and open use of the force of the state gives way to the equally powerful force of tradition, routine, and habit. Forceful compulsion is replaced by economic compulsion, backed up ideologically through prejudices and tradition; man-made laws regulating wages and hours become unnecessary with the rise of the laws of capitalist competition. The full force of the state, with its “armed bodies of men”, will of course still be called upon by the ruling class today in order to protect capitalist property rights when necessary; but as Marx comments, “Direct extra-economic force is still of course used, but only in exceptional cases.”
In place of such force, therefore, the “advance of capitalist production develops a working class which by education, tradition and habit looks upon the requirements of that mode of production as self-evident natural laws. The organisation of the capitalist process of production, once it is fully developed, breaks down all resistance. The constant generation of a relative surplus population keeps the law of the supply and demand of labour, and therefore wages, within narrow limits which correspond to capital’s valorisation requirements. The silent compulsion of economic relations sets the seal on the domination of the capitalist over the worker.”
At the same time, the law of the land was used to limit the rights of workers to organise and take strike action. But, with the growing quantitative and qualitative strength of the working class, even these “barbarous laws against combinations of workers collapsed in 1825 in the face of the threatening attitude of the proletariat.” The capitalists, and their political representatives, could do nothing but reluctantly allow workers to form trade unions, for fear that naked repression might provoke even greater ire and radicalisation.
“It is evident that only against its will, and under the pressure of the masses, did the English Parliament give up the laws against strikes and trade unions, after it had itself, with shameless egoism, held the position of a permanent trade union of the capitalists against the workers throughout five centuries.”
Indeed, the hypocrisy that Marx points out is glaringly evident today, where the capitalists raise a hue and cry over the ‘vested interests’ of the trade unions, attempting to turn public opinion against those who take strike action in defence of wages, conditions, and jobs, etc.; meanwhile, the capitalists themselves, a tiny, rich elite, close ranks in defence of their own interests – that is, in defence of the system that guarantees them such privileges and profits.
The impact of the agricultural revolution
The creation of a new class of wage-labourers was, at the same time, also the creation of a consumer market for the goods that capitalist industries produced. Rather than finding a scattered and self-sufficient peasantry, merchants and traders would now find a concentrated pool of consumers in the towns, with wages to spend on their commodities.
“In fact, the events that transformed the small peasants into wage-labourers, and their means of subsistence and of labour into material elements of capital, created, at the same time, a home market for capital…Previously a mass of small producers, working on their own account, had found their natural counterpart in a large number of scattered customers; but now these customers are concentrated into one great market provided for by industrial capital…And only the destruction of rural domestic industry can give the home market of a country that extension and stability which the capitalist mode of production requires.”
In turn, it was precisely the transformation of the land from open fields and commons into private enclosures that gave a powerful impetus to the productivity of agricultural labour, thereby facilitating the further expropriation and proletarianisation of the rural population:
“In spite of the smaller number of its cultivators, the soil brought forth as much produce as before, or even more, because the revolution in property relations on the land was accompanied by improved methods of cultivation, greater co-operation, a higher concentration of the means of production and so on, and because the agricultural wage-labourers were made to work at a higher level of intensity, and the field of production on which they worked for themselves shrank more and more.”
It was therefore the revolution in the countryside which laid the basis for the birth of the Industrial Revolution in the towns. Without these enormous leaps in the productive capacity of society, the great scientific and cultural conquests which are associated with the development of capitalism would have been impossible. Thus we see, in a basic way, a demonstration of the materialist conception of history: that it is, in the final analysis, the level of development of the forces of production that determines the limits within which any given society can grow.
This is not the end of the question, however. Presented in a one-sided way, the development of the productive forces can be characterised as a form of ‘technological determinism’, whereby new inventions and technical innovations – in and of themselves – can revolutionise society. Today, for example, there is talk of a ‘digital revolution’, with the growth of computing power and artificial intelligence opening up the possibility of automating – and eliminating – millions of knowledge-based, white-collar jobs.
Under socialism, with a democratic plan of production, such technology could provide the material basis for a sharp reduction in the hours of the working week, with any remaining work shared out, and with no loss of pay. Under capitalism, however, this prospect has become a cause, not of celebration, but of concern, as these millions of workers find themselves in a race against the machine, and a race against each other, just in order to avoid being thrown onto the scrapheap of unemployment.
In this way, we see demonstrated the other basic tenet of the Marxist view of history: that, whilst the forces of production may lay the material basis for progress and development in society, in certain periods these forces of production come into conflict and contradiction with the existing relations of production – that is, of how production and society is organised. In such periods, a revolution is necessary in order to break out of this impasse and take society forward.
“At a certain stage of development, the material productive forces of society come into conflict with the existing relations of production or – this merely expresses the same thing in legal terms – with the property relations within the framework of which they have operated hitherto. From forms of development of the productive forces these relations turn into their fetters. Then begins an era of social revolution. The changes in the economic foundation lead sooner or later to the transformation of the whole immense superstructure.”
The national debt and taxes
Marx identifies two other main sources of primitive accumulation: colonialism and the plunder of the colonies for their free labour and natural resources; and the creation of national debts, with an associated and accompanying fiscal (taxation) system.
The concept of state debt is not unique to the capitalist epoch. Feudal monarchs had frequently borrowed from the rich and wealthy, particularly in order to fund wars. The problem previously, however, was that such royal households would often default on their debts. Tired of losing their money, the rising bourgeois class in England brought about the establishment of a national bank – the Bank of England – in 1694, which guaranteed the repayment of government debts and gave the financial lenders privileges over the money supply – i.e. the creation of new bank notes.
In principle, the idea of the national debt makes little sense. The same result – the government raising money for state expenditure – could just as well be achieved through taxing the rich, rather than borrowing from them. Of course, from the perspective of the wealthy, lending the government money (in the form of credit) rather than giving it over (in the form of taxes) is far more preferable: the rich get to keep their money, and at the same time earn a tidy sum from the interest.
“The public debt becomes one of the most powerful levers of primitive accumulation. As with the stroke of an enchanter’s wand, it endows unproductive money with the power of creation and thus turns it into capital, without forcing it to expose itself to the troubles and risks inseparable from its employment in industry or even in usury. The state’s creditors actually give nothing away, for the sum lent is transformed into public bonds, easily negotiable, which go on functioning in their hands just as so much hard cash would.”
With debts to repay, the state is then required to establish a properly functioning fiscal system through which it raises the taxes needed to fund these debts and interest payments. The result, however, as seen now in debt-laden countries across the world, is that the tail ends up wagging the dog. Government policy begins to revolve entirely around paying back the debts to its financial creditors, and – as is aptly demonstrated in modern day Greece – new loans are required simply to pay off the old debts.
So it comes about that the bourgeoisie becomes the new ruling class. Governments are simply the handmaiden of this new elite. This is what we see today, where governments of every colour are carrying out the same policies of austerity under the aegis of international finance capital – and this is what is meant by the dictatorship of capital, which freely rides roughshod over its own parliamentary norms in this time of crisis.
“The national debt, i.e. the alienation of the state – whether that state is despotic, constitutional, or republican – marked the capitalist era with its stamp. The only part of the so-called national wealth that actually enters into the collective possession of a modern nation is – the national debt.”
These methods, combined with those already described above, are the forceful ways in which the nascent bourgeoisie assert their dominance over society.
“The discovery of gold and silver in America, the extirpation, enslavement and entombment in mines of the indigenous population of that continent, the beginnings of the conquest and plunder of India, and the conversion of Africa into a preserve for the commercial hunting of black skins, are all things which characterise the dawn of the era of capitalist production. These idyllic proceedings are the chief moments of primitive accumulation…
“…the combination embraces the colonies, the national debt, the modern tax system, and the system of protection. These methods depend in part on brute force, for instance the colonial system. But they all employ the power of the state, the concentrated and organised force of society, to hasten, as in a hothouse, the process of transformation of the feudal mode of production into the capitalist mode, and to shorten the transition. Force is the midwife of every old society which is pregnant with a new one. It is itself an economic power.”
The historical role of capitalism
With capitalist relations established, bourgeois right replaces might, and capitalism begins to carry out its historic role: to do away with the fetters of feudalism; convert the scattered personal property of petty production into capitalist private property; and develop the productive forces – the forces of science and culture; of industry and agriculture; and of technology and technique.
“This mode of production [feudalism] presupposes the fragmentation of holdings, and the dispersal of the other means of production. As it excludes the concentration of these means of production, so it also excludes co-operation, division of labour within each separate process of production, the social control and regulation of the forces of nature, and the free development of the productive forces of society.”
“It has to be annihilated; it is annihilated. Its annihilation, the transformation of the individualised and scattered means of production into socially concentrated means of production, the transformation, therefore, of the dwarf-like property of the many into the giant property of the few, and the expropriation of the great mass of the people from the soil, from the means of subsistence and from the instruments of labour, this terrible and arduously accomplished expropriation of the mass of the people forms the pre-history of capital. It comprises a whole series of forcible methods, and we have only passed in review those that have been epoch-making as methods of the primitive accumulation of capital. The expropriation of the direct producers was accomplished by means of the most merciless barbarism, and under the stimulus of the most infamous, the most sordid, the most petty and the most odious of passions. Private property which is personally earned, i.e. which is based, as it were, on the fusing together of the isolated, independent working individual with the conditions of his labour, is supplanted by capitalist private property, which rests on the exploitation of alien, but formally free labour.”
Once established, the laws of capitalist competition act to concentrate and centralise the productive forces in society, creating a handful of monopolies that dominate each sector; multinational corporations that plan production within their firm on an international scale. Although still private in terms of ownership and appropriation, the productive process becomes increasing socialised: the producers are now inextricably linked into one common web of production and exchange; production for self-consumption is increasingly done away with; and the economies of each country are brought together into one world market, with supply chains that span the globe. All of this occurs for the sake of economies of scale, increased efficiency and productivity, and, ultimately, to decrease production costs and increase profits.
“This expropriation [of one capitalist by another] is accomplished through the action of the immanent laws of capitalist production itself, through the centralisation of capitals. One capitalist always strikes down many others. Hand in hand with this centralisation, or this expropriation of many capitalists by a few, other developments take place on an ever-increasing scale, such as the growth of the co-operative form of the labour process, the conscious technical application of science, the planned exploitation of the soil, the transformation of the means of labour into forms in which they can only be used in common, the economising of all means of production by their use as the means of production of combined, socialised labour, the entanglement of all peoples in the net of the world market, and, with this, the growth of the international character of the capitalist regime.”
All of this constitutes the historically progressive role of capitalism in its heyday, which, as Marx and Engels acknowledged in the Communist Manifesto, “has accomplished wonders far surpassing Egyptian pyramids, Roman aqueducts, and Gothic cathedrals”. But, as Marxism explains, at a certain point, everything turns into its opposite. The same forces that initially make capitalism progressive, driving forward the development of the productive forces and of society in general – the forces of profit and competition – later become an immense barrier to the progress of industry, science, and culture: a barrier that must be torn down if society is to continue moving forward.
“The monopoly of capital becomes a fetter upon the mode of production which has flourished alongside and under it. The centralisation of the means of production and the socialisation of labour reach a point at which they become incompatible with their capitalist integument. This integument is burst asunder. The knell of capitalist private property sounds. The expropriators are expropriated.”
The revolutionary task in front of humanity is to resolve the contradiction that capitalism has created: the contradiction between the socialised nature of the productive process – reflected in the immense level of planning that exists within the giant corporations that capitalism has spawned – and the private ownership and appropriation of the wealth that springs forth from this productive process.
Having negated individual private property and established capitalist private property, what is now needed is a further negation to take the means of production out of the hands of private owners, and place them instead in the hands of society as a whole – that is, to create a democratic and rational plan of production based on the needs of society, rather than the needs of capital.
“This is the negation of the negation. It does not re-establish private property, but it does indeed establish individual property on the basis of the achievements of the capitalist era: namely co-operation and the possession in common of the land and the means of production produced by labour itself.”
The agent of change for this revolutionary transformation is none other than the working class – the class of wage-labourers created by capitalism: “a class constantly increasing in numbers, and trained, united and organised by the very mechanism of the capitalist process of production.”
Despite the scaremongering of the ruling class, such a revolutionary process, as Marx notes, would be far easier than the “incomparably more protracted, violent and difficult process”of primitive accumulation required for the development of capitalism. “In the former case [of transforming scattered private property into capitalist property], it was a matter of the expropriation of the mass of the people by a few usurpers; but in this case [of transforming capitalist property into social property], we have the expropriation of a few usurpers by the mass of the people.”
All the objective conditions for socialist revolution exist: capitalism has created the material conditions necessary for socialism, bequeathing us a society of potential superabundance; at the same time, this same capitalist system is in a deep-seated crisis, and millions of people have become radicalised and are open to revolutionary ideas as a result. What is missing is the subjective factor – a revolutionary leadership that can link all the particular struggles under capitalism to the general need to overthrow capitalism and establish an international socialist society.
This chasm – between the objective necessity for socialism and the absence of the revolutionary leadership necessary for capitalism’s overthrow – is the primary contradiction that Marxists must set about resolving. It is the most important task of all. It is the goal that the International Marxist Tendencyhas set itself. If you agree with this revolutionary aim, then join us in order to fight for a socialist future – the fight for the emancipation of humanity from the chains of capital and wage-slavery.
32 Karl Marx, Preface to a Contribution to the Critique of Political Economy
44 www.marxist.com, website of the International Marxist Tendency
Appendix 1: The Organic Crisis of Capitalism
By Rob Sewell
In this article from issue 9 of the In Defence of Marxism magazine (June 2014), Rob Sewell examines the parlous state of the modern global economy, explaining the causes behind the 2008 crash and the intractable nature of this current worldwide crisis of capitalism.
Where were the Marxists in 2008, when the demise of Lehman Brothers almost brought about the collapse of capitalism?” asks a puzzled Ralph Atkins, the capital markets editor of the Financial Times. Well, unlike Mr Atkins and his coterie of free-marketeers, we were not in a state of total bewilderment. We had predicted such an eventuality.
As capitalism plunged into a deep slump, we were explaining to an ever-widening audience that the crisis, which bourgeois economists denied could ever happen, was a stunning confirmation of the correctness of Marx’s ideas. These ideas, which had been repeatedly declared out-of-date by capitalist apologists, were shown to be shockingly relevant, in total contrast to bourgeois economic theory and especially the discredited efficiency markets hypothesis.
In 2008, capitalism suffered what many have since recognised as the deepest crisis since the 1930s, and in terms of its scope, possibly in history. The initial collapse in world trade was far worse than in the first year of the Great Depression. Bourgeois strategists were in a state of abject panic. “Global industrial output tracks the decline in industrial output during the Great Depression horrifyingly closely,” wrote Martin Wolf, chief economist at the Financial Times. “Within Europe the decline in the industrial output of France and Italy has been worse than at this point in the 1930s. The declines in the US and Canada are also very close to those in the 1930s. But Japan’s industrial collapse has been far worse than in the 1930s, despite a very recent recovery.”
Some dared even to compare the slump to an almost fatal cardiac arrest. But the sickly patient, with the help of state bailouts, was then transferred from its deathbed to intensive care. All things being equal, they believed that capitalism would recover from this crisis as in past cyclical recessions. A rebound from a slump was seen as inevitable. However, things are not always equal and the character of crises is not always the same. It was a mistake to view this crisis as simply a repetition of the previous one. Again, it is wrong to judge the state of an organism simply from its outward appearance. We have to uncover its real nature, its evolution, and above all its deep-seated inherent contradictions, and see how these contradictions work themselves out in practice. This means adopting not a mechanical approach, which dominates bourgeois outlook, but a dialectical approach.
Situation Prior to 2008
Even in the period prior to 2008, the boom in capitalism was largely artificially sustained, which shows how the contradictions were manifesting themselves even at that stage. Capitalism could no longer sustain itself as in the past. Investment in productive capacity was increasingly replaced with out-and-out speculation and gambling. “Manifestly unsustainable bubbles and loosening of credit standards during the middle of the past decade, along with very easy money, were sufficient to drive only moderate economic growth,” explained Lawrence Summers, the former US treasury secretary under Bill Clinton. Strangely, exceptional measures only produced modest results. The capitalist system was not functioning as before. Even then, this proved to be unsustainable and only succeeded in preparing the way for a devastating crisis.
