a beginner’s guide to marx’s capital

15 08 2011

Whilst England has been rioting, capitalism’s crisis continues. duvinrouge offers an insight into Marx’s study of capital.

“A critique of political economy” was the subtitle of Marx’s book Capital. The political economists portrayed profit, rent & wages as the just returns for the three factors of production: land, labour & capital. Marx argued that such surface level appearances were seriously misleading. That both profit & rent actually came from value created by workers. Furthermore, that capitalism was actually just the latest mode of production & that because of its contradictions would be replaced by a higher form called communism.

Marx’s book on capital was part of a wider plan. He also intended to write books on landed property, wage labour, the state, international trade & the world market. As it turned out he only managed to publish volume I of Capital with volumes II & III being published after his death. Volume I looks at the production of capital, volume II at the circulation of capital & III considers capital as a whole.

The first part of volume I, ‘Commodities & Money’ is widely recognised as the most difficult part of the book. To fully appreciate what Marx is trying to say it is worth reading it alongside David Harvey’s ‘A Companion to Marx’s Capital’. Marx defines the commodity as something produced for sale not for immediate consumption. Commodity production is what largely distinguishes capitalism from previous modes of production. A commodity has use-value & exchange-value. A thing has a use-value if it can find a use. The use-value refers to the physical properties that make it potentially an object of use. Marx states that “exchange-value appears first of all as the quantitative relation in which use-values of one kind exchange for use-values of another kind”, e.g. one pair of shoes equals 25 pairs of socks. The fact that commodities can have this quantitative relationship is because, as even the intellectual guru of capitalism Adam Smith, recognised, “labour is the real measure of the exchangeable value of all commodities”. It is labour that is the common denominator. Marx made an important qualification to Smith & David Ricardo’s labour theory of value though. For Marx the value of a commodity is not the amount of concrete labour actually expended, but that portion of social labour that is credited to that commodity, which can only be known in exchange, i.e. in the market. The capitalist market does not rest upon barter though; a commodity becomes the ‘universal equivalent’, in otherwords money. Historically this role has mainly been filled by precious metals, gold in particular. All commodities can be expressed in terms of monetary values, exchange-values, that ultimately reflects the portion of social labour the market credits them. The important point that Marx is making is that the market is a particular way of allocating social labour. It is a human invention & although not exclusive to capitalism, markets are not eternal like the weather. They are not something that has always existed or need exist in the future.

Marx then goes on to describe the general formula for capital: M – C – M’ (money –commodities – more money). This addition to the original sum of money laid out is called SURPLUS VALUE. This is an important term. Marx’s great insight was to show that the source of surplus value (essentially profit) lies in the difference between the value of labour-power (the wage) & the value created by labour. This is the key insight that shows that workers are the source of all profits & that the capitalists exploit workers just as feudal landowners exploited peasants.

The capitalist not only spends money on workers wages (referred to as VARIABLE CAPITAL) but also raw materials, machinery & factories (CONSTANT CAPITAL). Economists have argued that by investing their money instead of spending it the capitalists by foregoing consumption ‘earn’ a return on their investment. Marx explained that all constant capital is the result from earlier living labour; somebody had to make the machines. Hence constant capital is also known as ‘dead labour’. It is the result of earlier capitalist exploitation of workers.

The difference between variable capital (labour) & constant capital is only the former adds value in production. This is because wages are generally less than the value created by labour, whereas the cost of machines, through depreciation, gets past on in the price of the commodity. In otherwords, machines exchange, in general, at their values, but labour is the only commodity that doesn’t. Hence the RATE OF EXPLOITATION is a key measure. It is defined as the percentage of workers’ time that the capitalist ‘steals’ as surplus value relative to the amount the worker gets in wages, (rate of surplus value = surplus value divided by variable capital).

Surplus value can be increased in absolute terms by increasing the length of the working day, or in relative terms by increasing productivity, which means the amount of time necessary to produce the means of subsistence for workers falls as a percentage of the working day. It is competition that drives capitalists to increase productivity & so gain a competitive advantage. But although this is beneficial to the cutting-edge capitalists, as other capitalists follow suit or go out of business, the increase in productivity by lowering the value of labour relative to constant capital means the ORGANIC COMPOSITION OF CAPITAL increases. In otherwords, a greater percentage of capital goes to non-value adding constant capital rather than variable capital (labour). So what benefits individual capitalists initially actually works against them all eventually by lowering the rate of profit. This is important to the argument in volume III that there is a tendency for the rate of profit to fall.

