industrial capital, with the immediate and simple process of commodity
production, so far as it concerns the relations between employer and
worker, the exploitation of the proletariat, wages and labour time,
and the influence of modern technique on the condition of the worker.
We see in the first volume the effect of the factory system in
creating capital. Its chief figure is the producing, suffering,
rebellious working class. In the second volume, the employer appears
on the market, sells his commodities, and sets the wheels of
production again in motion, so that commodities will continue to be
produced. In the third volume, the realisation process of the
undertakings of the capitalist class, or the movement of capital as a
whole is exhibited: cost of production, cost price, total gains and
their division into profit, interest and ground rent. The first volume
presents the greatest difficulties. The tremendous efforts of the
author to produce a masterpiece unnecessarily refined and sublimated
and overloaded with learning the doctrines of value and surplus value
until they attained the level of a philosophy, an example of Hegelian
logic. He played with his subject like an intellectual athlete. That
Marx could handle complicated economic questions in a clear, vigorous
manner is shown by the third volume, which is written just as it came
out of the author's head, and without the apparatus of learning
subsequently erected, without the crutches of notes and
polemico-philosophical excursions.
To understand "Capital" it is necessary to bear in mind that (1) Marx
regarded the scientifically discovered principles as the real inner
being of things, practice he regarded as the superficial appearance of
things, capable of being apprehended empirically; for example, Value
is the theoretical expression, Price the empirical; Surplus Value is
the theoretical, and Profit the empirical expression; the appearances
apprehended by experience (Price and Profit) deviate indeed from
theory, but without the theory they cannot be understood; (2) he
looked at the capitalist economic system as being essentially free
from external hindrances and disturbances, free from invasions both
by the State and the proletariat: the Labour struggles of factory
protection laws of which Marx speaks in "Capital" serve rather to
perfect the productive forces than to restrict the exploiting
proclivities of sovereign capital.
2. _Value._
The life and motion of capitalistic society appears as an infinite net
of exchange operations, formed out of numerous entwined meshes.
Through the medium of money, men continually exchange the most varied
commodities and services. A ceaseless buying and selling, an
uninterrupted series of exchanges of things, and labour power--this
constitutes the essential part of human relations in capitalistic
society. An economic map of these relations, graphically displayed,
would not be less confusing than an astronomical map which exhibited
the manifold and intersected orbits of the heavenly bodies. And yet
there must be some rule or law which operates in this seeming medley
of movements; for men do not work or exchange their goods by hazard,
like savages who give their entire lumps of gold or rough diamonds for
a necklace of glass pearls. The English and French economists in the
seventeenth, eighteenth, and nineteenth centuries, amongst whom Petty
(1623-87), Quesnay (1694-1759), Adam Smith (1723-96), and Ricardo
(1772-1823) were the most original, sought for the laws which
regulated exchange operations, and their theories were designated by
Marx as classical bourgeois economy. Following up their
investigations, Marx declared: Every commodity, that is, every thing
or good produced under Capitalism and brought to the market possesses
a use value and an exchange value.
The use value is the utility of the commodity to satisfy a physical or
mental need of its user: a commodity without use value is not
exchangeable or saleable. As use values, commodities are materially
different from each other; nobody will exchange a ton of wheat for a
ton of wheat of the same kind, but he will for clothes.
In what measure will commodities exchange with one another? The
measure is the exchange value, and this consists in the trouble and
quantity of labour which the production of a commodity costs. Equal
quantities of labour are exchanged with each other on the market. As
exchange values, as the embodiment of human labour, commodities are
essentially equal to each other, only quantitatively are they
different, as different categories of commodities embody different
quantities of labour. It is obvious that the quantities of labour will
not be calculated according to the working methods of the individual
producers, but according to the prevailing social working methods.
If, for example, hand-weaver A requires twenty hours for the
production of a piece of cloth, which in a modern factory will be
produced in five hours, the cloth of the hand-weaver does not
therefore possess four-fold exchange value. If hand-weaver A demands
of consumer B an equivalent of twenty working hours, B answers that a
similar piece of cloth can be produced in five hours, and therefore it
only represents an exchange value of five working hours. Thus,
according to Marx, the exchange value of a commodity consists in the
quantity of socially necessary labour power which its reproduction
would require.
This quantity of labour is no constant factor. New inventions,
improvements in labour processes, increase in the productivity of
labour, etc., cause a diminution in the quantity of labour necessary
for the reproduction of a commodity; its exchange value, or expressed
in terms of money, its price, will therefore sink, provided that other
things (demand, medium of exchange) remain equal.
Consequently, labour is the source of exchange value, and the latter
is the principle which regulates exchange operations. Exchange value
even measures the extent of the commodity wealth of society. Wealth
may increase in volume, but decrease in value, in so far as a less
quantity of socially necessary labour becomes necessary for its
reproduction.