The 2008 catastrophe was certainly no ordinary crisis. Given its depth and severity, there would certainly be no quick recovery, which even the serious bourgeois economists were forced to recognise. Credit, which served to prolong the pre-crisis boom, now turned into a mountain of debts. The slump in fact marked a fundamental turning point, as did the crash of 1929, and served to usher in an entirely new epoch for modern-day capitalism, more akin to the Great Depression of the 1930s. This was therefore no ‘normal’ crisis where, with a few clever adjustments, everything would return as before. Such a crisis did not correspond to economic textbooks or computer models.
Ever faithful, since the summer of 2009 bourgeois commentators were desperately searching around for signs of the ‘green shoots’. But they were disappointed at every turn. One false dawn after another was proclaimed. These learned ladies and gentlemen failed to understand anything, least of all the nature of this capitalist crisis. They ascribed the crisis to all manner of things – everything but the fact that this was a symptom of a dying social system. Marxists, on the other hand, understood full well that the old ‘normality’ had vanished and that capitalism had entered a long drawn-out ‘secular’ death agony, when crisis is the rule, not the exception.
No “Final” Crisis
Unlike the Third Period Stalinists, who declared that 1929 was the ‘final crisis’ of capitalism, Marxists recognise no such thing as a ‘final’ crisis. “The crises of capitalism are not numbered, nor is it indicated in advance which one of these will be the ‘last’,” explained Trotsky. The capitalist system can limp along, no matter how deep the crisis, causing ever-increasing misery and degradation. Unless it is overthrown by the working class, the further continuation of capitalism will plunge humanity into chaos and barbarism, with new crises and catastrophes.
Of course, recoveries, however anaemic or partial, can certainly occur even in periods of deep crisis, such as at present. This does not contradict the general analysis of a sick declining capitalism, causing greater and greater misery. Even a dying organism occasionally shows some spasmodic flicker of life. This happened in the 1930s, during the ‘Roosevelt recovery’, but this did not alter the fundamental character of the period, which was one of crisis, depression and mass unemployment. In any event, the 1934-37 recovery in the US did not last long, despite illusions to the contrary, and was followed by a further collapse. “Hopes arose that the process of economic growth interrupted by the crisis would again be re-established. But sooner than one could have expected, the hour of a new crisis struck,” explained Trotsky at the time. “It started from a lower level than the crisis of 1929 and is developing at a more rapid tempo. This demonstrates that it is not an accidental recession nor even a conjectural depression but an organic crisis of the whole capitalist system.”
We have used this description of Trotsky’s – organic crisis of capitalism – many times to describe the nature of the present epoch. This should not, of course, be confused with Marx’s term, the organic composition of capital, which simply refers to the relationship between living labour and dead labour (the ratio between constant capital and variable capital). The organic crisis of capitalism is a description of a deep historic crisis that reflects an unravelling of the inherent contradictions within the system, namely a system in terminal decline.
Cyclical Explanation of Crisis
We underline this point because there are those, even so-called Marxists, who see things in terms of economic cycles and profit cycles. They explain the severity of the present crisis as ‘rooted in the weaknesses and imbalances of the preceding boom’, not because capitalism has reached its limits. While there was wild speculation in the past period, this does not explain the nature of the crisis. Such an explanation is superficial and ignores the deep-seated historical nature of this crisis of the capitalist system.
This view is very much linked to the ideology of reformism, which recognises these ‘weaknesses and imbalances’ in capitalism and seeks to rectify them. The reformists welcome a cyclical explanation of crisis, as opposed to a historical crisis of capitalism. For them, a cyclical crisis means that the boom years will again return and everything will work out fine. That is why the reformists, as well as those who have abandoned revolutionary politics, are attracted to Kondratiev cycles. This theory is little different from the strange ideas of Henry L. Moore, whose theory of eight-year “generating cycles” was linked to the orbit of Venus, which intersected the sun and the earth, producing economic crisis. Another economist, W. Stanley Jevons, blamed economic crisis on the existence of spots on the sun.
All cyclical theories of equilibrium assume that no matter how bad things get, there was always a natural tendency towards restoring the balance. For them, capitalist development is a case of swings and roundabouts. ‘Well, there are problems, but at the end of the day everything will be fine, so why bother with this socialist revolution nonsense?’
In the 1930s, the Great Depression was a result of the complete breakdown and impasse of the world capitalist system, which proved no longer capable of developing the productive forces as before. This had the same character as the present crisis: an organic crisis. In the 30s, the ‘solution’ to capitalist crisis was through world war and the mass destruction of the productive forces. Today, with the present balance of class forces and the existence of nuclear weapons, such a world war ‘solution’ is ruled out. With world war off the agenda, this means that all the contradictions will be internalised and we face years, if not decades, of savage austerity and crisis – at least until the working class takes power. A Kondratiev ‘summer’ is ruled out.
Weakest recovery in history
Despite the current euphoria in the press about the current feeble ‘recovery’, the world economy remains in a state of crisis, very far from the hopes envisaged by the strategists of capital. Even the bourgeois strategists recognise this fact. A recent gloomy editorial in the austere Financial Times opened with the words: “For the past five years, the world economy has been in crisis.”The ‘recovery’, such as it is, is the weakest recovery in history – yes, in history, which speaks volumes about the real nature of the crisis.
Today, following an initial spurt, the Japanese economy has slowed to a snail’s pace, and threatens to go into reverse as in the previous twenty years. Europe continues to languish in either stagnation or outright recession, with the German powerhouse showing alarming signs of exhaustion and European unemployment at historically high levels. There is little room for improvement. “We’ve gone from an acute crisis to a chronic crisis,” explained Philippe Legrain, a former adviser to the President of the European Commission. The euro crisis is simply moving from the periphery to the core as concerns spread to France and Italy.
Even in the United States, the situation is far from satisfactory, where growth has once again slowed and the proportion of those employed recently hit its lowest level since 1978, as millions of able-bodied men and women leave the labour force and disappear from the unemployment figures. 20 million are either unemployed or under-employed, with between 37m and 50m living on the poverty line. US growth since 2010 has yo-yoed between a depressing 1.8 per cent and 2.4 per cent, a poor performance compared to previous recoveries. GDP in the US is more than 10 per cent below what was predicted on trends before the slump. In Britain, it is not far off 20 per cent below such trends.
With the stagnation in the western economies, the capitalists looked desperately to the BRIC economies to pull them out of this malaise. But these economies are now also experiencing a slowdown. Household debt in Brazil, China, Singapore, Thailand, and Turkey has increased more than 40 per cent since 2008. According to the IMF late last year, the “projected shortfall in Brazil, India and China is similar to the hits to output rates that advanced economies have suffered in the post-crisis period.”The Financial Times explained that “the reason to be fearful is that the world looks set to face years of sub-par growth. The emerging market growth spurt of the past 30 years is coming to an end.” With all exits blocked, the system is at best trapped in long term stagnation, which will be accompanied by a devastating and lasting impact on living standards. That is until the next world slump.
Out of desperation, the capitalists have been reduced to taking unprecedented measures, not simply to avoid another Great Depression, but just to keep the capitalist system going. The present meagre growth, for example, has been achieved only as a result of the biggest programme of monetary support in history. So much for the virtues of the market economy and free enterprise, which are supposed to be shining examples to us all!
These are uncharted waters. The ailing capitalist system is being propped up artificially by a Central Bank life support machine, which has poured trillions of dollars into the financial system. However, the more these unprecedented measures are used to prop up the system, the less impact they have, like a drug addict who needs a bigger and bigger hit in order to get the same high. Five years ago, it took just over $1 of debt to generate $1 of growth in China. In 2013 it took nearly $4 of debt to generate $1 of growth – and one third of the new debt now goes to pay off old debt. China’s growth rate has fallen to the lowest in over 20 years, weakening imports and causing havoc for Brazil, South Africa, Indonesia, Chile, Colombia, Russia and Peru. Most of this ‘new’ money ends up in high-risk speculative deals and ventures, not in productive investment, causing all kinds of new contradictions.
In the USA, the effects of Quantitative Easing (QE), originally pumping $85 billion into the banking system each month, has had dubious results and is being gradually and cautiously reduced. The balance sheet of the Federal Reserve has now reached staggering proportions. In Europe, faced with the dangers of deflation, the European Central Bank is thinking about embarking on its own version of printing money by buying bonds. The Germans, however, are reluctant due to fears of inflation, and it is they who hold the purse strings.
In the end, all attempts to take this monetary morphine away from the ailing capitalist system have caused grave upset, especially in the emerging markets. In its twice yearly Global Financial Stability Report, the IMF noted that “the scaling back of certain extraordinary policy supports has not been accompanied by adequate preparations for a new environment of normalised, self-sustaining growth.”As soon as they announced that the tap of cheap money was to be turned off, all the ‘hot’ money started to disappear, causing devaluations and turmoil in its wake.
Again, interest rates have been kept artificially low to encourage growth. In Britain, official interest rates are at a 300-year low, with little prospect of them rising anytime soon. In the main capitalist countries, they are at near zero levels. This is unprecedented and shows the depth of the current crisis and how qualitatively different it is from more recent crises. Now the European Central Bank is threatening to move to where no central bank has ever gone before, cutting one of its key interest rates below zero to promote growth. The idea of paying a bank to park your savings appears bizarre, but is a reflection of the unconventional times we are in.
According to a new book by James Richards, a former general counsel for hedge fund Long Term Capital Management, which collapsed spectacularly in 1998, we are already living in a new depression. For Richards, the US economy is like a climber on a ridge at 28,000ft with a crevasse on the one side and a sheer cliff on the other. Pressing on becomes even more difficult but turning back – and abandoning QE – means facing up to the pain avoided in 2009. This is not a bad analogy. Whatever they do will be wrong. Their fate is not in their hands.
In addition, the OECD and the IMF have warned that the capitalist world risks slipping into years, if not decades, of much slower (‘sub-par’) growth and higher unemployment, unless governments push ahead with sweeping structural reforms. With depression-type growth and some 50 million already unemployed in the main capitalist countries, the reports hint of worse to come. Present unemployment does not have a temporary character, as in the past; it is not merely cyclical unemployment, but structural unemployment, the most deadly expression of the decline of capitalism. Capitalism is so bankrupt and diseased that is cannot put to use the productive forces, including human labour-power, at its disposal. If, at the dawn of capitalism, ignorant and starving workers broke machines, today it is the capitalists who are the Luddites who destroy machines and throw people out of work, not as a temporary measure, but permanently. Long-term unemployment has become a running sore everywhere. Now they talk glibly of a ‘New Machine Age’ of smart technology that will eliminate swathes of jobs, causing shock waves of unemployment, falling wages and declining living standards. Such is the nightmare being prepared by the death agony of capitalism.
In the 1930s, Trotsky made a critical point in stressing the difference between ‘an organic crisis’ of the whole system and normal cyclical crises, which have been part and parcel of the capitalist system from its inception. The boom/slump cycle of capitalism is the natural rhythm of the system, as with the inhaling and exhaling of oxygen and carbon dioxide from the human body. Cyclical oscillations are inevitable, which are processes that follow the cyclical pattern of production and exchange under capitalism.
Frederick Engels gave a classic description of the normal boom and slump cycle in his book Anti-Dühring:
“The enormous expanding power of large-scale industry, compared with the expanding power of gasses is mere child’s play, now appears to us as a necessity for both qualitative and quantitative expansion that laughs at all counteracting pressure. Such counteracting pressure comes from consumption, sale, and markets for the products of large-scale industry. But the capacity of the market to expand, both extensively and intensively, is controlled directly by quite other and far less effective laws. The expansion of the market cannot keep pace with the expansion of production. The collision becomes inevitable, and as it can yield no solution so long as it does not burst the capitalist mode of production itself, it becomes periodic. Capitalist production brings into being a new ‘vicious circle’…
“The stagnation lasts for years; both productive forces and products are squandered and destroyed on a large scale, until the accumulated masses of commodities are at last disposed of at a more or less considerable depreciation, until production and exchange gradually begin to move again. By degrees the pace quickens; it becomes a trot; the industrial trot passes into a gallop, and the gallop in turn passes into the headlong onrush of a complete industrial commercial, credit and speculative steeplechase, only to land again in the end, after the most breakneck jumps – in a ditch of a crash. And so on again and again.”
This is an excellent description of the boom/slump cycle. Capitalist development takes this cyclical form as the anarchic nature of production always increases to a point when it hits the barrier of limited consumption. As Engels explained, the laws of production act more vigorously than the laws of consumption. The massive investments which take place during a boom pour out an increasing amount of commodities which, at a certain stage, begin to outstrip the ability of society to consume, thereby leading to a crisis of overproduction – overproduction of both consumer and capital goods for the purpose of capitalist production. The purpose of capitalist crisis is to eliminate this overproduction and prepare the way for a new boom.
Under capitalism, every boom contains within itself the seeds of a new crisis. “In these crises a great part not only of the existing products, but also of the previously created productive forces, are periodically destroyed,” explained the authors of the Communist Manifesto. “In these crises there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity – the epidemic of overproduction.” Such slumps are unique to the capitalist system, and are in contrast to the crises of underproduction in pre-capitalist societies.
Overproduction arises from the contradictions of the market economy and the division of society into mutually conflicting classes. The working class, the producer of all values, cannot buy back the products it produces, which at a certain point become a barrier to further economic development and crisis. The capitalists manage to get around this fundamental contradiction, at least temporarily, by reinvesting the surplus-value extracted from the labour of the working class and thereby creating new markets. However, this in turn creates greater productive capacity overall and serves to exacerbate the new crisis when it comes.
“The conditions for immediate exploitation and for the realisation of that exploitation are not identical,” explained Marx. “Not only are they separate in time and space, they are also separate in theory. The former is restricted only by the society’s productive forces, the latter by the proportionality between the different branches of production and by the society’s power of consumption. And this is determined neither by the absolute power of production nor by the absolute power of consumption but rather by the power of consumption within a given framework of antagonistic conditions of distribution, which reduce the consumption of the vast majority of society to a minimum level, only capable of varying within more or less narrow limits…But the more productivity develops, the more it comes into conflict with the narrow basis on which the relations of consumption rests.”
“Let us likewise ignore,” states Marx, “the fraudulent businesses and speculative dealings that the credit system fosters. In this case, a crisis would be explicable only in terms of a disproportion in production between different branches and a disproportion between the consumption of the capitalists themselves and their accumulation. But as things actually are, the replacement of the capitals invested in production depends to a large extent on the consumption capacity of the non-productive classes; while the consumption capacity of the workers is restricted partly by the laws governing wages and partly by the fact that they are employed only as long as they can be employed at a profit for the capitalist class. The ultimate reason for all real crises always remains the poverty and restricted consumption of the masses, in the face of the drive of capitalist production to develop the productive forces as if only the absolute consumption capacity of society set a limit to them.”
We experienced such a crisis of overproduction in 2008-9, when the world capitalist economy experienced a devastating slump. They managed to delay this slump for decades by all manner of means, but in the end the capitalists simply compounded the slump when it eventually arrived. Like King Canute, they were incapable of holding back the tide. World trade collapsed by 30 per cent in a matter of months, and industrial production plummeted. There are many reasons for the crisis, but the fundamental reason was that production had completely outstripped the ability of society to consume the commodities pouring onto the world market, despite the massive expansion of debt and cheap credit.
The Credit System
Credit certainly allowed the capitalist system to go beyond its limits for a time, until the house of cards came tumbling down. Credit is not created in a void but has to be repaid, with interest. It has its limits, like everything else. As Marx explained: “If the credit system appears as the principle lever of overproduction and excessive speculation in commerce, this is simply because the reproduction process, which is elastic by nature, is now forced to its most extreme limits…At the same time, credit accelerates the violent outbreaks of this contradiction, crises, and with these the elements of dissolution of the old mode of production.”
At a certain point, the whole process goes into reverse as debts are repaid and consumption reigned in. This process enters into a downward spiral until the whole business has unwound. The limits of the capitalist system are reached and a massive economic recoil comes into operation, as Marx and Engels described.