In volume II Marx considers the circulation of capital. He shows that alongside the rate of exploitation & the organic composition of capital, that the circulation time also affects the rate of profit. Marx observes that labour employed in the circulation of capital (except transport) is unproductive labour. That is, these workers do not add value by producing surplus value. Volume II is also where Marx introduces his reproduction schema whereby he considers how capitalism reproduces itself. Marx divides capitalists into those that produce the means of production & those that produce the means of consumption. The former are referred to as DEPARTMENT I, the latter as DEPARTMENT II. He then further sub-divides department II into those that produce the means of subsistence for the workers (IIa) & those that produce luxuries for the capitalist (IIb). Such a division is useful when considering things like changes in productivity. For example, greater productivity gains in department I relative to department IIa will mean that rather than an increase in the organic composition of capital, there is it fact a decrease & so a higher rate of profit.

Volume III is where Marx, having abstracted out complexity to get to the essence of the capitalist system, adds back in the complexity & returns to the surface appearance of separate factors of production (land, labour & capital) getting their ‘just’ rewards. But Marx has achieved more than just demonstrating that all profit originates from labour & that the system is based upon exploitation of workers. He also argues that the days of the capitalist system are numbered. That through the long-term tendency of the rate of profit to fall, capitalists will be forced to further attack & exploit workers. Given the numerical superiority of the workers they must eventually win out & move humanity to a higher classless mode of production where the means of production are democratically controlled; that is communism. Capitalism sows the seeds of its own destruction & no amount of ideological excuses offered up by economists can change it.

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6 responses

16 08 2011
Boffy

“In other words, machines exchange, in general, at their values, but labour is the only commodity that doesn’t.”

This is wrong. Its wrong for two reasons. Firstly, “Labour” is not a commodity. The commodity exchanged is “Labour-Power”. Secondly, Labour Power DOES exchange at its Exchange Value i.e. the wage worker is paid the Exchange value of the Labour Power supplied. The Value of that Labour power is equal to the Price of its production. The Surplus Value arises because the Exchange Value, which is created via this expenditure of Labour Power is greater than the Exchange Value of the Labour Power itself.

It was understanding this that enabled Marx to explain where Surplus Value came from, which Smith and Ricardo could not explain. It is also this, which facilitates the production of Absolute Surplus Value, because the amount of Labour expended over and above the Value of Labour Power can be increased, and of relative Surplus Value, because the Value of Labour power can be reduced through higher productivity, which reduces the prices of wage goods.

16 08 2011
Boffy

“He also argues that the days of the capitalist system are numbered. That through the long-term tendency of the rate of profit to fall, capitalists will be forced to further attack & exploit workers.”

I think this is also wrong. I don’t think that Marx does hold this “catastrophist” view that was essentially developed by the Revisionists suchas Bernstein, but more particularly by the Stalinists, and continued by some Trotskyists. It is a very mechanistic, and determinist view. Or let me put it another way; if Marx had argued that then he would have been theoretically inconsistent within the terms of his own theory, and would have been proved wrong historically. There may conceivably be some point in the future when Capitalism is no longer able to develop the productive pwoers so as to reduce the costs of Capital and of Labour Power, and thereby offset the Tendency of the Rate of profit to fall, but there is no theoretical basis for assuming that is so, and experience so far has pointed in the exact opposite direction.

If anything, we can see in a lot of modern production the basis for a Law of the Tendency of the Rate of Profit to rise. A great deal of modern intellectual production – media, computer games, and so on, not to mention things like Popular music, Football and other forms of Entertainment – uses very little in the way of Constant Capital, but uses substantial amounts of Complex, very high-value Labour Power. A look at consumption trends show these areas of production becoming increasingly dominant, as previous forms of consumption such as food, clothing and shelter decline as a percentage of consumption. Indeed, even within these older forms of consumption, we see that a portion of spending on food is really on “dining-out”, on clothes involves the purchase of “designer labels”, and so on.

