result both of the spirit of the enterprise and the ability of the
capitalist, added to that portion of the capital which is put into the
process of production: the machines and buildings and raw materials
which are used up, and the labour power, all of which are bought at
their proper exchange value. It is only fit and proper that the trader
and moneylender should receive a portion of the profit so created, for
they assist in realising the exchange value by bringing the
commodities to the consumer, and thus rendering possible the process
of production.
Surplus value or profit? Labour or Capital? Behind this question lurks
the great class struggle of the modern social order. No wonder the
Marxian doctrine of value and surplus value was the occasion for an
extensive controversy, in which the famous problem of the average rate
of profit played a great part.
6. _The Average Rate of Profit._
According to Marx's doctrine of value and surplus value only variable
capital creates fresh value and surplus value. An industrial
undertaking of a lower organic composition, which thus employs much
variable capital and little constant capital, must consequently
create a greater surplus value or more profit than an industrial
undertaking of higher composition which may employ the same total
capital, but composed of greater constant and smaller variable
portions than the former. Let us take two industrial capitals of
L35,000 each. One expends L15,000 on the constant elements (machinery,
raw materials) and L20,000 on the variable element (wages of labour).
The other shows L20,000 constant part and L15,000 variable part. With
an equal rate of surplus value--100 per cent.--the first capital would
produce L20,000 surplus value (profit) and the other only L15,000
profit. Experience shows, however, that equal amounts of capital--in
spite of temporary differences in profits--tend to produce equal
profits. From this, it would appear that it is actually the capital
expended and not the labour employed which determines the magnitude of
the surplus value (profit), that the concrete results of the
capitalist process of production do not confirm the Marxian theory of
value, that the facts directly contradict the theory. It was Marx
himself who drew attention to this problem. After he had constructed
his theory of surplus value in the form of a scientific law, he
continued: "This law clearly contradicts all experience based on
appearance. Everyone knows that a cotton spinner, who, reckoning the
percentage on the whole of his applied capital, employs much constant
capital and little variable capital, does not, on account of this,
pocket less profit or surplus value than a baker, who relatively sets
in motion much variable and little constant capital."
How, then, can the equal rate of profit in the case of capitals of
different organic composition be harmonised with the theory of surplus
value?
Marx concedes that equal capital sums whose organic parts are
unequally employed give an equal rate of profit, although the volumes
of surplus value created are different. Two capital sums of L50,000
each, one of which, for example, represents L40,000 constant and
L10,000 variable capital, and with a rate of surplus value of 100 per
cent. gives L10,000 surplus value, while the other is composed of
L10,000 constant and L40,000 variable capital, and with an equal rate
of surplus value gives an amount of L40,000 surplus value, will
nevertheless yield an equal rate of profit, although theoretically
they would be unequal if the rate of surplus value directly determined
the rate of profit. In the first case, the rate of profit would amount
to 20 per cent. and in the second to 80 per cent. In reality both
undertakings yield an equal rate of profit.
How is this explained, according to Marx? By means of competition, the
different rates of profit are levelled to a general rate of profit,
which is the average of all the various rates of profit. Thus the
capitalists do not realise the surplus value as it is created in any
particular factory, but in the form of average rate of profit as it is
produced by the operations of the total capital of society. The
average rate of profit may be lower or higher than the individual rate
of profit, for the "various capitalists," as Marx explains, "so far as
profits are concerned, are so many stockholders in a stock company in
which the shares of profits are uniformly divided for every 100 shares
of capital, so that profits differ in the case of the individual
capitalists only according to the amount of capital invested by each
of them in the social enterprise, according to his investment in
social production as a whole, according to his shares."
While thus the individual rates of profit do not proportionately
coincide with the rates of surplus value, i.e., while the degree of
exploitation of the worker in the individual factory, and the volume
of surplus value thus individually created, do not directly determine
the individual rate of profit, it is the total mass of social surplus
value which is the source of the average rate of profit. If the mass
of the surplus value be large, the average rate of profit will also be
great. Marx says: "It is here just the same as with average rate of
interest which a usurer makes who lends out various portions of his
capital at different rates of interest. The level of his average rate
depends entirely on how much of his capital he has lent at each of the
different rates of interest." The higher the various individual rates
of interest, the higher will be the average rate of interest at which
his capital has been put out.