The normal boom/slump cycle takes on an acute form, brought on by the ravages of old age. In contrast to its youth, the breathing of a capitalist system in decline becomes erratic and even convulsive. The effects of the slump become pronounced and painful, like the wheezing of an aging asthmatic. As a consequence, the recovery also becomes painful and anaemic, and cannot match the recoveries of the past. The growing impasse of the capitalist system was revealed by its inability to recapture the growth rates, profitability, investment levels or productivity that was characteristic of the 1950s and the so-called Golden Age. Every decade since that time has seen a decline in rates of growth. In the 1950s, world trade – which played a key role in propelling production forward in the upswing – grew at an annual rate of 12.5 per cent. In the pre-crisis period, the average growth slowed to 6 per cent through most of the 1990s and 2000s. Last year, the fourth year of ‘recovery’, it was a down to a mere 2.1 per cent, and has failed to rebound. Given the slow growth and weaknesses everywhere, this is hardly surprising. But it is a clear indication of the organic crisis from which capitalism suffers. The diseased arteries of the system have become increasingly blocked.
For decades, world trade expanded, on average, at twice the rate of global output. It was the key to the post-war economic upswing that was to last some 25 years. But following the collapse in world trade in the slump of 2008-9, trade has become feeble and anaemic. This has provoked a heated debate amongst bourgeois economists over whether the march of globalisation is finally coming to an end. The IMF forecast world trade growth this year at 3.6 per cent, while the WTO forecasts a rise of 4.7 per cent, both of which are clearly overly optimistic. Even the latter is forced to warn that “geo-political risks have introduced an additional element of uncertainty to the forecast.” Delta Economics, a London-based analyst firm that monitors trade, predicts the growth of world trade this year, measured in current prices, at a mere 1 per cent. “2014 is not going to be a good year for trade,” said Rebecca Harding, Delta Economics’ chief executive. This is an alarming picture following five years of ‘recovery’, and is a clear reflection of the complete impasse of world capitalism, as was the case in the inter-war period. Globalisation has reached its limits. Globalisation now manifests itself, as we predicted, as a global crisis of capitalism.
While in the 1930s, protectionism served to squeeze world trade, this has not been the case today, at least openly. There are disguised barriers and subsidies at all levels, which have added to trade frictions, not least between China, the US and Europe. Currency manipulation is also high on the agenda, with the United States attacking China, following a sharp depreciation of the renminbi since the start of 2014. Talk of ‘currency wars’ is not far from the surface. But protectionist tendencies are certainly emerging and could come to the fore in the next slump.
“In the current European and world unemployment crisis, conjunctural events are bound up with the organic processes of capitalist decay,” explained Trotsky. “We have more than once repeated that the conjunctural cycles are inherent in capitalist society at every stage of its development. But at different stages these cycles have a different character. Just as in a person’s declining years a surge of vitality is as uncertain as it is brief and every illness affects the whole organism, so the conjuctural cycles of imperialist capitalism, especially in Europe, show a tendency towards the prolongation of crisis relieved by comparatively short upturns.”
“Capitalism in its death agony, as we know, also has cycles, but these cycles are declining and diseased,” he explained. “Only the proletarian revolution can put an end to the crisis of the capitalist system.”
“The upturn in the business cycle can be neither considerable nor of long duration, for we now are confronted with the cycle of a capitalism which is irremediably diseased. The new crisis, after a brief upturn, will be found to be more devastating than the present. All the problems will rise up anew with redoubled force and sharpness,” states Trotsky. “But today the economic upturn is no more than a hypothesis. The actuality is a deepening of the crisis, the two-year term of military service, the rearmament of Germany, the danger of war.”
It was the advent of the Second World War, in fact, that cut across this perspective and provided an escape route for capitalism. It still took the betrayal of the revolutionary wave following the war by the reformist and Stalinist leaders to allow capitalism the opportunity to recover.
A whole series of factors came together following the Second World War that allowed capitalism not only to stabilise, but to experience a colossal upswing that was to last 25 years. World trade was the driving force behind this extraordinary development, which allowed capitalism to temporarily overcome its fundamental contradictions, namely the constraints of the nation state and private ownership of the means of production. Capitalism went far beyond its limits. However, the contradictions of capitalism, which had been partially suppressed, had not been removed.
Finally, capitalism in 1974 experienced its first simultaneous worldwide slump. This represented a turning-point, which marked the end of the ‘Golden Age’ and the beginning of a new downturn in capitalism. All the old contradictions now came to the surface, producing a crisis of overproduction and mass unemployment everywhere. This marked the emergence of a new organic crisis that threw up barriers to capitalist development.
Nevertheless, capitalism was still able to stagger along, attempting to overcome its contradictions by every means possible. Credit was the main method, but by no means the only one, to propel the system forward. Credit in the United States alone grew from one trillion dollars in 1964 to 50 trillion in 2007. Capitalism had always managed to overcome its limitations, but only by creating greater and greater barriers in the future.
Eventually, the capitalist system exhausted itself. The longer it managed to put off its internal crisis, the bigger it would become when it finally arrived. All the factors that had propelled the system forward had turned into its opposite. All those factors that pushed capitalism ahead were factors that combined to drive it downwards in an uncontrollable spiral.
The strategists of capital, although alarmed by the depth of the 2008 slump, assumed that, as with all other post-war recessions, a strong recovery would set in. But that was in the past. The prospects for world capitalism are more like the experience of Japan in the 1990s, which entered a prolonged tortuous stagnation that continues to this day.
But the capitalists could not understand what had happened. The years of prolonged boom and upswing have gone forever. That was a product of a unique set of circumstances, which cannot be repeated. Instead, we are faced, at best, with prolonged stagnation and deepening crisis. The contradictions of capitalism, far from being resolved, are being compounded. The system has changed from a relative fetter to an absolute fetter on the development of the productive forces and the advancement of society.
Even before the 2008 slump, despite a 30-year rise in the rate of profit, the capitalist system could only develop at a very meagre pace, despite the speculative bubbles, mountains of credit and debt, and oceans of cheap money. This is a clear indication of the exhaustion of the capitalist system, which has reached its limits long ago and can only sustain itself artificially and with exceptional measures. This organic crisis, which re-emerged in 1974, continued with ups and downs, right through until today.
Shockingly, labour productivity has also lagged behind in this so-called recovery. Economists refer to it as the ‘productivity puzzle’, which reflects their utter confusion. In Britain, it has reached extreme levels, where productivity per hour worked has actually fallen over the last five years. This is only the third time of such a fall in the last 100 years; the other two occasions were in the aftermath of the two world wars. The world economy has faced a similar crisis.
The crisis of productivity in the United States, the world’s richest country, has provoked heated debate over why it has fallen. The argument rages over the weak demand in this weak recovery or the fact that the factors driving innovation are running out of steam or have stalled. The debate was sparked by Professor Robert Gordon of Northwestern University, who posed the question whether the big innovations of the 19th and 20th century such as efficient transport and domestic labour-saving devices were now all in the past. America’s technical progress has been clearly slowing down since 1970, an effect of slowing innovation.
“The most disquieting development is what is happening to productivity,” states the Financial Times. “A report by the Conference Board think-tank out this week showed that, for the first time in decades, there was a decline in the world’s ability to turn capital and labour inputs into goods and services. Were this slowdown to continue, the consequences for living standards would be gloomy: efficiency and innovation are the most important drivers of economic growth in the long run.”
Paul Krugman, the economics Nobel laureate, noted in the 1990s that, “Productivity isn’t everything, but in the long run it is almost everything.” In fact, all economy can be reduced to an economy of labour-time. The more productive a society is, the richer or wealthier it will become. Increased productivity arises from technological advance and investment in the labour process. Capitalism has produced a revolution in terms of productivity of labour, but that has now reached its limits. The fact that capitalism is facing a productivity crisis brings into question the whole justification for the market economy. Rather than continually investing the surplus extracted from the working class back in to production, capitalism has become more and more a barrier to itself.
Another article which reviewed the Conference Board productivity report underlined the seriousness of the situation: “The story for both labour productivity – output per hour worked – and total factor productivity is the same. Declining growth rates are a result of a long history of falling productivity growth in advanced economies which is no longer more than offset by huge rises in the efficiency of emerging economies.”
It continues: “In emerging economies, while productivity trends are still significantly better than the 1970s and 1980s, the worrying signs are that sustained spending on capital goods is not producing the same improvements in efficiency as 10 years ago, suggesting that capital is not being allocated to the best possible areas. The Conference Board estimated that total factor productivity stalled last year in China and declined in India, suggesting even the largest emerging economies are struggling to make the advances in efficiency previously so easily found.” It concludes: “Were this slowdown to continue, the consequences for living standards would be gloomy.”
As regards “the best possible areas”, capitalism has always invested its capital wherever it can make the greatest profitable returns. The capitalists are in business for no other reason. That is the logic of capitalism.
“Cooling of the Sun”
This has led some on the left to imagine that the crisis of capitalism can be explained by the tendency of the rate of profit to fall. While this tendency exists, it is only a tendency. Some periods experience a fall in the rate of profit, while others experience a rise, depending upon the countervailing factors. This tendency acts over an extended period of time. We agree with Rosa Luxemburg when she said that if the fall in the rate of profit were to be responsible for the demise of capitalism, this “would take as long as the cooling of the sun”. Over the last 30 years prior to the 2008 slump, there has been a rising rate of profit. While an important tendency within capitalism, this does not explain the cause of capitalist crisis, which is the crisis of overproduction.
Although there has been a recovery in profitability since the collapse of 2008-9, investment, the key to any sustained growth, is at rock bottom. In some countries, such as Britain, it has fallen substantially. The reason for this is not profitability (which has risen) or access to funds (the capitalists are sitting on hundreds of billions), but the lack of profitable markets (or ‘demand’ as the bourgeois like to say). Excess capacity (overproduction) is widespread, a leftover from the heightened optimism and massive investments made in the pre-crisis period.
Normally, after a slump, with the destruction of overproduction, the rate of profit – which collapsed during the slump – increases and acts as a stimulus to new investment. The worn-out means of production are replaced with new machinery and equipment, and this provides the basis for an expansion of production. The slashing of wages and the deterioration of terms and conditions in the workplace, together with an eradication of the surplus stocks, assist to restore or partially restore the rate of profit. This prepares a new cyclical upturn, but also plants seeds for a new slump in the future. This is the so-called process of ‘creative destruction’. However, by driving down wages they destroy the purchasing power on which the realisation of profit depends.
Usually, a crisis would eliminate this overproduction, but this has not been the case this time around. Despite the deepest crisis since the 1930s, the destruction of paper values, as well as plant and machinery, has failed to completely eradicate the ‘excess capacity’, which is synonymous with overproduction of capital and the limits of the market. That is why there is talk of ‘zombie’ banks and companies, artificially kept afloat by cheap credit. As a result, the capitalist system is weighed down by over-capacity and a lack of markets to sell their goods. This failure of the system is also a reflection of the present snail-pace growth of world trade. The slowdown in the emerging economies, especially China, is a symptom of this crisis as well as a factor that serves to exaggerate the problem.
Those who argue that the crisis was caused by the falling rate of profit need to explain why the recovery in the rate of profit over the past period has not led to a real recovery in investment and a return to sustained growth. “Profits as a share of US gross domestic product have risen from less than 4 per cent in the mid-1980s to a post-war peak of 11 per cent last year, a statistic that would gladden the heart of a 19th-century robber baron,” states John Plender. “The share of wages has fallen consistently since the early 1970s.” According to the American-based Bureau of Economic Analysis, US pre-tax profits peaked in the 3rd quarter of 2006 at $1,865bn, a year before the credit crunch. The rate of profit gradually declined throughout 2008, but in the 4th quarter of that year the mass of profits fell to $861bn. This coincided with the slump and the collapse of world trade, as we explained. However, by the first quarter of 2009, pre-tax profits bounced back to $1,130bn, and by the 4th quarter had reached $1,548bn. By the 3rd quarter of 2010, they had almost reached the pre-crisis 2006 high of $1,845bn.
That being the case, why is it that capitalism is still in deep crisis, with anaemic growth at best and falling investment, the live-blood of any recovery? With record profits, the theory that capitalist crisis is caused by the tendency of the rate of profit to fall is shown to be wrong. It is a one-sided, mechanical explanation that contradicts the dialectical method of Marx, who viewed capitalist crisis not as a single cause but as a concatenation of contradictions. As he explained, “The law operates therefore simply as a tendency, whose effect is decisive only under certain circumstances and over long periods.”As we explained, the essence of capitalist crisis is the simultaneous overproduction of capital and consumer goods for the purpose of capitalist production, i.e. for the purpose of producing profit. When there are no markets, there are no sales and therefore no profits. Why should the capitalists invest under these conditions of organic crisis?
The attacks on living standards and the massive austerity have served to drive down consumption and investment, without which there can be no meaningful growth. In the past, capitalism would develop by investing the surplus extracted from the unpaid labour of the working class. In this way capitalism would overcome a deep-seated contradiction: that the working class cannot buy back the products it creates. But living standards are under attack across the board. Low wages make high profits possible, but at the same time they make the realisation of such profits impossible because they reduce the demand for goods.
Furthermore, capitalist governments cannot increase public spending due to the crisis of state finances, and wages cannot be increased (which are being cut everywhere) as this will eat into profits. Without investment (which comes from the unpaid labour of the working class) and with falling living standards, the system is caught in a massive blind alley. Capitalist production depends upon accelerated accumulation (investment). An inability to perform this function must call forth inevitable crisis. Falling accumulation has a disastrous knock-on effect in preventing the continuous cycle and process of production, realisation (sales) and investment. When accumulation ceases, profits cease.
Capitalism is forced to create its own market in the form of investment into capital goods, which in turn acts as a spur to economic development. Marx divided up capitalist production into two departments based on capital goods and consumer goods. The complex inter-relationship between Department 1, the production of means of production (capital goods, machinery, buildings, etc.) and Department 2, the production of the means of consumption (consumer goods), serves to expand the economy. Apart from the tiny part of the surplus consumed by the capitalists, the rest is ploughed back into the economy. The whole historical justification of capitalism has been the development of the productive forces. If production does not increase then the market will continue to stagnate. The two Departments of production are interdependent. A fall in one must ultimately mean a fall in the other. The capitalist system works when every factor interacts on every other factor, which requires constantly rising production, investment and increased markets in a spiral of development. But today, the opposite process is taking place, with over-capacity and shrinking markets having the inevitable consequences of stagnation and depression.
The law of ‘accumulation for accumulation’s sake’, that drives capitalism forward, ceases to function. The general crisis of capitalism is reflected in the inability of capitalism to develop the productive forces as in the past. The capitalist curve of production, which Trotsky talked about, is on a downward trajectory. The epoch is now characterised by short booms or anaemic recoveries and deep slumps and protracted depressions.
Whatever the capitalists do will be wrong. All attempts to restore the economic equilibrium will simply serve to destabilise the social and political equilibrium. They are trapped between the devil and the deep blue sea. That is why we have entered the most disturbed period in history, a period of convulsions – economically, politically, socially and in terms of world relations. Each of these convulsions feedback on one another in a continuous loop.
Today, more than five years after the devastating slump, the prospects under capitalism look bleak, to say the least. We have a weaker recovery than in either the 1920s or the 1930s. At the same time, living standards are being cut to the bone and austerity is everywhere. The road of austerity is “going to be prolonged, fitful, and tortuous,” states Janan Ganesh. “The economic recovery does not spell the end of it, or even the beginning of the end. At best, it marks the end of the beginning. If this makes our fiscal crisis sound like a daunting historical challenge, it should.”
Some serious bourgeois commentators, such as Lawrence Summers, have drawn some alarming conclusions. In an article entitled Why stagnation might prove to be the new normal, he talks about a ‘secular stagnation’ facing capitalism. According to the dictionary, the word ‘secular’ means lasting an indefinitely long time or even a century. Even if the economy accelerates this year, he says, “this provides no assurance that it is capable of sustained growth at normal real interest rates. Europe and Japan are forecast to have grown at levels well below the US. Across the industrial world, inflation is below target levels and shows no sign of picking up – suggesting a chronic demand shortfall.”