If we look at many consumer goods they now involve consierably less in the way of materials (Constant Capital) than was formally the case both in Value and Physical terms. A mobile phone has much less material than the old phones of the 1960’s. Tens of thousands of songs can now be stored on a tiny memory stick, and shipped globally via the Internet, whereas previously it would have required hundreds of CD’s, and tens of thousands of vinyl records. The huge icnrease in productivity gained from technological development has also reduced the Value of much of this Constant Capital. Its on this basis that Capitalism has ocne again entered on a new Long Wave Boom that already appears to be surpassing even that of the post war boom.

The lesson that Marx gave us was not that Capitalism will collapse, but that,

“They ought to understand that, with all the miseries it imposes upon them, the present system simultaneously engenders the material conditions and the social forms necessary for an economical reconstruction of society.”

The material conditions are the progressive development of the productive forces by the continual revolutionising of technology, and of technique, and the social forms are the Workers Co-operatives raised as marx said by the hands of the Workers themselves, and the ability to utilise credit for their extension throughout hte economy.

16 08 2011
SteveH

Firstly, forgive my ignorance!

“The Value of that Labour power is equal to the Price of its production.”

Doesn’t this veer towards iron law of wages? Is this borne out in the world today? Some work for a dollar a day, some for £100k+.

On capitalist decay, isn’t the argument to do with the laws of competition rather than how constant capital is made up? So all capitalists must use the latest technology to compete, which reduces the price to low profit margins, which results in desperate search for profitable investment? Isn’t the point that the more technology advances the more superfluous people become?

Also wasn’t Marx dealing with a theoretical system based upon ‘pure’ capitalism. The point I am making here is that Marxist economics is a guide to explain trends, developments, crises, struggles etc but should not be used to explain every intimate detail?

Finally on machines. If the argument is that workers produce more product than they need to live on and that this surplus product is then used by the capitalist to exist, why don’t machines count as creating value? Some factories only operate with machines, don’t these machines produce more product than it takes to maintain that machine?

16 08 2011
duvinrouge

Boffy’s first response.
Yes you are right about labour & labour-power.
The context within which it was written should have made this clear.

Boffy’s second response.
Marx referred to labourers as capitalism’s gravediggers; so he clearly expected capitalism to die one day.

Steve H.
Yes, more technology implies most of the capital outlay goes on constant capital rather than variable capital, & it’s only variable capital that can create surplus value, hence the tendency for the rate of profit to fall (even if hidden by fictitous capital).
Yes, Das Kapital made simplifying assumptions such as ‘pure capitalism’ & we need to remember this when trying to explain the real world. But the point was to get at the essence of capitalism as an exploitative system contray to arguments that each factor received its ‘just’ reward.

17 08 2011
Boffy

To Steve H,

No it doesn’t tend towards the Iron law of Wages, for the reason Marx sets out. The price of production of Labour Power changes over time. In the Grundrisse, he describes this in terms of the “Civilising Mission of Capital”. By this he means that as Capital Accumulates, more of worekrs basic needs are met. Capital cannot continue selling more of these basic commodities, precisely because workers now form the majority of consumers, and they will not buy more of these commodities than they need. Capital is led to diversify into producing other types of Use Value, and to seek to sell these also to workers, thereby continually expanding workers horizons, including in seeking to spend some of their wages on cultural Use Values, Education etc. Hence the “Civilising” bit. It can do this because the revolutionising of technology means that the unit costs of all commodities falls. It means that real wages can rise, even though a smaller portion of the working-day is required to provide the wages needed to buy these commodities. In other words, the move from the extraction of Absolute Surplus Value (extending the working day, increasing the intensity of work, speed-up) to Relative Surplus Value (cheapening wage goods via the abolition of the Corn laws, revolutionising of production of wage goods, seeking out cheaper supplies overseas) means that workers living standards can rise, whilst the portion of the day that goes to creating Surplus Value also rises.

That is why Marx criticised the Iron Law saying that our objection is not that Capitalism results in workers being immiserated, but that it continual reproduces their position as a slave class that is dependent on Capital, and only allowed to work if it creates profits. In fact, as he points out in the Grundrisse, workers in the process of being more “affluent” i.e. having a higher living standard, also become poorer i.e. they become further removed from the ownership of Capital, and more dependent upon having a job in order to sustain that living standard.

Secondly, Labour Power like any other commodity is not homogenous, and nor does it remain the same over time. You can buy a cheap pair of trousers that actually represents poor value if it falls apart the firt time its worn. Similarly with Labour Power. In the 19th Century Labour Power in Britain was actually poor value despite being cheap. Workers were often ill, poorly educated, died young requiring more resources to be used to produce new generations of workers – this is a considerable problem for economic development in poor countries, where lots of resources have to be used to raise children who die young before they have had chance to themselves produce new value. From an economic perspective the resources used on them have been wasted. But, during the 19th Century, the otehr side of that Civilising Mission was that workers became healthier, better educated, more content. Their productivity and the scope of the Labour Power they could provide changed significantly.

This is why, alongside the fact that they were able to use large amounts of Capital equipment, they were able to be more competititve than Labour Power elsewhere in the world, despite the fact that they were paid much higher wages.

On the technology issue, its true that competition means that all Capitalists are forced to adopt the latest techniques and technology, and the consequence of this is that the commodities produced contain less labour-time so their Exchange Value falls. However, there are a number of poijnts here. Firstly, Constant Capital is not just machines, it is also materials, which tends to be overlooked by orthodox economics. Its possible that a firm might actually employ fewer, and cheaper machines, and yet see the ratio of Constant to Variable capital rise. That is because if these machines are themselves more efficient, they will enable the worker to process a greater volume and value of materials.

Its not true that the more technology advances the more superfluous people become. We have far more people employed in the world today than ever, despite massive developments in technology. The reason is because, of what I set out above. As living standards rise, workers are able to develop new consumption requirements, and so resources are diverted into producing goods that previously would not/could not have been produced.

The question about machines is a good one. But, its necessary to understand that producing more physical product is not the same as producing more exchange Value. I have explained why it is that Wage Labour (and it is only wage labour, not labour in general) creates Surplus Value, whereas machines, animals, slaves do not in my blog Labour Power v Horse Power, and linked posts.

Finally, on this point, as Marx demonstrates, the nature of Capitalist Competition, and the nature of Capital in only being laid out if it can make profits, means that in those areas where the Organic Composition of Capital is high i.e. a lot of C to V, the result if the rate of profit were calculated on the basis of Exchange Value would result in lower rates in these sectors. Theoretically, what you say about factories with no workers is true. But, as Marx shows in Vol III, the consequence is that Capital moves out of those areas where the rate is low, and into those where it is high. As a result falling supply pushes up market prices beyond Exchange Value in the those areas, and increasing Supply pushes prices down below Exchange Value in the other. The Rate of profit is then equalised as a result in a continual process of movement and competition. This is what is known as the Transformation problem, that has caused considerable debate amongst Marxist Economists up to the present date, and led some to advocate the post-Ricardian solutions of the Sraffians, based on calculation of prices from input-output matrices.

17 08 2011
Boffy

To Duvinrouge,

The comment about gravediggers was meant in the sense that the workers would put an end to capitalism by their own conscious action, not that they would wait around for it to collapse, and then bury it. This is at the heart of the debates over the ideas of Bernstein and the revisionists. If Capitalism was going to just collapse eventually then there would be no point in workers bothering themselves with class struggle, or establishing their own parties, Co-operatives etc.

After all, as Marx demonstrated in those debates with Weston contained in “Value, Price and Profit” he put no store in Trades Union struggle really improving the workers position within Capitalism. As he and Engels argued, the best it could do was to keep wages up to the level determined by the Value of Labour Power, which in turn would be determined by the rate of Capital Accumulation, and trhe effect this had on the demand and Supply of Labour Power. The real function of the Trades Unions he argued was as collective organisations of workers that facilitated the development of more adequat forms of struggle to overturn Capitalist property relations i.e. the development of Worker owned Co-ops, and of the Workers Party.




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