The individual price of production signifies, therefore, cost price
plus the average rate of profit, and not plus surplus value: it does
not necessarily correspond with the total amount of the constant and
variable portions of capital employed in an individual enterprise,
plus the mass of the surplus value: the prices and magnitudes of value
of commodities are not manifestly equal, as Marx has often pointed
out. Of course, the total profits of the capitalist class coincide
with the total surplus value extracted from the working class,
provided, of course, that the supply of commodities corresponds with
the social needs.
Thus the law of surplus value, in spite of all deviations and
refractions, holds good in the last resort. "In theory," observes
Marx, "it is assumed that the laws of the capitalist mode of
production develop freely. In reality, there is always only an
approximation."
And the more capitalist production develops, the greater will be the
degree of approximation in particular cases, for the progress of
Capitalism signifies a continuous increase of constant capital, a more
mechanical character being given to industrial processes, and a
reduction of variable capital to the necessary minimum, so that the
differences in the organic composition of capitalist undertakings
become less, thus bringing the average rate of profit and the rate of
surplus value nearer to each other.
This indirect and difficult method of realising profits involves the
fact that the capitalist does not distinctly observe the exploitation
of wage labour practised by him, but he believes that the profit is
owing to his own commercial ability.
This difficult section of the outlines of the economic doctrines of
Marx can be most fitly concluded by quoting the comprehensive
observations of Marx himself upon this subject, which he gives at the
end of his book.--("Capital" (German), Vol. III., 2, pp. 355-6.)
"In a capitalist society, this surplus value or this surplus product
(leaving aside accidental fluctuations in its distribution and
considering only the regulating law of these fluctuations) is divided
among the capitalists as a dividend in proportion to the percentage of
the total social capital held by each. In this shape the surplus value
appears as the average profit, which in its turn is separated into
profits of enterprise and interest, and which in this way may fall
into the hands of different kinds of capitalists. Just as the active
capitalist squeezes surplus labour, and with it surplus value in the
form of profit out of the worker, so the landlord in his turn squeezes
a portion of this surplus value from the capitalist in the shape of
rent. Hence when speaking of profit as that portion of surplus value
which falls to the share of capital, we mean average profit....
Profits of capital (profits of enterprise plus interest) and ground
rent are merely particular constituents of surplus value.... If added
together, these parts form the sum of the social surplus value. A
large part of profits is immediately transformed into capital." In
this way, capital grows, or, as Marx says, accumulates.
7. _Surplus Value as Social Driving Force._
It has been said already that capital is that portion of wealth which
is devoted to the object of increasing wealth, of gain, the extraction
of profit or surplus value. This object dominates the capitalist
class; the desire for surplus value is the leading impulse and
principle motive of their activity. Goaded by this desire and
exclusively occupied with their special interests, this class
unconsciously and unintentionally develops the entire capitalist
system and leads it to ever higher and more comprehensive stages.
Surplus value is thus the driving force of the history of modern
capitalist society. This principle is rigidly followed out by Marx in
his theoretical system, which aims at showing the rise and growth of
Capitalism.
The capitalist is no scientific investigator: he is not clear himself
whether profit is created by a portion of the capital, or is the
result of personal productive forces, but he knows one thing--without
living labour power, without the wage worker, his whole capital
remains dead and does not increase; all the fixed capital and raw
materials are of no use to him so long as they are not set in motion
by living labour power and transformed into commodities. His efforts
are, therefore, primarily directed to making proper use of the living
labour power. Historically considered, little constant and relatively
much variable capital was employed in the primitive stage of the large
scale industry: there was as yet little machinery, and the chief thing
was the living labour power. The workers were not yet factory
proletarians in the modern sense, but artisans who had lost their
independent existence.
The capitalist harnessed them and utilised their labour power and
special ability. Consequently, he strives to lengthen the working day,
in order that as many commodities and as much profit as possible may
be produced.
