From the January 1984 issue of the Socialist Standard
Production for profit is clearly a key concept in defining capitalism. In fact, it could be said to be the essential feature of capitalism since the latter may be defined adequately enough as a form of social organisation in which wealth is produced for sale on a market with a view to profit.
But how is profit made from producing wealth? The usurer obtained his profit out of the revenue of the person to whom he has lent money and the merchant adventurer his by cheating or plundering of other traders or direct producers; but profit arises in a completely different way when invested in the production of wealth. It is created within the process of production itself.
The person with money to invest in production (whom we will call a capitalist) must first convert a part of it into means and instruments of production (raw materials. machinery, a factory); the other part will be needed for hiring workers to come and work in the factory on the raw materials that have been supplied.
When the employees have worked up the raw materials into a finished product, new wealth will have been created. This will belong to the capitalist but. because we are in an exchange economy, not only new wealth but new value has been created. However, the capitalists are not interested in new value in the abstract, nor even in new value in the form of a portion of the newly produced goods; they are only interested in it in the form of money. To realise this they must therefore sell the products. Once they have done this they have a larger sum of money than they started with; their capital has increased and value has expanded itself.
However, not all the money realised from the sale of the product is their profit, as part will represent the value of the raw materials and wear and tear of their machines as well as the upkeep of the factory. It is therefore merely a part of the original capital in a different form. A second part will replace the amount of capital used in hiring the workers to enable a repeat of the operation. It is the third part which is now profit.
The source of this profit is clear: it is the labour of the workers who transformed the raw materials into finished products. In an exchange economy labour, as well as creating wealth, also creates value: where the producer does not own the means of production and where the product of labour belongs to the employer, the new value created also belongs to the employer. A part of this is repaid to the producer in the form of wages, but the rest — what Marx called surplus value — is profit for the capitalist.
The exploitation (for there is no other word for it) of the wage workers takes place fully in accordance with the normal rules of exchange: an equal value is exchanged for an equal value. For what the workers sell to the capitalist is not their labour (the product of labour, or what has been produced) but their ability to work, their mental and physical energy — what Marx called Labour Power.
Under capitalism labour power, like everything else, is a commodity and has an exchange value. The exchange value of labour power is roughly the cost of training. maintaining and replacing the particular kind of labour power (skilled or unskilled; bricklayer or engineer, clerk or schoolteacher) involved. Wages are the price of labour power, or the monetary expression of its value.
Historically, wage labour has been at the very basis of capitalism. The landless labourers who were available in the early days of capitalism provided the early capitalists with a labour force to exploit, so allowing capitalism to come into being. The wages system also provided capitalism with a vast and growing market for consumer goods, so helping it to spread. Wage labour can thus be regarded as another key, defining feature of capitalism.