Capital is money invested for the purpose of profit. A glance at any of the company prospectuses that figure so often in the papers is convincing evidence of this. Whenever a new company commences business, or an old one proposes extending its business, an appeal is made for capital—money from investors. To obtain this money the company issues a prospectus in which figures are given with the object of proving to the prospective investor that dividends will be good and dependable.
An illustration may make the position plainer.
In the Evening News one day there appeared a notice on behalf of Parkinson & Cowan, Ltd. According to it the company offered for subscription 150,000 ordinary shares of £l each at 25s. per share. Underneath this came the statement: “The company has in every year since its incorporation in 1900 paid a dividend on its ordinary share capital; these dividends have averaged over 8¾ per cent. per annum for the whole period of thirty years.” Then followed a list of profits and dividends, showing that from 1927 to 1930 dividends of 10 per cent. were paid each year. The last paragraph gave the reason for the issue: —
“There is a continued and growing demand for gas and electricity for heating, lighting, cooking and other domestic purposes, and the directors anticipate further expansion of the company’s business.”
It will be seen that the company proposed extending its business, and for this purpose called for further capital, assuring the investing people that the company was making good and regular profits, and consequently regular dividends were assured. Dividends, of course, come out of, and depend upon, profits. What profits come out of, we will see in a moment.
The bulk of the production and distribution of wealth to-day in this country is carried on by companies that obtained their capital for starting operations, and later, for extending their operations, by the method illustrated above.
The capital obtained is spent on plant, machinery, raw materials and labour, and the business begins to take shape.The capitalist who invests may be in England, France, Germany or Africa. American capitalists invest in England; English capitalists invest in America. When it suits them, American groups cry that “Capital is going abroad”; and groups in Japan, Germany and England do likewise, because capital is international—it knows no country as its own. It is always going abroad and coming home.
The capitalist who invests in a company receives his voucher entitling him to dividends on his investments and then he has nothing more to do but sit down or roam while he waits for the dividends to roll in. And now let us see why they roll in.
Among the things the company buys with the fresh capital obtained is one that gives a greater return than it costs—the labour power of the worker. A worker produces in a day’s work goods of far more value than his wages—the price of his labour power—will purchase. Year by year the difference between what the worker produces and what he gets grows greater and greater, owing to improved organisation and labour-saving devices. The difference between the value of the labourer’s work and the value he gets is surplus value. From this surplus values comes the profits the company dangles alluringly before the investor, and provides the latter with his dividends. Capital, then, is based upon the exploitation of the worker.
Gilmac.
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