Summers gave his speech about ‘secular stagnation’ at the IMF’s research conference. This new epoch of stagnation, openly talked about by bourgeois commentators, is simply another term for a new depression, and a reflection of the organic crisis of capitalism. James Richards believes we are already in a depression where slow economic growth is structural. “The system is going wobbly,” he says, in a strange understatement. Among other more far-sighted strategists of capital, previous optimism has been replaced with grave pessimism, again a further reflection of the deep crisis of capitalism. This was reflected in a comment by Martin Wolf, the chief economist of the Financial Times, who pondered how a return to the 1930s was possible. “I did not know. Now I do,” he said bluntly. The seriousness of the situation (the new ‘normality’) has finally dawned on the most serious bourgeois representatives. They have been compelled to accept that they are in a crisis of the system very similar to the crisis in the Thirties.
Similar sentiments were made by the head of the IMF, Christine Lagarde: “The global economy is turning the corner of the Great Recession (they can’t bring themselves to use the word slump), although overall growth remains too slow and weak,” says Ms Lagarde. “Unless countries come together to take the right kind of policy measures, we could be facing years of slow and sub-par growth – well below the solid, sustainable growth that is needed to create enough jobs and improve living standards into the future.”In all honesty, there is not a cat’s chance in hell of capitalist countries “coming together” with the “right kind of policies”. It is wishful thinking in the extreme, as witnessed by the dithering over European policy.
But a new spectre is haunting Europe – the spectre of deflation and falling prices, which characterised the 1930’s Depression also. The serious bourgeois economists are extremely alarmed as inflation in the eurozone in the year to March fell to 0.5 per cent. In Spain, consumer prices actually fell by 0.2 per cent over the same period. It was the sharpest fall in prices since 2009. The general trend is clearly down, suggesting a chronic shortfall in demand, which they fear could end in a downward spiral.
Deflation – described as an “ogre” by Christine Lagarde – will simply add to their problems in encouraging people to put off spending and investment, as well as increasing the burden of debt. As prices fall, the nominal value of loans stays the same while revenues decline. Debtors are forced to use more of their income to service their borrowings. This dampens consumption, pushing prices further down. Investment is also postponed as companies hold on to their cash reserves, as the cost of holding cash falls. If they have debts, deflation will tend to increase the pressure for businesses to deleverage faster, forcing them into a downward spiral. As Luis Garicano, professor of economics at the LSE, stated: “We are in a territory where the models and analysis used by policy makers don’t seem to be working. And that is very worrying.”
“None of us [in Europe] have ever experienced deflation”, says Graham Secker, head of pan-Europeaan equity strategy at Morgan Stanley. “Nobody believed deflation would happen in Japan until it did.”
“For the eurozone,” explained the economist Wolfgang Munchau, “German deflation is a nightmare. If the periphery wants to become more competitive, it needs lower inflation than Germany. But if Germany, too, is deflating, then either the competitive adjustment will not happen; or the whole of the eurozone goes into deflation; or more likely, both.”
They are especially frightened because interest rates are close to zero and threatening to become negative. But this strategy is futile, forcing depositors to horde cash in a safe-deposit box instead of paying into an account. Ironically, the Keynesian medicine of deficit spending, which could boost demand and lift prices, is ruled out in heavily indebted states where the threat of deflation looms largest. The only notable exception, which seems to be going for broke is Japan. Billions are being pumped into the debt-ridden economy, but with little effect except possibly pushing up interest rates, endangering a government default.
Crisis of the productive forces
Not surprisingly, bourgeois commentators give all kinds of reasons to explain the crisis, except the real one. Of course, different elements certainly play a role in the crisis. On the surface, the slump was seen as a financial crisis. But the lack of finance was caused by the crisis not the other way round. But there is something more fundamental that work. The laws of capitalism are no longer operating as in the past. Accumulation is drying up. Globalisation (extension and intensification of the world market) is coming to a halt and threatening to go into reverse. All the factors that contributed to the boom years have turned into their opposite.
Marxism sees in the development of the productive forces the key to the development of society and of history. Whilst capitalism is able to develop the productive forces, this can provide a relative stability to the system. That was the situation in the past, but this is no longer the case. Today, we have the opposite whereby the crisis has meant social instability on a world scale. “The world has entered the age of insecurity,” explains Philip Stephens in the Financial Times.
More than five years after the collapse of Lehman Brothers, the world capitalist system remains in a blind alley. It is a deep malaise from which it cannot escape. This has serious consequences. As Marx explained long ago, no social system ever leaves the scene of history until it has exhausted itself and proves incapable any longer of developing the productive forces. As soon as this happens, society enters into a period of social revolution. This is precisely the situation that exists today on a world scale. There is a crisis of the productive forces, rebelling against the constraints of private ownership and the nation state. Capitalism has exhausted its historic mission and has become a gigantic fetter on the economic and social development and human advance in general.
Private ownership of the means of production, rather than advancing society, has become an enormous obstacle to social progress. The mode of production and individual appropriation have come into conflict with the needs of social production. Existing property relations, namely, have become historically obsolete. In general, they have become a barrier to further advance. “From forms of development of the productive forces,” explained Marx, “these relations turned into their fetters.” The productive forces are in out-and-out revolt against capitalist property relations. Historical materialism explains that, “no social order ever perishes before all the productive forces for which there is room in it have developed; and new, higher relations of production never appear before the material conditions of their existence have matured in the womb of the old society itself.” These conditions are not only matured but are over-ripe and have placed the world revolution on the agenda.
The blind alley of capitalism is reflected by the fact that it cannot utilise fully the productive capacity that it has brought into being. In the booms of the past, the system could only use 85-88 per cent of productive capacity, at best. In times of slump, the system can barely use 65 per cent capacity. Today, it hovers towards the lower end. This is illustrated by the figures for the United States, where capacity utilisation fell to 67 per cent in 2009, rising to 79 per cent in 2013, before then falling sharply again. This once again reflects the complete impasse of the capitalist system.
Marx himself sums up the whole contradiction:
“Capitalist production constantly strives to overcome these immanent barriers [to its further development], but it overcomes them only by means that set up barriers afresh and on a more powerful scale. The true barrier to capitalist production is capital itself.”
The capitalist system is in a state of terminal decline. The system is only one big shock away from a new world slump. This shock can be anything. That is why the capitalist commentators are alarmed by the events in the Ukraine. If this situation escalates and Russia retaliates against any sanctions, cutting of energy supplies to Ukraine and Europe, then this could have profound consequences. The Middle East war in 1973 led to the quadrupling of oil prices. This, in turn, triggered the world slump of 1974. Today, a large hike in energy prices and the chaos caused could have the same effect.
Even without this, there is growing pessimism and despair everywhere. “Another decade of western economic malaise – or, God forbid, another financial crisis – is likely to see more radical solutions and politicians emerge,” states Gideon Rachman in the Financial Times.
This insoluble historical crisis is paving the way for revolutionary events and massive changes in consciousness worldwide. What is absolutely clear is that there is no way out on the basis of capitalism, which is set to plunge humanity into an epoch of revolution and counter-revolution. Only with the revolutionary overthrow of the system can we advance, putting behind us the nightmare of capitalist crisis and all that means. Only when we eradicate the contradictions emanating from capitalism can we fully use the world’s resources to eradicate the plague of hunger, poverty and squalor and create a life worthy of human beings. It would mean for humankind, in the words of Engels, “a leap from the realm of necessity to the realm of freedom.”
1 Financial Times, 16th June 2009
2 Leon Trotsky, On France, p71
3 Leon Trotsky, 29th November 1937, our emphasis
4 Financial Times, 19th April 2014
5 Financial Times, 8th April 2014
6 Financial Times, 9th October 2013
7 Financial Times, 19th April 2014
8 Financial Times, 10th April 2014
9 Karl Marx, Capital, vol 3, p352-353
10 Karl Marx, Capital, vol 3, p615, our emphasis
11 Karl Marx, Capital, vol 3, p572
12 Leon Trotsky, Writings 1930, p125-126
13 Financial Times, 18th January 2014
14 Financial Times, 11th January 2014
15 Karl Marx, Capital, vol 3, p346
16 Financial Times, 15th October 2013
17 Financial Times, 16th December 2013
18 Financial Times, 3rd April 2014
19 Financial Times, 3rd April 2014
20 Financial Times, 3rd March 2014
21 Financial Times, 24th February 2014
22 Financial Times, 21st February 2014
23 Karl Marx, Capital, vol 3, p358
24 Financial Times, 10th December 2013
Appendix 2: ‘Underconsumption’ and the Marxist Theory of Crisis
By Rob Sewell
In this article from issue 1 of the In Defence of Marxism magazine (June 2012), Rob Sewell discusses the Marxist explanation of capitalist crisis, contrasting this to the ‘underconsumptionist’ theories of Sismondi, Malthus and Keynes.
What did Marx mean by the contradictions of capitalism?” asks Samuel Brittan, the right-wing economist writing in the Financial Times. “Basically, that the system produced an ever-expanding flow of goods and services, which an impoverished proletarianised population could not afford to buy. Some 20 years ago, following the crumbling of the Soviet system, this would have seemed outmoded. But it needs another look, following the increase in the concentration of wealth and income.”
With the return of capitalist crisis, there has been a renewed interest in Marxist economic theory. Even bourgeois economists have been forced increasingly to comment on Marx’s ideas, if only to dismiss them. Hardly a day goes by without some reference in the financial press to Marx. Not surprisingly, this increased interest has served to focus on Marx’s theory of crisis.
This interest has served to revive the controversy surrounding the ‘underconsumptionist’ explanation of crisis, which, in broad terms, associates the difficulties of capitalism, especially in crisis conditions, with a lack of demand in the economy. According to this theory, capitalism has an inbuilt tendency to produce far more than can be absorbed by consumption. Modern ‘underconsumption’ theory is closely identified with John Maynard Keynes, who believed that the problem of the lack of ‘effective’ demand could be resolved by the intervention of the state through deficit financing.
Theories of ‘underconsumption’ are often confused with Marx’s ideas. But these are not the same as Marx explained long ago. While underconsumption certainly exists for the masses, as any worker can testify, it is not the direct cause of capitalist crisis.
The idea of ‘underconsumption’ as the cause of crisis pre-dates Keynes and even pre-dates Marx. It can be found in the writings of the great utopian socialists, such as Robert Owen. However, the best known proponents of these views were Jean Charles Sismondi (1773-1842), Thomas Malthus (1766-1834) and Johann Karl Rodbertus (1805-1875).
The most consistent and developed version of the theory, as well as the least vulgarised, was put forward by Jean Charles Sismondi. As Engels pointed out: “The ‘underconsumption’ explanation of crises originated with Sismondi, and in his exposition it still had a certain meaning.”This “certain meaning” was also recognised by Marx, as can be seen from his writings on the subject.
Sismondi’s chief work, New Principles of Political Economy, was published in 1819. In this book he maintained that general crises were due to excess capacity, which in turn was due to the separation of the exchange-values of commodities from the needs and wants of society. According to Sismondi overproduction of commodities did not arise from the general over-fulfilment of human needs but from the mal-distribution of income and the poverty of the masses, resulting in insufficient demand in the society. In short, the working class did not receive enough in wages to buy back the goods that they produced, which is always the case under capitalism.
Although one-sided, Sismondi was not entirely wrong in this supposition. Indeed, he made a whole number of correct observations, which also were accepted by Marx. It was Sismondi, for instance, who pointed out the error of Jean Baptiste Say (supported by James Mill and David Ricardo) that every seller meets a corresponding buyer (‘Say’s Law’) and they therefore regarded generalised overproduction as impossible. According to them, the economy would always arrive at equilibrium, which was clearly not the case. This vulgar ‘theory’ of equilibrium is the real origin of the ‘efficient market hypothesis’, which stated that the economy left unaided would reach an optimum state. This was the Credo of modern political economy – until its falsity was exposed by the greatest collapse of the productive forces for generations in 2008-9.
Unlike the vulgar bourgeois economists who dismissed crises, such as J.B Say, Sismondi understood that crisis was inherent in the process of commodity production. However, his understanding of the real nature of capitalist crisis, while more advanced, was limited and rather one-sided. The real nature and central contradictions of capitalism, while clearly present, nevertheless eluded him. Despite his shortcomings, Marx paid tribute to him and regarded him as an original thinker who, out of all the classical economists, was striving towards an understanding of capitalism and its tendency to crisis. In this regard, he was head and shoulders above David Ricardo, the outstanding representative of bourgeois classical political economy.
“Sismondi is profoundly conscious of the contradictions in capitalist production,” wrote Marx, “he is aware that, on the one hand, its forms – its production relations – stimulate unrestrained development of the productive forces and of wealth; and that, on the other hand, these relations are conditional, that their contradictions of use-value and exchange-value, commodity and money, purchase and sale, production and consumption, capital and wage-labour, etc., assume ever greater dimensions as productive power develops.”
“He is particularly aware of the fundamental contradiction: on the one hand, unrestricted development of the productive forces and increase of wealth which, at the same time, consists of commodities and must be turned into cash; on the other hand, the system is based on the fact that the mass of producers is restricted to the necessities. Hence, according to Sismondi, crises are not accidental, as Ricardo maintains, but essential outbreaks – occurring on a large scale and at definite periods – of the immanent contradictions.”
While recognising the great contribution of Sismondi, Marx was still well aware of his shortcomings and limitations, as with all the classical economists:
“He [Sismondi] forcefully criticises the contradictions of bourgeois production but does not understand them, and consequently does not understand the process whereby they can be resolved. However, at the bottom of his argument is indeed the inkling that new forms of the appropriation of wealth must correspond to productive forces and the material and social conditions for the production of wealth which have developed within capitalist society; that the bourgeois forms are only transitory forms, in which wealth attains only an antithetical existence and appears everywhere simultaneously as its opposite.”
Thomas Malthus added nothing new to what Sismondi had already written. Malthus, the arch-vulgariser and reactionary apologist attempted to crudely use these arguments to justify the interests of ‘the aristocracy, Church, tax-eaters, toadies, etc.’ Marx accused Malthus of plagiarising the weak side of Adam Smith and caricaturing Sismondi.
Marx developed his own ideas on capitalist crisis on the basis of a very thorough study and criticism of all the classical economists, especially its chief representatives, among others, Adam Smith and David Ricardo. While Marx did not manage to write a specific book on capitalist crisis, his theory of crisis is present throughout his economic writings, especially Capital and Theories of Surplus-value.
Rate of Profit
Some people falsely attribute the tendency of the rate of profit to decline as the real cause of capitalist crisis, but this is not correct and Marx never recognised it as such. While it is without question an important tendency under capitalism, it operates as a long-term tendency that bears down upon the system. Marx expressed himself in very precise terms that countervailing factors transformed this law into a tendency, describing it uniquely as “this double-edged law”. He went on to explain: “The law operates therefore simply as a tendency, whose effect is decisive only under certain particular circumstances and over long periods.”
There have been long periods where the rate of profit was falling. That was the case towards the end of the long period of capitalist upswing that followed the Second World War. But there were also long periods when the rate of profit was rising as in the last 30 years. We therefore have to look elsewhere for an explanation of crisis, which Marx reveals in his extensive writings on political economy.
In the Theories of Surplus-value, described by Engels as volume four of Capital, Marx gives a clear outline of the fundamental contradiction facing capitalism:
“The fact that bourgeois production is compelled by its own immanent laws, on the one hand, to develop the productive forces as if production did not take place on a narrow restricted social foundation, while, on the other hand, it can develop these forces only within these narrow limits, is the deepest and most hidden cause of crises, of the crying contradictions within which bourgeois production is carried on and which, even at a cursory glance, reveal it as only a transitional, historical form.
“This is grasped rather crudely but nonetheless correctly by Sismondi, for example, as a contradiction between production for the sake of production and distribution which makes absolute development of productivity impossible.”
Marx stated numerous times that the ultimate cause of capitalist crisis is overproduction. But this is not overproduction in relation to what people need or want. In a market economy overproduction refers only to what can be profitably sold. “The English, for example, are forced to lend their capital to other countries in order to create a market for their commodities,” explained Marx.
“Overproduction, the credit system, etc., are means by which capitalist production seeks to break through its own barriers and to produce over and above its own limits…Hence crises arise, which simultaneously drive it onward and beyond [its own limits] and force it to put on seven-league boots, in order to reach a development of the productive forces which could only be achieved very slowly within its own limits.”
Marx reiterates this point again and again throughout his writings. “Overproduction is specifically conditioned by the general law of the production of capital: to produce to the limit set by the productive forces, that is to say, to exploit the maximum amount of labour with the given amount of capital, without any consideration for the actual limits of the market or the needs backed by the ability to pay.”
Again, in volume two of Capital, Marx explains:
“The volume of the mass of commodities brought into being by capitalist production is determined by the scale of this production and its needs for constant expansion, and not by a predestined ambit of supply and demand, of needs to be satisfied. Besides other industrial capitalists, mass production can have only wholesale merchants as its immediate purchasers. Within certain bounds, the reproduction process may proceed on the same or on an expanded scale, even though the commodities ejected from it do not actually enter either individual or productive consumption. The consumption of commodities is not included in the circuit of the capital from which they emerge. As soon as the yarn is sold, for example, the circuit of the capital value represented in the yarn can begin anew, at first irrespective of what becomes of the yarn when sold. As long as the product is sold everything follows its regular course, as far as the capitalist producer is concerned. The circuit of the capital value that he represents is not interrupted.”
Marx then goes on to explain that this expansion allows the whole reproduction process to be completed. However, they pile up and lie unsold in the hands of retail traders and remain on the market. “One stream of commodities,” writes Marx, “now follows another, and it finally emerges that the earlier stream had only seemed to be swallowed up by consumption. Commodity capitals now vie with each other for space on the market. The late-comers sell below the price in order to sell at all. The earlier streams have not yet been converted into ready money, while payment for them is falling due. Their owners must declare themselves bankrupt, or sell at any price in order to pay. This sale, however, has absolutely nothing to do with the real state of demand. It has only to do with the demand for payment, with the absolute necessity of transforming commodities into money. At this point the crisis breaks out. It first becomes evident not in the direct reduction of consumer demand, the demand for individual consumption, but rather in a decline in the number of exchanges of capital, in the reproduction process of capital.”
The same point is again reiterated in volume three of Capital, where (once again) Marx emphases the fundamental contradiction of the capitalist mode of production: “The ultimate reason for all real crises always remains the poverty and restricted consumption of the masses as opposed to the drive of capitalist production to develop the productive forces as though only the absolute consuming power of society constituted their limit.”
Some ‘clever’ people have tried to get round this clear explanation of crisis by claiming that this statement of Marx was an isolated phrase, a ‘description’, or simply a ‘throw away remark’. But, even the most cursory examination of his writings shows that this is not the case. Far from being an isolated and accidental remark, this explanation is, in fact, absolutely central to Marx’s theory of crisis. This is a theory based not on ‘underconsumption’ theory, which is at best completely one-sided, but on the central contradiction of overproduction under capitalism. Marx and Engels had already alluded to this cause in the Communist Manifesto, where overproduction is described as an epidemic, “that, in earlier epochs, would have seemed an absurdity – the epidemic of overproduction.”
It was none other than the revisionist Eugene Dühring who borrowed and vulgarised the ‘underconsumptionist’ explanation of crisis, which he put forward in opposition to Marx’s theory of overproduction. Engels pointed out: “Rodbertus took it from Sismondi, and Herr Dühring has in turn copied it, in his usual vulgarising fashion, from Rodbertus.”
It was left to Engels, assisted by Marx, to rebut the false ideas of professor Dühring, including the idea of ‘underconsumption’. The reply was so comprehensive that the series of articles published in the German party press, soon became a book entitled Anti-Dühring, which first appeared in 1878, and has become established as one of the fundamental classics of Marxist theory.
It is significant that when dealing with capitalist crisis, the explanation in Anti-Dühring contains not a single reference to the tendency of the rate of profit to fall. Yes, not one single solitary word – not even a ‘throw-away remark’ is to be found on the subject. Some academic ‘Marxists’ are extremely irritated by this silence. They are so irritated that have even tried to argue that Engels’ views did not coincide with those of Marx, in other words, that Engels was not really a Marxist!
Typical in this respect are Professor M.C. Howard and Senior Lecturer in Economics, J.E. King, who informed us in their History of Marxian Economics that Engels “interpreted Marx’s ideas in his own distinctive manner” and “came no closer than Marx to providing a coherent theory of economic crisis”. We are then told by these learned critics: “Indeed, by neglecting the tendency of the rate of profit to decline he renounced a major strand in Marx’s crisis theory, though he was followed in this by almost all Marxian economists before 1929.” They conclude that “Controversy still rages as to whether his [Engels] own later thought constitutes a distinct ‘Engelsism’ which, with its determinism and its application of natural scientific reasoning to the study of human history, is separate from and antagonistic towards Marx’s own philosophy and methods of analysis…It is conceivable that Engels took a conscious decision to suppress those of Marx’s writings with whose humanist orientation he had (by the 1880s) very little sympathy.”
These are unfounded trumped-up allegations, which have no bearing in truth but are peddled around the universities like so much cheap gossip. They are part of the academic world, which is divorced from Marxism but attempts to make its mark by manufacturing differences between Marx and Engels. They may have read all the right books, but their views are not much use to Marxists or anybody else seeking a scientific explanation.
But can it really be true, as suggested, that Engels misunderstood or misrepresented Marx’s views on economics – in this case in his classic work Anti-Dühring? No, it is not true, and for a very good reason: Although this book was written by Engels, the completed drafts were read, and approved, by Marx, who also contributed a whole section to it. Which section did Marx write? While Engels concentrated on philosophy, history and science, it was Marx himself, as Engels admitted, who wrote a long section on economic theory in Anti-Dühring.
Since this book was written more than a decade after the drafts for Capital had been completed, and since Marx died some five years after its publication, the section on economics in Anti-Dühring can be taken as Marx’s final thoughts on capitalist crisis. Certainly these are the last things he wrote on the subject.
It is clear that the views expressed in Anti-Dühring represent the standpoint of both Marx and Engels, which, despite all the efforts of the revisionists to misrepresent them, was identical.
Let us see what Engels (and Marx) wrote in Anti-Dühring.
“We have seen that the ever increasing perfectibility of modern machinery is, by the anarchy of social production, turned into a compulsory law that forces the individual industrial capitalist always to improve his machinery, always to increase its productive force”, explains the author. “The bare possibility of extending the field of production is transformed for him into a similar compulsory law. The enormous expansive force of modern industry, compared with which that of gases is mere child’s play, appears to us now as a necessity for expansion, both qualitative and quantitative, that laughs at all resistance.”
Having described the relentless growth of the productive forces under capitalism, driven by compulsory laws, the author then goes on to explain the fundamental contradiction that plagues the capitalist system: namely the continuous outpouring of commodities which eventually crash into the limits of the market.
“Such resistance is offered by consumption, by sales, by the markets for the products of modern industry,” explains Engels. “But the capacity for extension, extensive and intensive, of the markets is primarily governed by quite different laws that work much less energetically.”
Here Engels (and Marx) describes a gap opening up between production and consumption, which operate by different laws, some more vigorous than others. “The extension of the markets cannot keep pace with the extension of production. The collision becomes inevitable…Capitalist production has begotten another ‘vicious circle’,” explains Engels. He makes the same point in the November 1886 Preface to Capital: “While the productive power increases in a geometric, the extension of markets proceeds at best in an arithmetical ratio.”
So what is the character of crises under capitalism? Engels explains, “the character of these crises is so clearly marked that Fourier hit [the nail on the head] when he described the first as crise plethorique, a crisis of super-abundance.”In other words, they were crises of overproduction.
This simply repeats what Marx had explained elsewhere. For instance, in volume one of Capital: “The enormous power, inherent in the factory system, of expanding by jumps, and the dependence of that system on the markets of the world, necessarily beget feverish production, followed by over-filling of the markets, whereupon contraction of the markets brings on crippling of production. The life of modern industry becomes a series of periods of moderate activity, prosperity, overproduction, crisis and stagnation.”
In explaining the Marxist theory of crisis, Engels demolishes Eugene Dühring’s attempt to explain crises by the ‘underconsumption of the masses’. Engels draws the clear distinction between ‘underconsumption’ (which has always existed in class society, as a result of the poverty of the masses) and the phenomenon of overproduction, which is applicable to capitalism alone.
Pre-capitalist societies were natural economies, mainly based on the production of use-values. The phenomenon of overproduction was unknown in these societies, which suffered from the opposite problem, namely the problem of underconsumption arising from the scarcity of use-values, as a result of the low level of the productive forces and the natural disasters (drought, plague, pestilence, etc.) as well as war, to which these societies were prone.
Overproduction, then, is peculiar to capitalism, and exists in no other society. It arises from the anarchic laws of the market economy and commodity production. Under capitalism, the productive forces have been revolutionised to such an extent that they could, if production was rationally planned and organised, completely satisfy the basic needs of society. They have completely outgrown the capitalist system and private ownership.
On the basis of a rational plan of production, the productivity of labour, and with it the living standards of the overwhelming majority, could be vastly increased in a relatively short space of time. The problem is that under capitalism production is not rationally planned, but geared to the maximisation of profit and dominated by blind market forces. Here we are faced with the contradiction between social production and individual appropriation, where the capitalists appropriate the wealth produced by the social labour of the working class.
Overproduction arises under capitalism because the unlimited drive to expand production periodically comes into collision with the limited confines of the market economy. Plenty of people want and need things, but do not have the money to buy them. They lack ‘effective demand’, according to the bourgeois economists. This strange phenomenon of overproduction, where excess commodities, goods produced for sale, cannot be sold, arises ultimately from the fact that the working class cannot buy back the full value of what it produces. Profit is the unpaid labour of the working class. This state of affairs is irrational from any sane point of view, but arises out of the anarchy of the market economy and the class structure of capitalist society.
‘Underconsumption’ also exists under capitalism, as any working class person will testify. Surplus-value cannot come from machines or buildings, which simply transfer their own value to the commodities. Only human labour is able to produce new value. The working class receives in wages less value than they produce. This unpaid labour is the source of surplus-value, and is appropriated by the capitalist. The workers can never buy back what they produce as they only receive enough to maintain themselves and their families. As Marx explained, the problem is not to explain why there is crisis, but why, as a result, there is no permanent crisis under capitalism, starting from day one.
However, the capitalist system gets around this problem of insufficient ‘demand’ with the division of the economy into two main sectors: department one, which produces consumer goods, and department two, which produces capital goods (means of production).
“One section of capitalists produce goods which are directly consumed by the workers,” explained Marx, “another section produce either goods which are only indirectly consumed by them, insofar, for example, as they are part of the capital required for the production of necessities, as raw materials, machinery, etc., or commodities which are not consumed by the workers at all, entering only into the revenue of the non-workers.”
As long as the capitalist class, which appropriates the surplus-value, takes the surplus and reinvests it in more new machinery, buildings and general infrastructure, the system can develop, but only at the cost of preparing the way for a new crisis of overproduction. In other words, the capitalist system creates its own market through the interaction between the two departments of production and temporarily overcomes this inherent contradiction. The only problem is that this increased capacity produces even more consumer goods, which eventually cannot be sold, and we have a new crisis. However, the slaughter of the values of capital arising from the slump, lays the basis for a new period of boom, but, in turn, reproduces the contradictions on a higher level. This takes the form under capitalism of a boom and slump cycle.
The lack of purchasing power of the working class is therefore only one side of the equation. More significant is the capitalist’s continual drive for unlimited expansion by ploughing back the surplus extracted from the unpaid labour of the working class. This dialectical contradiction lies at the heart of the capitalist system. This uncontrolled drive to accumulate and produce will sooner or later hit the limits of consumption. Here we have a system of production for production’s sake, and accumulation for accumulation’s sake, as Marx explained. To sell this flood of commodities, the capitalist is forced to reduce his prices below the price of production, resulting in losses, falling profits, and likely bankruptcy. This drives out the weaker capitalists and prepares the ground for a new boom, based upon a higher rate of profit.
“[T]he underconsumption of the masses, the restriction of the consumption of the masses to what is necessary for their maintenance and reproduction, is not a new phenomenon,” explains Engels. “It has existed as long as there have been exploiting and exploited classes.” The crisis of overproduction is however a new phenomenon, which has arisen only under the capitalist mode of production. “Therefore, while underconsumption has been a constant feature for thousands of years,” continues Engels, it nevertheless “tells us just as little why crises exist today as why they did not exist before.”
He then goes on to explain the reason in the capitalist form of production, characterised by “the general shrinkage of markets which breaks out in crises as the result of a surplus of production [which] is a phenomenon only of the last fifty years.”
The Marxist theory of crisis is based upon a dialectical contradiction: the unlimited drive to produce, which is unique to the capitalist mode of production, combined with the limited consumption of the masses arising from their social position. As a consequence, capitalism is like a man sawing away the branch on which he is sitting. It creates and destroys the market at the same time, by squeezing more and more surplus-value out of the working class, while attempting to hold down wages to the bare minimum. “The part falling to the share of the working class (reckoned per head)”, explains Engels, “either increases only slowly and inconsiderably or not at all, and under certain circumstances may even fall.”This in turn becomes a barrier to the expansion of the market and therefore the realisation of surplus-value, as we are witnessing in this present period of prolonged austerity.
Push down wages
The capitalists as a whole naturally want to see an expanding market. Each individual capitalist would be delighted to see all competitors increase the wages of their workers to boost demand. Yet when it comes to their own workers, they are determined to keep down wages in order to reduce costs and increase profits. So the capitalists, driven by competition, all end up attempting to push down wages and therefore demand. “The product governs the producers,” explains Engels.They are all caught up in this contradiction of capitalism.
In a kick against Dühring, Engels remarks: “It requires a strong dose of deep-rooted effrontery to explain the present complete stagnation in the yarn and cloth markets by the underconsumption of the English masses and not by the overproduction carried on by the English cotton mill owners.”
Such a view, it should be noted, has nothing in common with the positions of various schools of bourgeois economists known as ‘underconsumptionists’, most notably the Keynesians.
Marx himself had criticised the concept of ‘underconsumption’ as the cause of crisis in volume two of Capital, written some ten years before Anti-Dühring. Consumption alone (or rather the lack of it) is not the fundamental cause, he explained. If this were the case, the problem could be solved by increasing the purchasing power of the masses. This is precisely the false argument of the Keynesians. Marx answers this as follows:
“It is a sheer tautology to say that crises are caused by the scarcity of effective consumption, or effective consumers. The capitalist system does not know [of] any other modes of consumption than effective ones. That commodities are unsaleable means only that no effective purchasers have been found for them, i.e., consumers (since commodities are bought in the final analysis for productive or individual consumption).”
“But if one were to attempt to give this tautology the semblance of a profounder justification by saying that the working class receives too small a portion of its own product and the evil would be remedied as soon as it receives a larger share of it and its wages increase in consequence, one could only remark that crises are always prepared by precisely a period in which wages rise generally and the working class actually gets a larger share of that part of the annual product which is intended for consumption. From the point of view of these advocates of sound and ‘simple’ (!) common sense, such a period should rather remove the crisis.”
In other words, wages tend to rise at the peak of a boom, where labour tends to be in short supply, shortly before a slump in the economy. Therefore, lack of demand cannot be considered the real cause of the crisis of overproduction.
It is precisely the Keynesians who believe that crises are caused by a lack of ‘effective demand’ (‘underconsumption’) and that wages or state spending should be raised in order to fix the problem. Left reformists frequently put this Keynesian argument forward as a solution to the present crisis. While we are certainly in favour of increasing wages, the idea that this will solve the crisis of capitalism is completely wrong. In fact, increased wages will simply eat into profits and push the capitalists to cut back on investment and production, thereby cancelling out the effects of this measure. It is impossible to create demand from thin air. The laws of capitalism are determined by a system of commodity production, including labour-power. To call for the state to ‘create’ demand is also utopian. The attempt to use the printing press to ‘create’ money, not backed by extra production, will only serve to fuel inflation and reduce workers’ income. The only other way for the state to increase spending is to take a further slice of the surplus-value through taxation. Again, this will either mean cutting into profits, which will stop the capitalists investing, or taxing the working class, which will cut consumption, thereby reducing demand. It they borrow (deficit financing) they will have to pay it back with interest. At the end of the day, such solutions simply intensify the problems of capitalism, not solve them. It is a Catch 22 situation.
“The whole mechanism of the capitalist mode of production breaks down under the pressure of the productive forces, its own creations,” states Engels. “It is no longer able to turn all this mass of means of production into capital. They lie fallow, and for that very reason the industrial reserve army must also lie fallow. Means of production, means of subsistence, available labourers, all the elements of production and of general wealth, are present in abundance. But ‘abundance becomes the source of distress and want’ (Fourier), because it is the very thing that prevents the transformation of the means of production and subsistence into capital.”
Towards the end of his life, Engels once again returned to the fundamental contradictions of capitalism in his 1891 introduction to Marx’s Wage Labour and Capital. It could have been written to describe the situation in the world today. We therefore leave him the last word on the subject of crisis:
“This productivity of human labour which rises day by day to an extent previously unheard of, finally gives rise to a conflict in which the present-day capitalist economy must perish. On the one hand are immeasurable riches and a superfluity [super-abundance] of products which the purchasers cannot cope with; on the other hand, the great mass of society proletarianised, turned into wage-workers, and precisely for that reason made incapable of appropriating for themselves this superfluity [super-abundance] of products. The division of society into a small, excessively rich class and a large, propertyless class of wage-workers results in a society suffocating from its own superfluity [super-abundance], while the great majority of its members is scarcely, or even not at all, protected from extreme want. This state of affairs becomes daily more absurd and – more unnecessary. It must be abolished, it can be abolished.”
1 Financial Times, 26th August 2011
2 Frederick Engels, Anti-Dühring, p341, Moscow, 1969
3 Karl Marx, The Theories of Surplus-value, vol 3, p56
4 Ibid, p56
5 Ibid, p62 & 53
6 Karl Marx, Capital, vol 3, p326 &346, our emphasis
7 Karl Marx, The Theories of Surplus-value, vol 3, p84, our emphasis
8 Ibid, p122
9 Karl Marx, The Theories of Surplus-value, vol 2, p535
10 Karl Marx, Capital, vol 2, p156-157
11 Karl Marx, Capital, vol 3, p615, our emphasis
12 Frederick Engels, Anti-Dühring, p341
13 Howard and King, A History of Marxian Economics, vol 1, p17
14 Frederick Engels, Anti-Dühring, p326
15 Ibid, p326, our emphasis
16 Ibid, p326-27
17 Karl Marx, Capital, vol 1, p425-427
18 Karl Marx, The Theories of Surplus-value, vol 3, p41
19 Frederick Engels, Anti-Dühring, p340-344
20 Marx and Engels, Selected Works, vol 1, p148
21 Frederick Engels, Anti-Dühring, p322
22 Ibid, p341
23 Karl Marx, Capital, vol 2, p414-415
24 Frederick Engels, Anti-Dühring, p335
25 Marx and Engels, Selected Works, vol 1, p148-149
Appendix 3: The Tendency of the Rate of Profit to Fall
By Rob Sewell
In this article from issue 2 of the In Defence of Marxism magazine (September 2012), Rob Sewell discusses Marx’s analysis of the falling rate of profit, what factors lie behind this tendency, and how it applies to the global capitalist economy today.
These days there is considerable confusion about the tendency for the rate of profit to fall, not least in academic circles. This confusion arises from a one-sided undialectical view, which isolates one element in Marx’s economic theory and exaggerates its significance far beyond Marx’s intention. During the 1960s, the defence of Marx’s ideas about the falling rate of profit against bourgeois critics was no doubt necessary and progressive. Today, however, it has developed into a kind of infatuation, a veritable obsession of academic ‘Marxists’ who lack any knowledge of dialectics and are incapable of seeing the process as a whole.
In these circles, it has become fashionable to reduce the whole of Marx’s theory of crisis to this one element. What Marx regarded as a tendency (he was very careful to use that term) has been elevated into an absolute principle, a kind of economic Philosopher’s Stone that can seemingly explain everything. If things were as simple as that, one wonders why Marx took the trouble to write three (in reality four) hefty volumes to explain the workings of capitalism.
In reality, there are a host of interacting causes of crisis, some fundamental, others secondary, one of which can be the falling rate of profit. However, for some, it has become a new orthodoxy; the unique reason for capitalist crisis, even to the point of claiming to be able to predict when, where and why a crisis beaks out! Seemingly, armed with a knowledge of profit rates, one can predict almost anything. When profits are up, we are in a boom; when profits are down, we are in a slump! But nothing is that simple or mechanical. Today’s recovery in profit rates is accompanied by deepening crises and collapsing demand in Europe. This in turn has produced a global slowdown, especially in China, Japan, India, and South Korea. This is a reflection of the organic crisis of capitalism, as was experienced in the 1930’s.
Strangely enough, even Marx himself, with years of study behind him was unable to accurately predict crises. This was not Marx’s method or intention. Clearly he should have waited a hundred years so as to be educated by the ‘Prophets of the Falling Rate’. Sadly, however, every attempt to predict capitalist crises by this nostrum has been wide of the mark, including this latest crisis. Some say they predicted the 2008 slump, but they have been making the same prediction every year for 20 years! Such ‘predictions’ are two a penny. Needless to say, a stopped clock is normally correct twice in every 24 hours.
Today, we have the sorry spectacle of different schools of academic ‘Marxists’, established to argue over their rate of profit, based upon their interpretations and calculations. But as Mark Twain said, “there are lies, damned lies, and statistics”. Like the medieval Schoolmen arguing over the sex of angels, they squabble over the minutiae of statistics to prove that they, and not the other side, are correct. Needless to say, we are none the wiser after this ‘debate’ than we were beforehand. The whole thing has become quite sterile and reveals a mechanical undialectical approach to this as well as other subjects.
Let us try to put Marx’s idea in its proper context. Although the law of the tendency of the rate of profit to decline was important to Marx, it was not regarded by either him or Engels as the main cause of crisis or focus of Marxist economics.
Labour theory of value
In volume one of Capital, Marx shows how surplus-value is produced. He explains that the capitalist finds in the market place a particular commodity, which, unlike all other commodities, is the source of values greater than its own value. This commodity is labour-power. Marx defined it as the “aggregate of those mental and physical capabilities existing in the physical form, the living personality, of a human being”. The purchase and use of these “mental and physical capabilities”, the physical and mental muscle of the labour process, constitutes the exploitation of the working class. In contrast, labour – or the labour process – is the work that adds value to the raw materials.
After purchasing labour-power for a wage intended to keep the worker and his or her family going, the capitalist proceeds to put his hired hands to work. While the worker has a contract to work for let us say 8 hours, he covers the value of his wage in perhaps 4 hours. This initial period Marx describes as necessary labour-time. But once covering the value of his wage, he does not stop work but continues until the end of his 8-hour shift. This extra period beyond the necessary part is where the worker produces surplus-value for the capitalist, and is described by Marx as surpluslabour-time. This is unpaid labour and is where capitalists’ profits come from.
The value of the raw materials and the power used up in the production of the commodity do not create new value, but simply transfer their existing value to the new product. This includes the wear and tear of the machines, which only gradually transfer their value, known as depreciation. Labour (combined with nature) is the source of all new value, including surplus-value. A plant containing machines and raw materials, if left idle, will simply rust away and eventually fall into ruin. However, as soon as human labour is applied to these things, new commodities and new values are created. This is the source, and the only source of surplus-value. A machine simply increases the productivity of human labour and allows the labour-power to be consumed at a greater intensity.
All the existing value from past labour contained in the raw materials, etc., is transferred to the new commodities. This Marx calls ‘dead labour’, as opposed to the new value added, which Marx describes as ‘living labour’. He compares it to a blood-sucking vampire. “Capital is dead labour,” explains Marx, “that vampire-like, lives only by sucking living labour, and lives the more, the more labour it sucks.”
The driving force of capitalism is the production of surplus-value. The capitalist is determined to squeeze the last drop of profit from the unpaid labour of the working class. He does this through a combination of ways: lengthening the working day, speeding up the machines, introducing labour-saving machines, rationalisation, productivity deals, new shifts, time and motion studies, lean production techniques, etc. These are techniques workers have become very familiar with, especially over the last 30 years or so.
The total capital invested by the capitalist was considered by Marx as follows. The capital made up of means of production, raw materials, power, etc., is deemed constant capital, as it simply transfers its value to the new commodities. The value they impart is fixed. However, the capital represented by labour-power (wages) is regarded as variable capital, as it is the source of all new value. The amount of value it imparts is not fixed, but expanding. Therefore, total capital can be presented as c + v, where c is the constant part and v is the variable. It follows that the total value of all commodities is made up of c + v + s, where s represents the surplus-value. As the surplus-value is ‘locked up’ inside the commodity, the capitalist can only realise this surplus-value when the commodities are sold. Thus, surplus-value is created only in production, but only realised in exchange, in the market place.
If the working day is divided between necessary-labour and surplus-labour, the rate of surplus-value is the ratio between the two portions of the working day. The greater the surplus, the greater the rate. It is exactly the same ratio as between surplus-value and variable capital, namely s/v. In simple terms, the rate of surplus-value is the rate of exploitation of labour by capital, or the worker by the capitalist. The capitalist class forces the working class to perform more labour than required to cover their means of subsistence, thus producing surplus-value.
Of course, the capitalists attempt to conceal this exploitation. They say they buy the workers’ labour rather than the workers’ labour-power. But this is not true. The capitalists would not employ workers unless they could make a profit, and the unpaid labour of the workers is the source of this profit. While exploitation is transparent under feudalism, as the serf labours on the lord’s land for free for so many days, under capitalism, surplus and necessary labour performed by the worker are not separated in time and space. It is therefore not so obvious.
“The essential difference between the various economic forms of society, between, for instance, a society based on slave labour, and one based on wage labour,” explained Marx, “lies only in the mode in which this surplus labour is in each case extracted from the actual producer, the labourer.”
Of course, such categories are rejected by bourgeois economists, whose role it is to disguise the exploitation that exists. The concepts of Marx are therefore an anathema to them.
Through competition, the capitalist is forced to invest to produce commodities more cheaply than his rivals. Capital is therefore a self-expanding value. Accumulation is a compelling law of capitalism. Capitalism had become “accumulation for accumulation’s sake”, explained Marx. “Production for production’s sake.” Those industries where the productivity of labour lags behind the average are driven out of business by those using the most up-to-date methods. In this way, the introduction of machinery increases the productivity of labour, and reduces the necessary labour-time (thereby increasing surplus labour-time). It allows those who introduce new techniques to sell their products above their individual value (the labour-time it costs to produce them) but less than the average cost, thereby gaining super profits.
Competition leads to a concentration and centralisation of capital. This process results in bigger and bigger factories with the most modern equipment and technique. Whereas in the past the chemical giant ICI would spend £2m for a plant, these days it would pay around £600m. This accumulation of capital is a key characteristic of capitalism, and constitutes the historic mission of capitalism to develop the productive forces. The driving force of capitalist production is not the satisfaction of human need but the production of surplus-value at an ever-increasing rate, a large part of which must be accumulated and incorporated into new means of production.
This drive to introduce labour-saving machines leads, however, to a relative decrease in variable capital (labour-power) to constant capital (means of production, raw materials, etc.). While there is a relative decrease in labour-power to that invested in constant capital, this nevertheless results in more investment being placed at the elbow of every worker employed. Ultimately, however, the amount of surplus-value obtained by the capitalists depends upon two things: the rate of surplus-value and the number of workers employed.
Clearly, the introduction of machinery tends to reduce the number of workers and therefore changes the ratio between variable and constant capital, the relationship between dead and living labour. Marx described this process as a rising organic composition of capital. This inevitably leads, all things being equal, to a declining rate of profit. “Hence, the application of machinery to production of surplus-value,” explains Marx, “implies a contradiction which is immanent in it.”
Marx was not the first to discover the tendency of the rate of profit to fall. The founders of classical political economy, most notably Adam Smith and David Ricardo, had already been aware of it. Ricardo, in particular, was very worried about its implications. However, their explanations were deficient and undeveloped.
“According to Ricardo’s theory of rent, the rate of profit has a tendency to fall, as a result of the accumulation of capital and the growth of the population, because the necessary means of subsistence rise in value, or agriculture becomes less productive.
“Consequently accumulation has the tendency to check accumulation, and the law of the falling rate of profit – since agriculture becomes relatively less productive as industry develops – hangs ominously over bourgeois production. On the other hand, Adam Smith regards the falling rate of profit with satisfaction. Holland is his model. It compels most capitalists, except the largest ones, to employ their capital in industry, instead of living on interest, and is thus a spur to production. The dread of this pernicious tendency assumes tragi-comic forms among Ricardo’s disciples.”
“It is a law which, despite its simplicity, has never before been grasped and, even less, consciously articulated,” explained Marx. Ricardo in particular mixes up the rate of surplus-value with that of profit. He made the fall in the rate of profit dependent on the so-called diminishing returns from land, which led Marx to quip, “He (Ricardo) flees from economics to seek refuge in organic chemistry”!
It was left to Marx to undertake a thorough study of this law – or tendency, as he preferred to call it. At one point, Marx describes this tendency for the rate of profit to fall in his notebook as “in every respect the most important law of modern political economy, and the most essential for understanding the most difficult relations. It is the most important law from the historical standpoint.”
This phrase is constantly repeated by the fans of the TRPF as positive proof that Marx considered this as the most important element in his economic theory. However, this bold assertion does not stand up to even the most cursory scrutiny. In the first place, if Marx really believed this to be the most important question, he would certainly have repeatedly emphasised it. Yet, apart from the unpublished Grundrisse, the expression was only ever again used in another unpublished work called the Economic Manuscripts of 1861-63. These are the only two references where Marx uses this expression in the entire 50-volume Marx and Engels Collected Works.
It does not appear in any of the published works, and there is not a mention of it in any of the three volumes of Capital or the Theories of Surplus-value. Nor is it ever mentioned in the voluminous correspondence of Marx and Engels. If Marx had discovered that the tendency of the rate of profit to fall was “the most important law of modern political economy”, one might well ask why he never mentioned this ‘eureka’ moment in any of his detailed correspondence with Engels, his closest collaborator, or anyone else for that matter.
The Grundrisse, a collection of rough notebooks, were only published after Marx’s death. They contain only the ‘first cut’ of his ideas, so to speak. These ideas were as yet not fully worked out and were written only as notes for self-clarification. Because of this, Marx apparently contradicts himself on the tendency of the rate of profit to fall. Only a few pages after referring to it as “the most important” law, he then describes it as “the second great law”, among the “two immediate laws”.
The first law he describes as “surplus-value expressed as profit always appears as a smaller proportion than surplus-value in its immediate reality actually amounts to”. He underlines this sentence, by which to emphasise that the rate of profit is always smaller than the rate of surplus-value. Consequently, “the rate of profit never expresses the real rate at which capital exploits labour, but always a much smaller relation.”
The falling rate of profit is then referred to as the second great law. These apparent contradictions can only be explained by the fact that the Grundrisse was not a finished expression of Marx’s economic theories but a work in progress. Marx’s ideas were not yet completely crystallised. His final thoughts on the subject were expressed later in Capital in a far more complete form. But here, the reference to “the most important law of modern political economy” is dropped altogether. In other words, it is an isolated comment that has been taken out of context to prove something that cannot be proved. It was a casual remark, which Marx made in his preparatory writings for Capital. These represent his initial thoughts on the subject, which he later modified.
While the Grundrisse contains very valuable thoughts on many questions, they cannot be considered to represent the final expression of Marx’s economic theories. These are contained in Capital, especially in the third volume, where the theory of the falling rate of profit is explained at some length and in great detail. To tear out of context one isolated remark made in Marx’s notebooks and attempt to elevate it above the finished version of the theory in Capital volume three is neither scientifically rigorous nor particularly honest.
By the time Marx writes Capital, he writes not about the most important law, but rather of the law being of “great importance” for capitalist production. The emphasis had clearly changed.
Despite its undoubted importance, out of 52 chapters in volume three of Capital, only three are devoted to the tendency of the rate of profit to fall. Again, this is hardly the space you would expect to squeeze in “the most important law of modern political economy”. If Marx had regarded it as such, he would have written a whole book on the subject. Instead, one chapter deals with The Law Itself, followed by a chapter on Counteracting Factors, and finally one on The Development of the Law’s Internal Contradictions.
He explains the tendency in the third volume of Capital by the following example:
“Once wages and the working day are given, a variable capital, which we can take as 100, represents a definite number of workers set in motion; it is an index of this number. Say that £100 provides the wages of 100 workers for one week. If these 100 workers perform as much surplus labour as necessary labour, they work as much time for the capitalist each day, for the production of surplus-value, as they do for themselves, for the reproduction of their wages, and their total value product would then be £200, the surplus-value they produce amounting to £100. The rate of surplus-value s/v would be 100 per cent. Yet, as we have seen, this rate of surplus-value will be expressed in very different rates of profit, according to the differing scale of the constant capital c and hence the total capital C, since the rate of profit is s/C. If the rate of surplus-value is 100 per cent, we have:
If c = 50 and v = 100, then p’ = 100/150 = 66.6 per cent;
If c = 100 and v = 100, then p’ = 100/200 = 50 per cent;
If c = 200 and v = 100, then p’ = 100/300 = 33.3 per cent;
If c = 300 and v = 100, then p’ = 100/400 = 25 per cent;
If c = 400 and v = 100, then p’ = 100/500 = 20 per cent.
“The same rate of surplus-value, therefore, and an unchanged level of exploitation of labour, is expressed in a falling rate of profit, as the value of the constant capital and hence the total capital grows with the constant capital’s material volume.”
In other words, a rising organic composition of capital, assuming that the rate of exploitation remains the same, must bring about a fall in the rate of profit. This is a permanent tendency under capitalism as the system expands and the productivity of labour grows. In other words, the relative decrease in variable capital relative to constant capital is but another expression for greater productivity of labour. Every capitalist is striving to increase the productivity of his workforce, namely the amount produced in a given period of time. If this is so, why is there not a permanent fall in the rate of profit? Marx explains that the TRPF is a ‘double-edged law’ which produces its own counteracting tendencies, which, under certain conditions, can even result in the rate of profit rising.
The tendency can also bring about a decline in the profit rate with a simultaneous increase in the mass of profit. For example, a capital of £1 million at 40 per cent rate of profit produces £400,000, but a capital of £5 million at 8 per cent also produces £400,000 – all things being equal. While the capitalists are concerned about the falling rate of profit, and they will do everything to combat it, it is manageable as long as the mass of profit is increasing. This is a vital point to grasp. The absolute mass of profit can continue to grow despite the tendency of the rate of profit to fall as a result of larger investments of capital. Paradoxically the same causes that produce a growth in the mass of profit also produce the tendency for the rate of profit to decline. In the long term, the capitalists are caught in a vicious circle.
As Marx explained:
“the same reasons that produce a tendential fall in the general rate of profit also bring about an accelerated accumulation of capital and hence a growth in the absolute magnitude or total mass of the surplus labour (surplus-value, profit) appropriated by it. Just as everything is expressed upside down in competition, and hence in the consciousness of its agents, so too is this law – I mean this inner and necessary connection between two apparently contradictory phenomena.”
He goes on to add:
“It is evident that, on the figures given above, a capitalist controlling large capital will make more profit in absolute terms than a smaller capitalist making apparently high profits. The most superficial examination of competition also shows that, under certain conditions, if the bigger capitalist wants to make more room for himself on the market and expel the smaller capitalists, as in times of crisis, he makes practical use of this advantage and deliberately lowers his profit rate in order to drive out the smaller ones from the field.”
Tendency always applies?
The tendency does not mean that the absolute mass of exploited labour falls. In fact, historically the direction is for the scale of production to increase with a rise in the labour force and for production to become ever more concentrated into fewer but larger units. The concentration of capital is far greater today than in Marx’s time, but the working class has never been so numerous. “The fall in the rate of profit does not arise from an absolute decline in the variable component of the total capital but simply from a relative decline, from its decrease in comparison with the constant component.”
Nevertheless, the falling rate of profit is not absolute, applicable to all periods. The capitalists are constantly looking for ways around it. In practice, the rate of profit does not always fall, but can actually rise for a considerable period of time, as we have witnessed over the last 30 years, which does not contradict the process as some so-called Marxists seem to fear. We must base ourselves not only on the theory, but also on the facts and how the different tendencies and counter-tendencies work themselves out in practice. It is a tendency and not a law, as Marx emphasised. “The rate of profit could even rise,” states Marx, “if a rise in the rate of surplus-value was coupled with a significant reduction in the value of elements of constant capital, and fixed capital in particular.”This is what has happened in the last three decades, but this could not last indefinitely, or “in the long run”, to use the exact words of Marx.
However, Marx points out that the problem is rather to explain why the rate had not fallen far more, and more rapidly. “Counteracting influences must be at work,” he explains, “checking and cancelling the effect of the general law and giving it simply the character of a tendency, which is why we have described the fall in the general rate of profit as a tendential fall.”In fact, Marx also points out that all economic laws have the nature of tendencies, affected by forces pulling in different directions. He then goes on to explain the factors that serve to counteract the law of the falling rate of profit and transform it into a tendency, all of which incidentally have been operating in the recent period.
The first counteracting tendency explained by Marx is a more intense exploitation of labour, an increase in relativesurplus-value. That has been happening on a massive scale over the last period. In Britain, manufacturing industry produces the same level of output with a million less workers. This is a reflection of the squeeze that has taken place across the workforce, not only in Britain, but world-wide.
Labour’s share of national income has been in decline across the main capitalist economies (OECD) since 1980. The gap has been especially wide in the USA, where productivity rose by 83 per cent between 1973 and 2007, but male median real wages increased by just 5 per cent. The share of the US national income that goes to wages has fallen to its lowest level since records began after the Second World War. The production of relative surplus-value is a process of progressively cheapening commodities, with the new commodities containing less value than before. A larger mass of use-values will be expressed in a smaller total value.
Alternatively, the working day can be prolonged, resulting in greater absolute surplus-value. The working week has been increasing everywhere in the past period. The working class has been squeezed by deskilling, the introduction of part-time work, just-in-time production, short-term contracts, and other regressive measures to extract more unpaid labour out of the working class. If you increase the rate of surplus-value, you will increase the mass of surplus-value, everything being equal. This then serves to push up the rate of profit. “It does not annul the general law”, he explains. “But it has the effect that this law operates more as a tendency, i.e. as a law whose absolute realisation is held up, delayed and weakened by counteracting factors.”
The driving down of wages below their value is another factor that serves to counteract a falling rate of profit. Again this has become a feature especially in the developing world where labour is viciously exploited without limit. The exploitation of women and children is part of this process. In addition, the cheapening of commodities, which has been a very important feature over the past period, serves to cheapen the cost of labour-power.
Marx now refers to the cheapening of constant capital as a key factor in this process. If the rate of profit tends to fall with a greater proportion invested in constant capital as opposed to variable capital, then a cheapening of constant capital will serve to counteract the falling rate of profit. The increasing productivity of labour serves to cheapen the constant capital transferred to the product in the bargain, despite the continued rise in its volume. Thus the same influences that tend to cause a fall in the rate of profit would serve to moderate this tendency. The value of constant value would depend on which of these two tendencies is stronger. If productivity of labour doubles, then the value of constant capital will be halved. If productivity is less than the rising value of constant capital, there will be a falling rate of profit. Therefore, we need to see the net effect of these conflicting forces. In practice, however, over the last 30 years we have seen a dramatic decrease in the value of components of constant capital, especially with the advance of new technology. The falling price of computer chips, for example, has cheapened computers, which are part of constant capital used extensively in the economy. China has been a source of cheap goods flooding the world market, which have taken the increasing form of constant capital, and has assisted the rising rate of profit for the past three decades.
Relative surplus population is another factor. We can see the growth of mass unemployment everywhere, which has now become a permanent feature. This has served to drive down wage levels and to cheapen the cost of labour-power, thereby increasing the surplus labour-time for the capitalists. The reduction of ‘wage costs’ has been the main character of the past period, as the capitalists seek to push up their profits.
Foreign trade is also a means of cheapening elements of constant capital as well as introducing cheaper commodities from abroad, which again serve to reduce the cost of labour-power. This was why the capitalists in the nineteenth century fought to abolish the Corn Laws that prevented the importation of cheap wheat that would reduce the cost of bread. The lower cost of living for the workers could allow the capitalists to depress wages, thereby increasing their profits. Foreign trade could also cheapen the elements of constant capital.
Capital invested in foreign countries, where the organic composition is lower, will also yield a higher rate of profit and will increase the average rate of profit of those engaged in foreign trade. “Capital invested in foreign trade can yield a higher rate of profit, firstly, because it competes with commodities produced by other countries with less developed production facilities, so that the more advanced country sells its goods above their value, even though still more cheaply than its competitors,” explains Marx. “The privileged country receives more labour in exchange for less,” continues Marx, a reference to the adverse terms of trade. The benefit is the same as for the capitalist who introduces new machinery that allows him to sell below his competitors but reap a surplus profit. This notion of foreign cheap labour points to a theory of imperialism, which was later developed by Lenin.
The expansion of the world market (‘globalisation’) has allowed a massive increase in investment, production, and sales. There has been a massive increase in the export of capital. The collapse of the Soviet Union and the restoration of capitalism in Russia, Eastern Europe, and China, have provided capitalism with new markets and areas of exploitation. This allowed some two billion people to enter the world capitalist market. The ‘liberalisation’ of the developing countries, including privatisation of basic utilities, also opened up possibilities for new investment, all of which allowed the rate of profit to increase during this period.
The final point that Marx mentions, but says will need more detailed consideration later, is that with the development of capitalism “one portion of capital is considered simply to be interest-bearing capital.”He feels that this does not affect the level of the general rate of profit as such capitalists are content with a lower rate of interest, for instance, investments in railways, which do not enter into the general rate of profit.
In other words, what we are dealing with is only a tendency which manifests itself over the whole history of capitalist development. “The law operates therefore simply as a tendency, whose effect is decisive only under certain particular circumstances and over long periods,” explains Marx. Thus, there can be long periods, even decades, where the tendency of the rate of profit to fall is cancelled out by the above counteracting tendencies. These can cut across the process and even reverse it, but not indefinitely. Eventually, this downward tendency will reassert itself and act as a further barrier to the development of capitalism.
The TRPF in practice
In his book The Current Crisis written in 1987, Mark Glick published the following figures for the long-term rate of profit in the United States:
So, from an historical point of view, we see that, leaving aside the inevitable cyclical fluctuations, the rate of profit in 1983 was lower than it was a hundred years ago. However, for whole periods this tendency has been reversed. In the post war period, the rate of profit began to fall roughly from the mid-1960s to its low-point in 1983. Then, with the onslaught against the working class, coupled with a whole host of the counteracting tendencies described above, the rate of profit began an ascent, with various ups and downs, that was to last approximately 30 years, up until the emerging crisis of 2007.
“The rate of profit in the major G7 economies peaked in 1997; it fell sharply to 2001 and then recovered up to 2007,” states Michael Roberts in January 2009.
The slump of 2000-01 had hit the US particularly hard. But by 2005, profits had dramatically recovered almost to 1997 levels, which “was the highest level of profits reached since the 1960s,” explained Roberts (September 2005). This process was confirmed by figures produced by Robert Brenner. “Between 1965 and 1973, US manufacturers sustained a decline in the rate of return on their capital stock of over 40 per cent”, states Brenner.
In the same period, the rates of profit in the manufacturing and private business sectors fell by 40.9 per cent and 29.3 per cent, respectively. “Profitability in the US economy thus began a downward trajectory that would not bottom out until the early 1980s.”Thus we saw a reversal. “It is true,” states Brenner, “that the profit picture has improved significantly for US firms in recent years – between 1989 and 1997, corporate profits increased about 82 per cent and the corporate rate of profit by 27.8 per cent.”
During the decade of the 1990s, “profitability has rebounded significantly,” states Brenner.
“Despite the weakness of the cyclical upturn, the rate of profit in the private business sector has increased steadily over the course of the 1990s. By 1996, it had, for the first time since the start of the long downturn, decisively surpassed its level of 1973, achieving its level of 1969, 20-25 per cent below its boom time peaks. By 1997, it had almost certainly come back even further, for in that year, profitability in the corporate sector (for which the most recent data is available) had returned to within 15 per cent of its 1960’s highs. Making this recovery possible was, in part, the resiliency of the non-manufacturing sector, where profitability had never fallen all that greatly, had made significant recoveries in both the late 1970s and early to mid-1980s, and had risen over the course of the 1990s above its 1969 level, to within 15-20 per cent of its heights in the boom.
“But the truly dynamic element was obviously the manufacturing sector: rising by 25 per cent above its average for the second half of the 1980s, 100 per cent above the terrible lows of the early 1980s, and about a third above the levels registered at the end of the Keynesian 1970s, the manufacturing profit rate managed by 1995 and 1996 to exceed its level of 1973 for the first time and to come to within about 30 per cent of its level at the peak of the boom.”
Brenner concludes: “the US profitability recovery has been very major and its positive economic effects very real.”
Rise in profitability
According to Andrew Kliman: “Finally there was a sharp rise in profitability in the middle years of this decade [2000s]. As we know, however, it was driven by an asset bubble and was not a sustained recovery. Revised and updated Bureau of Economic Affairs data indicate that the rate of profit fell from a peak of 25 per cent in 2006 to 17.9 per cent in 2008.” Clearly in 2008, there was a massive fall in production, which drove down profit rates. The rate of profit peaked in 2006 and then began to fall in 2007 with the onset of the financial and banking crisis following the bursting of the US housing bubble in 2005.
Fred Moseley, the author of The Falling Rate of Profit in the Post War United States Economy, states in an interview in March 2008 that:
“There has not been a complete recovery of the rate of profit in recent years. I don’t want to overstate it. There are different measures of profit rates, but according to my estimates, which are for the total business sector of the economy, by 2006 the rate of profit was within ten per cent of its earlier post war peak.
“Mid-2006 was the peak of its current profit cycle. The profit share and profit rate have declined a bit in the last year or so, and the trajectory seems to be down right now.
“But there was a substantial recovery in the rate of profit. The rate of profit had declined roughly 50 per cent from the peak of the sixties to the trough of the 80s. At least half of that previous decline – I would say, more than half of the previous decline – was reversed.
“Today, profits are, by almost any measure, a lot better than they were in the 70s and 80s.
“Bear in mind also a couple of additional considerations. One is that these statistics are for the domestic US economy. They do not include foreign profits; and foreign profits are an increasing share of total US corporate profits. Thirty or forty years ago they were less than 10 per cent, today they are 30 per cent. None of that gets counted in the official US government estimates of profit rates.
“In sum, I would argue that there has been a substantial recovery of profit rates. Maybe not complete, and we may disagree a few percentage points on the extent, but a substantial recovery.”
He goes on to argue that this increase in the rate of profit has been mainly due to the holding down of wages and an increase in productivity. “In Marxist terms, that reduced necessary labour-time and increased surplus labour-time, and therefore increased the rate of surplus-value. Over the three decades, we’re talking about the rate of surplus-value has approximately doubled…”
Another author who analysed the present crisis, Graham Turner, also recognises that, “profits rose strongly after the dotcom recession. They did not quite reach the dizzying heights of 1950 during the long post-war boom, but they were not far short.” He goes on to say that, “much of this was due to rising profits from overseas,” a counteracting factor that Marx talks about in Capital. “Domestic non-financial profits rose slowly during the boom.”
“Globalisation was a classic countervailing force, but it subsequently turned from being virtuous to vicious,” explains Turner. “It led to a stunning collapse in production and output, and the sudden emergence of enormous excess capacity. And it triggered a wave of job cuts, as companies reacted with a vengeance to the inevitable slump in profits by exporting more capital and squeezing labour costs.”
He correctly adds that:
“Falling output and such huge excess capacity destroyed profit margins, even as raw material costs fell. In Japan, the decline was seismic. Profits fell by more than two-thirds. Within manufacturing, profits disappeared altogether, as industry recorded a loss for the first time on record…
“Across the West, the decline in profits was initially driven by the rise in raw material costs, as commodity prices soared in the early months of 2008. But the biggest drop came after the credit crunch hit consumer demand. Falling demand, when firms had already been struggling to use their available capacity, caused profits to implode…
“Not surprisingly, one of the most heavily impacted industries was capital goods. With so much excess capacity, there was little need to expand existing facilities. That is why Japan and Germany, both major exporters of capital goods, were hit so hard by the credit crisis of 2008. In Germany, foreign demand for capital goods tumbled by nearly half. In Japan, foreign demand for machinery fell by nearly three-quarters in the year to February 2009.”
What Turner, not being a Marxist, is describing is a classic crisis of overproduction, but uses the term excess-capacity instead.
He says the following about profits: “Data published by the Bureau of Economic Analysis in the US strongly supports the argument by those who claim the economic crisis of 2008 was attributable to a declining profit rate.”But this conclusion is not supported by the facts as laid out by Turner. He goes on:
“Superficially, it would appear that US companies have seen a secular improvement in their profits during recent years. Looking at total profits in relation to the economy, it is hard to see why there was such a collapse into a deep recession in 2008.
“The ratio of profits to GDP fell sharply during the dotcom recession, dropping to 7.0 per cent in the third quarter of 2001. But aggressive central bank reflation, the rapid rise in house prices and a determination to keep a lid on labour costs, partly through outsourcing, saw the profits to GDP climb steadily. It reached a high of 12.9 per cent in the third quarter of 2006. This was far short of the post-war high, when the profits to GDP ratio hit 13.3 per cent in the fourth quarter of 1950.
“Since 2006, the collapse of house prices has precipitated a swift drop in the profits to GDP ratio. It fell to 8.9 per cent by the fourth quarter of 2008, before rebounding to 9.3 per cent in Q1 2009. But there is nothing in any of this to connect profits or the over-accumulation of capital to the current credit crisis. Profits appear not to have been under pressure during the upswing. And even in the downturn, they remain above their historic low reached in the fourth of 1982, when the profits to GDP ratio dropped to 6.3 per cent.”
He continues: “the ratio of profits to investment spending did rise during the housing boom, climbing from a cyclical low of 61.2 per cent in the third quarter of 2001 to 19.6 per cent five years later. The profit rate has since fallen, but again, the decline is not particularly striking. It was down to 84.1 per cent by the end of 2008, but that was still above the dotcom low. And again it rebounded in Q1 2009, to 98.4 per cent.”
Turner admits that these profit rate figures are not the way Marx would have calculated them. These are bourgeois statistics which do not define figures in Marxist categories, such as constant capital or variable capital. There have been various attempts to do so, but this is an impossible task given the way such statistics are compiled, including the Bureau of Economic Analysis. In addition, companies, for different reasons, either attempt to inflate or deflate their profits to avoid taxes or increase the values of their shares. General Electric, the biggest US manufacturing company, was fined several million dollars in August 2010 for falsely inflating its profit figures. There are many things these days that distort profit figures, rendering a precise picture impossible. Nevertheless, despite all these massive problems and disparities, the figures produced by different sources can provide a rough guide to the situation.
Turner continues, “Looking at domestic profits is an entirely different matter. At the top of the housing boom, more than a third of US company profits were being earned abroad. Indeed, by the fourth quarter of 2008, overseas profits had risen to a record 45.6 per cent of domestic profits.”
Turner’s argument centres on the figures of US domestic profits and those earned abroad. But this is not an appearance, but a fact. It also represents a misunderstanding of Marx. As we saw earlier, Marx never made this distinction between domestic and foreign-earned profits. In fact, he stated that foreign trade would serve as a counteracting tendency in regard to a falling rate of profit. It was for him an important addition to the process. And this was clearly the case in the past period with the intensification of so-called globalisation and the exploitation of new markets.
“Furthermore, a growing share of domestic profits came from the financial sector. During the 1950s and 1960s, an average of 31.1 per cent of domestic profits derived from the finance sector. That grew to a peak of 45.3 per cent in the fourth quarter of 2001. Finance was responsible for a third of domestic profits at the end of 2006, before the slide in house prices began to take its toll on bank earnings.”
The problem is that Turner and many others besides have accepted consciously or unconsciously capitalist definitions of costs. They view rent (for the landlords) and interest (for the bankers) as costs, when for Marxists these are part of the surplus-value produced by the working class. These should be included in the real rate of profit and not excluded. The massive increase in the share of profit going to the banks and financiers only means that the division of surplus-value between the ruling class has changed. Finance capital has become increasingly dominant and is now taking an increasing proportion of the surplus-value. In addition, the banks are involved in all kinds of investments, not only lending to industry, but also investing heavily in the property market, at least up until the crash. The attempt to exclude ‘financial’ profits from the equation in order to depress figures for the rate of profit is therefore wrong.
In any case, non-financial corporations like General Electric, Ford and General Motors have increasingly engaged in financial operations from the 1990s onwards. The tentacles of finance capital and industrial capital have become entwined.
Turner nevertheless makes the point that, “it is worth stressing again that the crisis has not been caused by falling profit rates per se. The profit rate does not actually fall until after the crisis has manifested itself in the finance sector.” In his opinion, “it is the desperate attempt by companies to try and drive profit rates higher – back to levels not seen since the 1950s and 1960s – that leads to the crisis.”If he means by this the squeezing of the working class through relative and absolute surplus-value, then he has a point. But this, as we have explained, is only one side of the picture.
Rather than explaining crisis in terms of the rate of profit, Marx explains that “the market expands more slowly than production… there comes a moment at which the market manifests as too narrow for production. This occurs at the end of the cycle. But it merely means the market is glutted. Overproduction is manifest.”And again, “Overproduction is specifically conditioned by the general law of production of capital: to produce to the limit set by the productive forces, that is to say, to exploit the maximum amount of labour with the given amount of capital, without any consideration for the actual limits of the market or the needs backed by the ability to pay; and this is carried out through continuous expansion and reproduction and accumulation…”
This explanation of crisis is repeated again and again throughout Marx’s works. The present crisis was not caused by a crisis of profitability, but certainly resulted in one. When there is a slump in production, this will mean a fall in sales, which in turn, cuts into profits. The rate of profit falls, as does the mass of profit. The crisis, however, was a result of a massive overproduction of consumer and capital goods which the market could not profitably absorb. When the capitalists cannot sell their products, the rate of profit is zero. In fact, it is less than zero as the total value of the commodity is written off. At best, they slash their prices to below their cost of production in an attempt to shift them. It was this that had its impact in lowering profitability. In fact, the mass of profit collapsed as a consequence of the collapse in output. ‘Excess capacity’ grows as the big corporations attempt to stem overproduction and curtail their losses. As a consequence, factories and production lines are closed, workers are put on short-time and machines are left idle. Giant blast furnaces and plant are shut or ‘mothballed’. As explained, once overproduction occurs, sales fall, the market shrinks, production is cut back and profits tumble. It was as a consequence of an inability to sell the commodities that relentlessly poured onto the market as the market collapsed, which in turn led to a collapse in the mass of profit. It produced what Marx described as a problem of realisation of surplus-value, an inability of the capitalists to turn commodities into money, the real aim of their activity.
Overproduction, the fundamental cause of crisis, was beginning to manifest itself at the height of the boom in 2005-6, where supply was outstripping demand. In general, as Marx explained, overproduction develops precisely at the height of a boom when profitability is high (“at the end of the cycle”, to use his words) and appears well before a fall in the mass of profit that accompanies a slump. This capitalist crisis not only drives down the rate of profit, which started to slide, but more importantly, drives down the mass of profit as the economy comes to a standstill.
By 2008, the massive crisis of overproduction had produced a big fall in the rate and eventually the mass of profit by the last quarter of that year. This is, however, hardly the long-term trend that Marx talked about, and the fall in the rate of profit is very much a consequence of the crisis of overproduction. This crisis was certainly not due to a singlefactor, but a whole series of factors that were to culminate is a massive crisis of overproduction. “In world market crises,” explained Marx, “all the contradictions of bourgeois production erupt collectively.”
Today’s capitalist crisis can only be really understood, not in reference to this or that secondary aspect, including the rate of profit, but through an appreciation of its contradictions in its wider historical context. The present crisis is not a cyclical crisis, but an organic crisis rooted within the system itself. It is a reflection of the epoch of capitalist decline, where the system has exhausted itself. The productive forces have been strangled by private ownership and the nation state, a fundamental contradiction ignored by our academic ‘Marxists’. The decline of capitalism will not be a straight line, but affected by intermittent ups and downs, crises and convulsions, which has nothing to do with the episodic movements in the rate of profit and everything to do with the inherent barriers to capitalism in its old age. Capitalism has now reached its limits. This essential character, together with all its implications, is ignored by all those who are mesmerised by a mechanical explanation of crisis, simply reducing the cause of crisis to this or that particular aspect.
The capitalist system was able to put off deep crisis for a whole historical period. Now all the contradictions have risen to the surface. While there are many reasons for capitalist crisis, the over-riding reason is overproduction. This was explained by Ted Grant long ago, who underlined what Marx had written:
“The fundamental cause of crisis in capitalist society, a phenomenon peculiar to capitalist society alone, lies in the inevitable overproduction of both consumer and capital goods for the purposes of capitalist production. There can be all sorts of secondary causes of crisis, particularly in a period of capitalist development – partial overproduction in only some industries; financial juggling on the stock exchange; inflationary swindles; disproportions in production; and a whole host of others – but the fundamental cause of crisis lies in overproduction. This, in turn, is caused by the market economy, and the division of society into mutually conflicting classes.”
However, what is striking about the last 30 years, despite the successful attempt to drive up the rate of profit by a whole range of means, as explained above, the capitalists were never able to restore the profit rate to the levels of the post-war upswing. Despite all their attacks and efforts over this period, they failed in this regard.
Today, there has been a recovery in the rate of profit since 2009 following the destruction of capital and its values arising from the crisis. Profits in the US corporate sector are 25-30 per cent greater than before the recession. But despite this fact, there has been no return to ‘normality’. Those who regard profitability simply as a gauge to the health of capitalism must be scratching their heads. Despite the boost to profits, there has been no investment and no recovery. “Profit margins are not only very high today,” states Andrew Smithers, who runs a London consultancy, “but [companies’] behaviour has been very unusual.”What he means by ‘unusual’ is that there is no investment and without this there can be no boom. The reason for this is the massive over-hang of personal, corporate and government debt, which kept capitalism afloat in the past period, but has now undermined demand. Without potential sales and an expanding market, there will be no incentive to produce or invest. That is why large parts of the world are either slowing down or in recession, while mass unemployment is growing. Once again, this is a reflection of a structural crisis of capitalism and nothing to do with the normal boom and slump cycle.
Lenin said that politics is concentrated economics. For Marxists, the science of economics is not a matter of abstract debates in academic circles but an instrument for changing society. The economic impasse of capitalism provides the ground for an unprecedented upswing of the class struggle. The stormy period that lies ahead will shake society to its foundations, transforming the consciousness of the working class and preparing the way for the overthrow of the capitalist system and the establishment of a new and higher order of society – socialism.
1 Karl Marx, Capital, vol 1, p270
2 Ibid, p342
3 Karl Marx, Capital, vol 2, p209
4 Karl Marx, Capital, vol 1, p407
5 Karl Marx, The Theories of Surplus-value, vol 2, p541
6 Karl Marx, Grundrisse, p748 & 754
7 Ibid, p748
8 Ibid, p762-763
9 Karl Marx, Capital, vol 3, p319
10 Ibid, p317
11 Ibid, p331
12 Ibid, p331
13 Ibid, p323, our emphasis
14 Ibid, p337
15 Ibid, p339
16 Ibid, p341-342
17 Ibid, p344-345
18 Karl Marx, Capital, vol 1, p347
19 Karl Marx, Capital, vol 3, p346
20 The Economics of Global Turbulence, p93, New Left Review 1998
21 Ibid, p95
22 Ibid, p246
23 Ibid, p252
24 Ibid, p256
25 The persistent fall in profitability underlying the current crisis: new temporalist evidence, 2009, p23-24
26 No way to run an economy, p119
27 Ibid, p121
28 Ibid, p124-127
29 Ibid, p130-131
30 Ibid, p131-132
31 Ibid, p133-134
32 Ibid, p135
33 Ibid, p136
34 Ibid, p138, our emphasis
35 Karl Marx, The Theories of Surplus-value, vol 2, p524
36 Ibid, p534-535
37 Ibid, p534, our emphasis
38 Ted Grant, The Unbroken Thread, p394-5, emphasis in original
39 Financial Times, 15th December 2011
The following glossary is a compilation of brief definitions of the economic terms used by Marx in volume one of Capital. It serves as a ready reference for economic terms we have used in this book.
Absolute surplus-value: Surplus-value produced by extending the length of the working day beyond the necessary labour-time and so increasing surplus labour-time.
Abstract labour: Labour in its general or quantitative form as a producer of value, abstracted from its particular qualities as labour of a specific kind.
Capital: That part of wealth used to exploit human labour-power in the creation of more wealth, with a view to private profit.
Capital accumulation: The reinvestment (or capitalisation) of a portion of surplus-value in new elements of constant and variable capital, thus increasing the scale of production; also termed ‘extended reproduction’ and ‘concentration of capital’.
Centralisation of capital: The combination of individual capitals to form larger capitals, for example through mergers and takeovers.
Commodity: A product of human labour which is produced in order to be exchanged.
Commodity fetishism: The mistaken idea that the value of a commodity is an intrinsic property of the commodity as an object.
Concrete labour: Labour as work of a particular kind; labour as a creator of use-values; labour in its qualitative state.
Constant capital: All the capital expended, with the exception of that paid as wages; so-called because its value is transferred, not increased, in the productive process.
Costs of production: All the expenses of production: wages; cost of raw materials and auxiliary materials; wear and tear of machinery and buildings, etc.
Exchange-value: The relative quantity of other commodities that a particular commodity can be exchanged for. When expressed in money it is called price. The value of a commodity is determined by the amount of human abstract socially necessary labour is needed to reproduce it. Price oscillates above or below value under the influence of varying supply and demand.
Intensity of labour: The degree of effort expended in work; labour more intense than average creates more use-values, and thus more value, than average in a given time.
Labour-power: The potential physical and mental capacity to work; under capitalism, the commodity that the worker sells to the capitalist.
Means of production: The material factors of the labour process, including raw materials, auxiliary materials, and instruments of labour.
Mode of production: A way of producing, used by Marx to emphasis the combined forces and relations of production; each mode of production represents different class relations, labour process, and particular form of extraction of surplus labour.
Money: The commodity which in any society is universally accepted in exchange for other commodities and which thus expresses their exchange-value and serves as a medium of circulation.
Necessary labour: That part of the working day during which the worker produces value equal to the value of their labour-power, which is realised in wages.
Price: The expression of value in money terms, which can depart from values due to supply and demand.
Price of production: The cost of production plus the average rate of profit.
Primitive accumulation: The historical process of separating the independent commodity producer from the means of production; this enables the existence of wage-labour and is a fundamental condition of capitalist production.
Productive labour: Under capitalism, labour which produces surplus-value for capital.
Rate of surplus-value: The relation between the paid and unpaid parts of the working day or the product. For example, if the value of labour-power is reproduced in 4 hours in a working-day of 8 hours, the rate of surplus-value is 4:4, or 100%.
Rate of profit: The surplus returned relative to the quantity of capital advanced (not to be confused with the rate of surplus-value). The average rate of profit is determined by the competition between capitals differing in their organic composition.
Relations of production: The class relations arising from a particular mode of production; under capitalism, the fundamental relation of production is the wage relation between the capitalist class and the working class.
Relative surplus-value: Surplus-value created as a result of shortening necessary labour-time, for example, by decreasing the value of subsistence goods.
Relative surplus population: The working class population in excess of the needs of capital; serves to regulate wages through the supply and demand for labour.
Simple commodity production: The labour process undertaken by independent commodity producers who exchange the products of their labour rather than their labour-power, namely the basis for the development of surplus-value; wage-labour, is absent.
Simple reproduction: The expenditure of all of surplus-value as revenue so that there is no capital accumulation.
Socially necessary labour-time: The average amount of labour expended in the production of a commodity under current conditions (average productivity and intensity of labour).
Surplus labour: That part of the working day extended beyond necessary labour; the time during which the worker produces surplus-value for the capitalist.
Surplus-value: The value accruing to the capitalist as a result of the working day extending beyond necessary labour-time.
Use-value: The capacity of a commodity to meet some human need or desire. It becomes a reality only in consumption.
Value: The amount of socially necessary labour-time incorporated in the production of a commodity.
Variable capital: That used to buy labour-power. Called variable because in use it yields a greater value than its own cost. In any total capital, the smaller the proportion of variable to constant, the higher the organic composition of capital.
Wages: The price of labour-power. Nominal wages are measured in money. Real wages are measured in purchasing power.
Wealth: Economically understood, everything that is exchangeable.