The more progressive a country is industrially and the higher the
level of its civilisation, the greater is its wealth, and the smaller
is the quantity of labour which must be expended on the creation of
wealth. In the practical Labour politics of our times, this is
expressed in higher wages and shorter working hours.
It was said above that use value is a basic condition for the exchange
of the individual commodity. This does not exhaust the role of use
value. The quantity of use value of which society has need determines
the quantity of the exchange values to be created. If more commodities
are required than society requires, the superfluous commodities have
no exchange value, in spite of the labour that is expended on
them.--("Capital" (German), Vol. III., 1, pp. 175-176.)
The complete realisation of exchange values or the social labour that
is performed depends, as is seen, on the adaptation of supply to
demand, and is a matter of organisation, of social direction.
We have noticed that the Marxian theory of value is related to that of
the classical economists, but they are by no means the same thing.
Apart from some improvements and definitions which Marx made, they are
distinguished by the following conceptions: In the classical theory of
value, the capitalist who directs production and provides with his
capital the tools and raw materials of labour, markets the finished
commodity, and keeps going the processes of reproduction, appears as
the only creator of value: the wage worker is only one of his means of
production. In the Marxian theory of value, on the other hand, the
wage worker who transforms the raw materials into commodities, or
removes the raw materials to the place of production, appears as the
sole creator of value. Value is only created by the worker in
production, and in distribution connected therewith.
3. _Wages and Labour._
The worker appears to receive wages for his work. In reality he
receives wages as the equivalent for the labour power expended by him,
quite in accordance with the law of value, inasmuch as he receives by
way of exchange as much means of sustenance as is usual and customary
to replace the labour power he has expended, just as the working horse
receives as much oats and hay as are necessary to maintain it capable
of work.
The capitalist and the worker exchange certain quantities of
commodities in proportions determined by economic laws (means of
subsistence against a quantity of the commodity, labour power, of
equal value, commodity for commodity, exchange value for exchange
value).
As, therefore, the wages of labour signify a certain quantity of the
means of subsistence, so they increase even if their money form
remains unaltered with a fall in the price of the means of life, for
the worker is then in the position, with his unaltered wage, to buy a
greater quantity of the means of life. In the reverse case, if the
prices of the means of life rise, the wages of labour fall, even if
their money form remains the same as previously. This law of wages,
formulated by Ricardo, was accepted by Marx, but he did not content
himself with this acceptance. Ricardo regarded the capitalist world as
the only possible and reasonable one, at least at the time when he
wrote his "Principles," while Marx from the year 1843 adopted a
critical attitude towards it, and sought to negate it. Consequently,
he investigated further, and expressed himself somewhat as follows:
The capitalist theoricians believed that the wages question was
disposed of when it was settled by the law of value. We know, however,
that every commodity possesses not only an exchange value, but also a
use value, and is bought for the sake of the latter. The use value of
the commodity labour power is distinguished in a very remarkable way
from the use value of all other commodities.
The use or the employment of labour power creates exchange value, and
can create much more exchange value than itself possesses.
The employer can make use of labour power so long that it not only
creates its own exchange value (the value of the means of
subsistence), but double this. To create the value of wages, the
worker needs five or six hours daily, but he is obliged to produce for
the capitalist during ten or twelve hours. If the worker were
independent he would only produce during one half of the working day
in order to receive his means of subsistence. This period of producing
Marx called "necessary labour." As he is dependent on the capitalist,
the worker must not only perform "necessary labour" but also surplus
labour: the worker can generally only find employment under the
conditions that, besides the time needed for himself, he also works a
definite number of hours for the capitalist without payment. Or, as
Marx says: "The fact that half a day's labour is necessary to keep the
labourer alive during the 24 hours, does not in any way prevent him
from working the whole day. Therefore, the value of labour power and
the value which labour creates in the labour process are two entirely
different magnitudes. And this difference in the two values was what
the capitalist had in view when he was purchasing labour power. The
circumstance that on the one hand the daily sustenance of labour power
costs only half a day's labour, while on the other hand the very same
labour power can work during a whole day; that consequently the value
which its use during one day creates is double what he pays for that
use, this circumstance is, without doubt, a piece of good luck for the
buyer, but by no means an injury to the seller."
"No injury to the seller," which is quite correct from the standpoint
of Ricardo, but not from that of Marx. He often calls surplus value
"unpaid labour," and says, for example, "the capitalist appropriates
one half of every day's labour without payment." In other words, he
takes away something without return. This is a very distinct ethical
judgment.
On the other hand, it is very important that in our consideration of
the wages question we have come up against the Marxian doctrine of
surplus value. For this doctrine is the cornerstone of the whole
economic system of Marx.
4. _Surplus Value._
We have already noted that Marx followed the classical economics in
his treatment of the theory of value, but improved the definition of
it, and brought it to bear on wages. In doing this he laid stress on
the conflict between Capital and Labour.
The beginning of this dialectical process, so far as England was
concerned, was the work of the anti-capitalistic critics, who uttered
their protest about 1820, or three years after the appearance of
Ricardo's work. They declared, according to Ricardo, labour is the
source and the measure of value. And yet according to his opinion
labour is nothing and capital everything.
This should be reversed: labour must be all, and capital nothing. This
literature was contemporaneous with the emergence of the English
revolutionary Labour movement, from which Chartism arose at a later
date. Piercy Ravenstone (1821) called capital a metaphysical (airy,
impalpable) entity. Hodgskin (1827) called it a fetish, whereas they
described labour as the economic reality. The expressions
surplus-product and surplus-value were already known to this
anti-capitalist school, with which Marx also connected himself when he
set to work to elaborate his criticism of political economy.[7] But
this literature supplied him with much less material for the
construction of the theory of surplus value than the formulation of
the theory of value of the classical economy. Besides, while the
English anti-capitalist critics, like Ravenstone, Gray, Hodgskin, and
J.F. Bray merely condemned surplus value as immoral and as the source
of all social wrongs, Marx used the theory of surplus value as the key
to unlock the mechanism of the capitalist system and to reveal its
workings, its tendencies, and its final destiny. This appears to be
the real difference between the English anti-capitalist critics and
Marx. In this matter he was obliged to perform most of the work
himself. The question he put was no longer "What is the substance of
wealth and how is it measured?" but "How is its growth and continual
accretions to be explained?" Capital is that portion of wealth which
is employed for the purpose of gain, of increase. Whence comes this
gain, this increase? The answer is as follows:
All capital that is embarked on a productive undertaking consists of
two parts: one part is expended on the technical means of
production--on buildings, machines, tools, and raw materials, the
other on wages. The first part Marx calls Constant Capital (c), the
other part Variable Capital (v). The first is called constant, because
it only adds to the commodities just as much value as it loses in the
course of the productive process; it creates no fresh value: Marx also
calls it the passive portion. The outlay on wages is called variable
capital because it undergoes an alteration in the process of
production: it creates new additional value: Marx also called variable
capital the active portion, for it creates surplus value (s).
This composition of capital of constant and variable parts Marx calls
its organic composition. He calls it average or normal composition
when the capital of a business is 80 per cent. constant and 20 per
cent. variable. If the constant part is higher, and the variable part
lower, he calls it capital of a high composition.
Capital of under 80 per cent. constant portion and over 20 per cent.
variable portion he calls capital of a lower composition. And rightly,
because the higher the ladder of capitalist production is, the more
costly and extensive are the machinery and factory buildings and the
greater is the outlay on raw materials, whereas primitive businesses
employ less machinery, cheaper workshops, but a relatively greater
number of workers. The relation between (c) and (v) reveals at the
same time the stage to which production has developed.
Thus, according to Marx, it is solely the variable capital which
creates surplus value, or, as it is commonly expressed, profit. We
have seen above, in the explanation of the nature of wages, why
variable capital creates more value than it is paid for by the
capitalist; the worker does indeed receive the exchange value of his
labour power, but the use value of the labour power functions, we have
assumed, twice as many hours as are necessary for its reproduction.
This surplus labour is embodied in surplus value. While the worker
receives, let us say, a daily wage of three shillings, for the
reproduction of which five hours of work suffice, his labour power
will be used for ten hours. These five hours of surplus labour appear
in the exchange value of the commodity, so that the value of the
commodity is composed of the transferred portion of the constant
capital, the outlay on wages, and the added surplus value. Immediately
before the production process only constant and variable capital
existed, or, in brief (c) and (v); after the completion of the
production process, the commodity embodies constant and variable
capital and also surplus value, or (c) and (v) and (s). This is the
actual value of the commodity, (c) or, shortly expressed, c + v + s.
The relation between wages and surplus value, or between paid and
unpaid labour, or, shortly, s/v, Marx calls the rate of surplus value:
it expresses the degree of the exploitation of labour.
If wages amount to three shillings, which can be produced in five
working hours, and if the worker works in the factory ten hours for
these wages, so that he creates exchange value to the amount of six
shillings, then the rate of surplus value is 100 per cent. The whole
of the surplus value which arises in this manner in the process of
production is called the mass of the surplus value, or shortly, m.s.,
that is to say, the individual rate of surplus value multiplied by the
total number of workers engaged in an undertaking, or the total amount
of wages.
5. _Profit._
The mass of surplus value appears to the capitalist in the shape of
profit. Surplus value is a Marxian scientific term which exactly
expresses the principle of profit. Profit is a commercial expression
which describes surplus value as it appears in practical life as a
subject of experience, i.e., empirically.
The distinction between the Marxian theoretical and the commercial
empirical conception is, however, not so simple: it arises from the
different conceptions of the influence of capital and labour in the
economic process. Let us explain it more distinctly.
As is known, Marx divided the capital embarked in industrial
enterprise into two parts: into constant (technical means of
production) and variable (living labour power, wages). He assumed that
only the living labour power (wage labour) creates surplus value,
whilst the constant capital only adds its own value to the new
products.
The capitalist divides his capital outlay otherwise: into fixed
(buildings and machines) and circulating (raw materials and wages)
capital. The fixed capital is only used up slowly and only passes
entirely into production during a series of years--let us say 15
years: thus of a fixed capital of L75,000, L5,000 would each year be
consumed in the production of commodities, and written off in the
balance sheet. On the other hand, the circulating capital (raw
materials and wages) are wholly consumed in every period of
production, and must be renewed at the beginning of a new period of
production.
Suppose an industrial undertaking about to be started requires a
capital expenditure of L105,000: L75,000 fixed capital (for buildings
and machinery), L20,000 for raw materials, L10,000 for wages. For
convenience sake, we will suppose that the period of production lasts
a year, and that the rate of surplus value amounts to 100 per cent.,
that is, the labour power receives a payment of L10,000, and produces
a value of L20,000. At the end of the year, the capitalist reckons an
expenditure of L5,000 on account of fixed capital, and L30,000 of
circulating capital: the commodities produced cost, therefore, a net
outlay of L35,000. This is the cost price, without adding profit.
According to Marx, cost price signifies (c) and (v), therefore without
(s), (surplus value).
But the capitalist knows that the manufactured commodities represent a
greater value than the cost price. According to Marx, the surplus
value amounts to L10,000 (as the variable capital of L10,000 creates
surplus value at the rate of 100 per cent.); but the capitalist adds
to the cost price a profit which includes the gains of the enterprise
and interest on the capital outlay. If the capitalist were alone in
the market, his profit might suck up the whole of the surplus value of
L10,000; but he has to reckon with competition and the state of the
market. The cost price, plus profit, is the production price as
established by the capitalist. But according to Marx, that is, in pure
theory, the production price is equal to the cost price, plus surplus
value. There is thus a quantitative distinction--a difference in the
amount of money--between the theoretical and practical production
price, as well as a qualitative distinction between the notions of the
capitalist and Marx respecting the source of profit. The capitalist
believes that profit is the result of the portion of capital which he
has put into the process of production, combined with his own
commercial ability. On the other hand, Marx asserts that the
capitalist can only extract a profit because the wage workers (the
living labour power) create a surplus value in the process of
production for which they receive no payment.
We assumed that the surplus value amounted to 100 per cent. measured
with variable capital, and that L10,000 expended on wages produced
L20,000. The annual balance sheet, however, would show the percentage
of profit to the total outlay. Consequently, we must spread the
L10,000 surplus value over the L35,000 which have been expended. The
surplus value of an undertaking spread over the total capital (c)
Marx calls the rate of profit, or shortly, s/c = 10000/35000 = 28.58
per cent.
As a rule, the capitalist cannot sell under cost price without
becoming bankrupt, but he can quite easily sell under the production
price, and mostly does so. In the example already given, his rate of
profit amounts to over 28 per cent. According to the degree of
competition, or by reason of other circumstances which we will examine
in the next chapter, he can content himself with a rate of profit of
10, 15, or 20 per cent., which will serve him partly as an income and
partly be expended in the development of his enterprise. The 28 per
cent. profit generally forms a circle within which he fixes his
manufactured price. Under favourable circumstances he can add the
whole 28 per cent, to the price; under less favourable, only 20, 15,
or 10 per cent. Accordingly, several portions of surplus value remain
in the commodities which are not yet realised. What happens to them?
The remaining portions of profit or of surplus value fall to the large
or small traders who are interposed between producer and consumer, or
go in the form of interest to the banking institutions, in the event
of the capitalist operating with borrowed money. As the profit is only
realised in the process of circulation (in commerce and exchange) and
there divided amongst the various economic classes and sections, most
people believe that profit arises in commercial transactions. They do
not know that the price of a commodity can only be increased in trade
because its manufactured price was fixed below its price of production
or its value, that is, because the commodities contain surplus value
which is only gradually realised in the process of circulation.
The social significance of this doctrine is far-reaching. If it is
correct, then all the social sections which are not engaged as manual
and brain workers in the process of production, or in the transport of
raw material, lead a parasitical life and consume the surplus value
which is squeezed by the capitalist class out of the proletariat and
appropriated without payment.