If previously the wage worker had laboured ten hours, of which five
were devoted to the production of the value of his wages and five to
surplus value, he is now obliged to work for twelve hours, which
increases the period for surplus labour to seven hours. The surplus
value which is extracted through the lengthening of the working day is
called by Marx "absolute surplus value."
Meanwhile, the capitalist learns by experience that if the workers are
so organised as to co-operate with one another, the productivity of
labour increases. From this arises the mode of labour which Marx calls
Co-operation, or a reorganisation of the workplace, which raises the
entire production of commodities to a higher level. The co-operation
of the workers in the process of production soon leads to the
discovery that, if the worker does not himself create the whole
product, but only a part thereof, he loses less time and becomes
quicker and more skilful in his work and produces more than
previously. This discovery leads to the "division of labour," which
indeed reduces the worker to the position of an automaton, or a living
machine, but considerably augments commodity wealth. Division of
labour again demands finer tools; mechanical problems arise to be
solved by mechanicians and engineers. This favours the progress of
mechanics. The growing commodity wealth, and the pressure to realise
it profitably, renders necessary more extensive markets; the need for
extension comes up against transport difficulties; transport problems
arise, to be solved by road and canal engineers. The increasing
variety of the labour process and the categories of commodities which
are produced results in new metallurgical, physical, and chemical
problems. Natural science flourishes.
Meanwhile, things are not so peaceful in the places of manufacture.
The lengthening of labour the closer strain on their nerves and
muscles, as well as the arrangement of the work, cause the workers to
combine and struggle for improved conditions of labour. This struggle,
together with the progress of natural science, of technology, and the
expansion of markets, result in the discovery of machine technology,
of steam and electricity, the foundation of large-scale industry.
The capitalist is impelled, on the one hand, to make himself as
independent as possible of living labour-power; on the other hand, to
increase the volume of his profits. The means thereto are offered him
by the new technical discoveries. Those workers who still possessed
some pride in handicraft, or as expropriated small peasants were not
able to submit to factory discipline, and showed themselves
rebellious, were partly replaced by the labour of women and children,
and partly curbed and made pliable. The labour time is repeatedly
lengthened, and the exploitation of the labour of women and children
assumes terrible proportions. The wage worker, who entered into the
manufacturing premises of the employer full of the pride of his
calling and often with his own tools, became then a small cog in a
gigantic, relentless piece of working machinery.
In this extensive and hitherto unprecedented social transformation the
old forms of handicraft disappear: whole sections of society, which
are the representatives of the disappearing forms of handicraft, sink
into poverty, and augment the class of proletarians. The progress of
the industrial revolution extends also to agriculture: the greed for
surplus value (ground rent) leads to enclosure of common lands by the
great landlords, the independent yeomanry is decimated, the small
proprietor and small tenant are made proletarians. A transmutation of
social classes takes place; the urban population grows rapidly, the
country districts are depopulated: out of the revolutionary process
the outlines of two classes become more and more distinct: Capitalist
and Proletarian.
Both the factory proletariat and the other social sections which adopt
a hostile attitude towards Capitalism react against the
health-destroying exploitation, and struggle for a normal working day.
The working time is curtailed and bounds are set to the efforts of the
capitalist to lengthen the working day and obtain surplus value, but
soon the progress of machine technique compels the worker to labour
more intensely in the shorter working time: the accelerated movement
of the machine determines the pace and necessitates a sharper
straining of the nerves. Henceforth, the worker must compress into a
working hour as much effort as was previously expended in an hour and
a half. The surplus value which is extracted in this way Marx calls
"relative surplus value." The struggle of the workers to secure a
shorter working day is a powerful incentive to the manufacturers to
perfect their machinery, in order to increase the amount of relative
surplus value. The intensification of work or the creation of relative
surplus value is one of the most immediate effects and one of the most
striking features of advanced Capitalism. The understanding of this
new phase is a preliminary condition to the comprehension of the
Marxian system. In this matter, Marx goes considerably beyond the
anti-capitalist theoreticians who followed upon Ricardo.
What happens when the capitalist observes that the extraction of
absolute surplus value comes up against an insurmountable obstacle? He
sets himself to fit up his enterprise with the newest and most costly
machinery, in order to supplant living labour-power and to work more
intensively the living labour-power which he employs.
As, however, less living labour-power brings forth less exchange value
and less surplus value, he is obliged to multiply production, in order
to cover the fall in surplus value by a larger mass of commodities: if
the single commodity brings him less profit, he produces it in such
large quantities that the profit thereon is the same, or even greater,
than formerly. The more complicated machinery, the greater quantities
of raw materials consumed, and the relatively smaller amount of
labour-power signify obviously an alteration in the organic
composition of capital: the constant portion (machinery, raw
materials) preponderates more and more over the variable portion. If,
previously, the composition was 50 per cent. constant and 50 per cent.
variable, it becomes now something like 80 per cent.: 20 per cent. At
the same time, the initial capital is also increased greatly, as
machines and large quantities of raw and auxiliary materials demand
such increase of capital. If, for example, the initial capital
previously amounted to L100,000, divided into L50,000 constant and
L50,000 variable capital, it would now amount to L500,000, comprising
L400,000 constant and L100,000 variable. This organic composition
signifies: that relatively smaller masses of labour set in motion
large masses of technical means of production; labour is more
productive because more intense; the sum total of commodities is
increased; the profit on single articles is smaller, but the total
profit is greater; the reconversion of profits into capital proceeds
rapidly.
The scale of production is more and more extended, and the amount of
initial outlay becomes ever greater, because only large capitals are
capable of creating relative surplus value in sufficient sums to
assure a profit on the enterprise and payment of interest, and thus
assist the accumulation of capital.
The more extended scale of production is not possible to the less
powerful capitalist undertakings. They partly disappear and partly
combine in joint stock companies. The first alternative gives rise to
the concentration of the means of production in fewer hands, and the
second to the centralisation of the means of production. This is the
effect of the new organic composition of capital on the capitalist
class.
The effect on the working class is not less profound. As long as the
hand-worker still played an important part in the works premises, as
long as the variable part was superior or equal to the constant part
in the organic composition of capital, as was the case prior to and at
the beginning of large-scale industry, the accumulation of capital
meant an increased demand for wage-labour. The position was changed as
Capitalism developed, in the manner just described. Although the mass
of capital grows, there is a relative decrease in the demand for
workers. For this growth of capital refers chiefly to the constant
part (machinery and raw materials), while there is a relative
shrinkage in the variable part; that means the worker is obliged to
consume a much greater quantity of raw material than formerly.
And whereas the prices of commodities fall during the phase of the
high organic composition of capital, the period of necessary labour
(the hours needed for the reproduction of wages) becomes shorter,
while the period of surplus labour becomes longer. The great
industrial development therefore signifies for the worker: intensive
exploitation and relative over-population, a reserve army of
labour-power, which is absorbed by industry in times of prosperous
trade, and is speedily demobilised when the slump comes. In times of
good business the reserve army serves to check the wage demands of the
workers regularly employed, and in times of bad trade it serves to
depress wages. The outcome for the workers is as follows:
"Within the capitalist system all methods for raising the social
productiveness of labour are brought about at the cost of the
individual labourer; all means for the development of production
transform themselves into means of domination over, and exploitation
of, the producers; they mutilate the labourer into a fragment of a
man, degrade him to the level of an appendage to a machine, destroy
every remnant of charm in his work, and turn it into a hated toil;
they estrange from him the intellectual potentialities of the
labour-process in the same proportion as science is incorporated in it
as an independent power; they distort 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 again a means for the development of
those methods. It follows, therefore, that in proportion as capital
accumulates, the lot of the labourer, be his payment high or low, must
grow worse. Accumulation of wealth at one pole 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 own product in the form of
capital."--("Capital" (German), Vol. I., pp. 660-1.)
The result of the capitalist social order is the unfolding of the
productive forces, the efflorescence of science, the expansion of
material civilisation, the dividing of society into antagonistic
classes, the conferring of economic power on the few, and the
enslavement and degradation of the many.
8. _Economic Contradictions. Decay of Society and its Reconstruction._
As the ripening of the capitalist social order to its highest point
proceeds, its innate contradictions develop, and announce distinctly
the fact that Capitalism has outlived its usefulness, while new life,
a higher form of society, is emerging from its womb. The most
important contradictions are: