Cooking the Books: AI, profits and Engels (2026)

The Cooking The Books column from the April 2026 issue of the Socialist Standard

City gents reading the business section of their Times (24 February) might have been surprised to come across a photo of Engels. Socialists would have been intrigued more by the caption ‘could AI create a new Engels pause, named after Friedrich Engels’. The term ‘Engels pause’ was not coined by Engels but by an economic historian, Robert Allen, to describe the course of economic development that led to the workers being in the situation described by Engels in his 1845 book The Condition of the Working Class in England.

Normally, a period of sustained capital accumulation should lead to some increase in working-class living standards, both because of employers bidding up wages as they compete for workers and because the increase in profits means they can afford to pay more. Allen noted that this had not happened in Britain during the period of rapid industrialisation from 1790 to 1840 as wages had stagnated. As in the period after 1840 wages did increase, Allen called this a ‘pause’ and named it after Engels.

Engels might not have regarded this as a compliment. He might have preferred the term ‘the Engels profit bonanza’ as, if wages stagnate in a period of economic growth, that means that profits will be more than they otherwise would.

The article in the Times, by its former business editor David Wighton, discussed two views of the possible economic impact of AI. He quoted a former Google executive as saying that ‘the most likely outcome is an economy in which corporate profits explode as labour costs fall, while workers’ share of output shrinks’. In short, another ‘Engels pause’. The opposite view was put by Jamie Dimon, the head of the bank JP Morgan Chase, who is quoted as saying that while AI will increase profits, ‘this isn’t like you’re going to build three points of margin and you get to keep it — you don’t’. Competition sees to that.

Who is more likely to be right? Critics of capitalism might be tempted to agree with the one-time Google executive as it would be another good argument against capitalism. However, Dimon has a point. His view reflects more accurately what happens when one capitalist enterprise makes extra profits by reducing its costs through some innovation and outcompetes its rivals.

‘An enterprise or industrial sector with an above average level of productivity (…) economizes in its expenditure of social labour and therefore makes a surplus profit, that is to say, the difference between its costs and selling prices will be greater than the average profit. The pursuit of this surplus profit is, of course, the driving force behind the entire capitalist economy. Every capitalist enterprise is forced by competition to try to get greater profits, for this is the only way it can constantly improve its technology and labour productivity. Consequently all firms are forced to take this same direction, and this of course implies that what at one time was an above-average productivity ends up as the new average productivity, whereupon the surplus profit disappears. All the strategy of capitalist industry stems from this desire on the part of every enterprise to achieve a rate of productivity superior to the national average and thereby make a surplus profit, and this in turn provokes a movement which causes the surplus profit to disappear, by virtue of the trend for the average rate of labour productivity to rise continuously’ (E. Mandel, An Introduction to Marxist Economic Theory.)

That’s the likely outcome of the spread of AI to production and business. A temporary increase in profits for the firms that are the first to use AI in their branch of activity but no ‘profit explosion’ in the sense of a general increase in profits for all firms which eventually adopt it.

"Boom-time" (1956)

From the October 1956 issue of the Socialist Standard

“Under the conditions of accumulation supposed thus far, which conditions are those most favourable to the labourers, their relation of dependence upon capital takes on a form endurable, or, as Eden says, “ easy and liberal." Instead of becoming more intensive with the growth of capital, this relation of dependence only becomes more extensive, i.e., the sphere of capital's exploitation and rule merely extends with its own dimensions and the number of its subjects. A larger part of their own surplus product, always increasing and continually transformed into additional capital, comes back to them in the shape of means of payment, so that they can extend the circle of their enjoyments, can make some addition to their consumption fund of clothes, furniture, etc., and can lay by small reserve funds of money.

But just as little as better clothing, food, and treatment, and larger Peculium,* do away with the exploitation of the slave, so little do they set aside that of the wage-worker.

A rise in the price of labour, as a consequence of accumulation of capital, only means, in fact, that the length and weight of the golden chain the wage-worker has already forged for himself, allow of a relaxation of the tension of it.” 

[Karl Marx, Capital, Vol. 1, chapter “The General Law of Capitalist Accumulation.” Page 676. Kerr edition, 1921.]

* Peculium: pocket-money given to slave by master.

Analysis of Wealth. IV. Accumulation. (1916)

From the September 1916 issue of the Socialist Standard

Link to Part 3.

Capital is an accumulation of surplus-value. Whatever the original capital with which capitalist production started may have been it has long since disappeared, consumed by the capitalist class.

Likewise with the individual upstart. Even if we grant that by “his own exertions” he becomes possessed of a sum of money, this sum does not become capital until he uses it to exploit labour-power. As this process continues his capital comes to consist of accumulated surplus-value, while his original sum disappears in consumption.

Other things remaining the same the accumulation of capital implies an increase in the demand for labour-power ; for capital, in order to remain itself, must grow by the exploitation of ever more labour-power. This in itself gives rise to an increase in the rate of wages, since in the course of time the demand must tend to outstrip the supply as provided by normal increase in the labouring population.

Capital, however, is by no means satisfied with this state of affairs. It sees in the natural limits of population a limit to the rapidity of its own growth. Hence as we have shown in a former article, it exhibits a historical tendency to force on the productivity of social labour by specialisation of individual functions and by the introduction of machinery. Thus it wrings from a given quantity of labour-power a larger proportion of surplus-value. Therefore, along with the accumulation of capital goes an alteration in what Marx calls its technical composition. Its constant portion, i.e., that invested in the passive factors of the labour process, increases at the expense of the variable element which purchases labour-power.

This enables production to be carried on on an ever-increasing scale without the demand for labour-power increasing sufficiently to cause a rise in its price. On the contrary it reduces the demand for labour-power to such a point as to cause a permanent over-supply of workers ; in other words, it creates an industrial reserve army—the unemployed.

The larger the scale on which an individual capitalist does business the more he is enabled to economise and reduce the number of his employees in proportion to work done. The cheaper, therefore, can he sell his commodities (since they embody less labour) and the keener becomes his competition against his rivals. They in turn are forced to economise and to and “extend the scale of their operations as rapidly as possible. In the long run the large capitals become larger while small ones get absorbed or wiped out ; for the market soon refuses to bear the increased weight of goods supplied by this acceleration of production. This centralisation of capital causes further economy and increases the industrial reserve army.

Thus in the process of accumulation we observe on the one hand a tendency to increase the productivity of labour and on the other hand a contraction of the market for its products, seeing that the growth of the unemployed lessens the demand for commodities, both on their part and on the part of those actually employed whose places they are ever ready to take.

These two forces act and re-act on each other to an increasing extent. The competition of the unemployed forces the actual workers to submit to the lowest wages and the maximum amount of work. This increases the accumulation of capital, which in turn intensifies competition among the capitalists for the market, causing further economies and more unemployed.

At one end of the social scale, then, we have the concentration of capital in fewer hands and consequent luxury and idleness ; at the other end, absence of all wealth other than than necessary to secure the workers’ continued existence in a state of overwork, coupled with a deadweight of destitute wretches denied even that questionable privilege. This state of affairs arises inevitably from the very nature of capitalist production, and its special features are aggravated with every step in capitalist progress. Even the statistics compiled by capitalist authorities, governmental and otherwise, bear out this conclusion.

So far we have examined only the growth of capital. It remains for us to consider its origin and destiny. Assuming on the one hand a class with the means of production and on the other a class without these means it is easily seen that the former can exploit the latter to an ever-increasing degree.

The question arises, however, as to how this relationship was established. Orthodox economists and other apologists for things as they are assure us that it is solely due to the virtues of the possessors and the vices of the proletariat. If by virtue we mean work, however, we have already seen that the accumulation of capital by no means bears out this fairy tale. At present and for centuries the workers with all their toil have been unable to accumulate. If the capitalists saved money by work it was an extraordinarily long time ago. We are forced, then, to turn to history for a solution of the problem.

The system of society immediately proceeding the present social system in the course of evolution we know as Feudalism. It consisted of a complex hierarchy of lords and vassals bound to each other by the duties of military support and obedience and the right of protection. As a basis for this system was serfdom. The land was parcelled out among the lords and their subordinates, and while the latter cultivated the land of their lords they had land of their own for their personal use. In the towns chartered freemen carried on handicrafts and commerce. Thus reciprocal obligations existed and were established by feudal law and custom. No man lacked the means of subsistence, or an occupation. The lords exploited their subordinates, but the latter possessed something tho modern wage slave lacks—security!

The decay of feudalism forms the starting-point of capitalist development. In England it was spread over the 14th, 15th, and 16th centuries. By degrees the peasants and handicraftsmen freed themselves from servile duties and became independent producers, while in conjunction with the growth of trade and the production of commodities arose and flourished the merchant class, who sandwiched themselves parasitically between the producers on either side of the exchange and incidentally fleeced both whenever occasion offered.

The feudal nobility, exhausted, in numbers and resources, by friction among themselves, disbanded their retainers, who thenceforth become propertyless men seeking employment for a living. Large estates passed into the hands of wealthy farmers and burghers, who did not hesitate to evict the tenants in order to convert one-time arable land into sheep pastures. The new nobility also confiscated common land for similar purposes spurred on by the increase in the price of wool. The spoliation of the Church during the Reformation aggravated this condition, and by the end of the 16th century a considerable labour-market had come into being, consisting of expropriated agriculturists, disbanded retainers, and forlorn monks.

The process went on in stages till the 19th century, when the last vestige of the old yeomanry disappeared. At first legislation from Henry VII. onward attempted to stem the tide of usurpation, but in the 18th century the law itself had become the instrument whereby the robbery of the people was effected. Private force was supplemented by the force of the State, which has remained to this day the agent of the plutocrats. From the first it penalised the disinherited for their misfortune : flogging and branding them was its most merciful means of dealing with them.

This, as Marx says, established the “discipline necessary to the wage-system,” and encouraged the new-born proletariat to submit to the low wages and long hours at first legally enforced by the State.

As the workers became habituated and resigned to their fate the severity of the penal legislation relaxed, only to be applied with all its original vigour again when the workers found in combination a means of parrying the onslaught of the masters.

If to-day Trade Unions and strikes are legal it is only because the capitalists have been able to circumvent the determination of the workers by counter organisation, increased economy, and the corruption of the unions themselves.

The labour-market once established, the genesis of the capitalist class followed as a matter of course. In agriculture the farmer, one­-time agent for the landowner, was transformed into an independent exploiter. Whereas the independent peasant had previously produced many of his own requirements, such as clothes, in addition to purely agricultural products, now, as a wage-worker for the capitalist farmer, he had to purchase these elsewhere. Hence arose a domestic market for capitalist industry in the towns. Merchants and money lenders were not slow to take advantage of this. Employing numbers of disinherited peasants, etc., they entered into competition with the independent handicraftsmen of the guilds, and owing to the larger scale of their operations and the division of labour in the workshops which they introduced, they were ultimately able to outstrip the guildsmen in the race. In the face of this competition the guilds went to pieces and added more exploitable material to the labour market. 

At the same time there arose the struggle between the capitalist nations of Europe for world domination. Spain, Portugal, Holland, France, and England followed one another in rapid succession in exploration and conquest in Africa, America, and Asia, plundering the natives of their wealth and converting them into slaves for export to plantation colonies. The plunder thus obtained by the agents of the “merchant adventurers” helped to form new capital in England and on the Continent for the exploitation of white slaves.

These are the methods, drawn very mildly, by which the modern “respectable” class rose to power. The depths of their historic depravity are in direct proportion to the “loftiness” of their professed ideals. Champions of Justice, Freedom, and Charity, their career is indelibly stained with robbery, slavery, and murder. Need it be added that it shows no signs of improving from the standpoint of the workers ?

To sum up, modern wealth or capital is a product of social labour, past and present, which has been and continues to be monopolised by a small class of individuals, which grows relatively smaller as the mass of disinherited producers increases. In its origin it destroyed the unity which existed between the producers and their products, including the means of production, thus reducing them to social outcasts, having no access to the means of life as provided by nature and society. This relationship it perpetuates and uses as a means of self-expansion at their expense.

Technically, however, it indicates economic progress. In the place of the isolated workers of the middle ages able to produce but a meagre variety of articles of wealth, we have to-day an international combination of producers using a highly complex organisation of machinery, means of transport and distribution capable of providing comfort and leisure for all.

What prevents this desirable consummation of industrial development ? The reader who has followed this analysis will readily see that it is the capitalist character of this social wealth, i.e., its private ownership, which alone stands in the way. The private property of the many workers has disappeared before the private ownership of a few idlers. To return to the former state is neither possible nor desirable. It is not our business to destroy the fruits of centuries of toiling agony, but rather to enter into possession of them ; and as the means of production become ever more concentrated and incapable of control save in the mass, the only alternative to private ownership by the few is common ownership.

This will reunite the producers with their means of production and simultaneously preserve technical progress, for it is this progress which forces on the revolution. It unites them in the productive process and reduces them all to the level of wage slaves for the maintenance of capital. Hence it breeds a community of interest and a common consciousness. Let us speed on the day when they will unite in one organisation with a common purpose. Let us rally them round the Socialist standard, and establish Socialism, the cooperative commonwealth.

Eric Boden

[Concluded.]

Analysis of Wealth. II. Surplus Value. (1916)

From the July 1916 issue of the Socialist Standard

Link to Part 1.

In a former article under this heading the writer tried to show that the substance of value, the common property of all commodities as such, is social labour, measured by the time taken in its expenditure. He tried to show further that money serves as a measure of values, a standard of prices, and a medium of circulation, only because it is itself a commodity, that is to say, it embodies social labour in the same manner as do the articles for which it is exchanged. He tried to show still further that the production of commodities, i.e., articles for exchange, and the use of money are features of a certain stage of development in the means and methods of production and in the control thereof, and are destined to disappear with future progress.

We have now to consider money a little further in the form of capital in the process of accumulation, or in other words, the phenomenon of “money making money.” For money in itself is not necessarily capital. Only when it is used for the purpose of adding to itself does it become so. When the independent producer (peasant or handicraftsman) brought his goods to market he received for them a certain sum of money which sooner or later he expended on articles of a different sort, largely for his own personal use and partly, of course, to buy fresh raw material, etc. To him the money entering transiently into his possession was not capital. Nor were the goods he sold, for he received in exchange goods of equal value. No interest, no profit, accrued to him in the transaction.

Otherwise is it with the modern capitalist with a sum of money, which is constantly expanding in volume. He buys commodities not for consumption by himself, but in order that in some form or other he may re-sell these commodities and realise a profit on the transaction. Apart from this profit his activities as a capitalist would be meaningless.

The independent producer bought commodities mainly in order to realise their use-value in his own person. The capitalist buys them only to throw them back into circulation and receive in return an increase in exchange-value. The simplest definition of capital, then, is money thrown into circulation only to be received back again with an increase to itself, which increase becomes part of the capital which is again advanced to return with a fresh increase.

This increase or profit Marx calls surplus-value. The problem of its origin is the central one in economic science, and its solution holds the key to an understanding of all the workings of capitalism.

The quest for profit is the mainspring of the present social order. Let us take the mainspring out of the case and examine it.

In the first place, it is obvious that money must go into circulation in order to increase itself. If it simply lay in a safe it would remain the same in quantity. Thus is the modern capitalist cuter than the old-fashioned miser. Being a “true Christian” he refrains from the stupid, worthless process of hugging his money to himself, and lets it go believing implicitly in the words of his Lord : “Whosoever would save his life the same shall lose it, but whosoever loseth his life for my sake [“profits’] the same shall find it.” But bearing in mind that on the average prices are determined by values, and these latter by the socially necessary labour embodied in commodities, it is also clear that the circulation of money cannot in itself give rise to profit. On the average the capitalist buys commodities at their values and sells them again at their values. He exchanges equivalents, and unless some increase of value takes place between the two acts of buying and selling he can realise no profit. Various orthodox theories have tried to see the origin of surplus value in the process of exchange. The investigation of these theories, however, shows them to be based either upon the confusion of use-value with exchange-value or upon the illusion that prices (and implicitly values) are determined by the arbitrary will of the owner of commodities or by mere chance.

In dealing with capital the scientific economist is concerned not with an accumulation of use-values, but of exchange-value in the form of money ; which accumulation, moreover, is not made by one or a few capitalists at the expense of the rest, but by the capitalist class as a whole. The origin of surplus-value is, therefore, to be found in production, or in other words, in the productive consumption of the commodities originally purchased.

All commodities which are consumed in order to re-appear as new commodities may be said to be productively consumed. For instance, leather purchased by a boot manufacturer is consumed in the factory to reappear as boots. The boots, moreover, contain more value than the leather, since they embody additional labour. This additional value, however, is by no means necessarily surplus-value. Imagine, for instance, an independent boot-maker purchasing his own tools and raw materials and selling his own product. The value of the raw materials, etc., is transmitted to the finished product, which, in addition, contains the value added by the bootmaker’s labour. The boots are sold for more money than was paid for the leather and the tools, but no surplus-value has been realised ; money does not in this instance make money. The raw materials, etc., do not transmit more value than they themselves contain ; all the increase is due to the boot-maker’s labour. The difference between the original outlay and the price he gets for his commodity is simply equal to the value he has added. The effect is the same as if he had made no outlay but produced a new and distinct commodity and sold it. His money has not expanded itself ; he has simply added to it. In short, it is not capital. Men do not become capitalists and wealthy in the modern sense by themselves adding value to natural objects. Rather, the increase of their wealth is obviously independent of their efforts and totally out of proportion to any they might make.

Nevertheless, seeing that all value is but the embodiment of labour, surplus-value, being a particular form of value, can only be derived from labouring in some fashion. Therefore in order to obtain surplus-value the capitalist must find in the market not merely ordinary commodities (which are in capable of producing for him more value than they themselves possess) but some commodity which actually produces value, i.e., labours. This commodity he finds in the energies of the modern wage-labourer. It matters little to the capitalist what other commodities he deals in. Food or clothing, luxuries or necessities, all alike embody labour, therefore it is the labouring commodity which he essentially requires in order to obtain profit.

When the capitalist purchases other commodities he buys congealed labour : labour which is past, dead, inactive. From them alone he can expect no increase of value. In buying labour-power, however, he secures the potential source of all further value. So far as he is concerned the special function of labour-power is to produce value and, above all, surplus-value. With the usefulness of labour-power, in any other sense he is not concerned, any more than he is concerned with the utility of the goods he sells. Capital being but a sum of exchange-values, its sole passion is for its own growth by the production of more exchange-value, which means the continual consumption of labour-power. It remains to show how by this consumption surplus-value is actually produced.

Labour-power, like every other commodity, possess an exchange-value, which is realised in a price, termed wages. The amount of this exchange-value is determined by the labour-time spent in its production. The average wages of any section of the working class depends upon the cost of its customary necessities of life, including such special education as may be necessary in the branch of industry in which it is employed. It is obvious that wages cannot be long depressed below this standard without impairing the productive efficiency of the labourers’ energies. On the other hand, if they rise far above this standard the surplus-value is encroached upon. For surplus-value is nothing more than the difference between the wages of the labourers and the sum total value of their product. Were the labourers in the habit of producing no more wealth than would keep them, in working condition surplus-value would be impossible. The labour market, like the market for other commodities, is liable to fluctuations, but experience shows that these cancel one another, and that the general level of wages is such as will maintain the workers in their daily tasks.

But though the price of labour-power is limited in this way, the limit of surplus-value is simply the productivity of labour-power. Anyone purchasing a conmodity acquires the use of it, and the capitalist only buys labour-power in order that he may use it up, i.e., set it to produce the greatest possible amount of exchange-value in the form of commodities. Here we may take examples from Marx (“Capital,” Vol. I. p. 106).

Marx first supposes a capitalist advancing a sum of 15s. which is split up as follows : 10s, is the price of 10 lbs. of cotton ; 2s. represents the value of wear and tear of machinery, etc.; 3s. is paid for the hire of labour-power. We have thus a sum of 12s. as constant capital, i.e., value which passes unchanged into the form of the finished product, yarn. This is assumed to be the product of two days labour of twelve hours each, i.e., two hours labour is embodied in a sum of 1s., or a commodity of that value. Supposing now that in six hours the 10 lbs of cotton are converted into 10 lbs of yarn, The yarn contains thirty hours labour ; twenty-four being spent in producing raw material, etc., and six in converting it into finished product. Its value,, therefore, is 15s., i.e., 1s.for every two hours labour.

Here no surplus-value is created, for 15s. was the sum originally advanced. By only working six hours the labourer has done no more than produce an equivalent of his wages, 3s., and the capitalist makes no profit.

Marx now gives a second case. In this the capitalist advances 27s. Twenty lbs. of cotton are bought for 20s., and 4s. is allowed for wear and tear. The labourer is paid his wages of 3s., but instead of working only six hours is made to work twelve, having exactly twice the amount of raw material to convert into yarn. This time the yarn represents 60 hours labour, 48 being contained in raw material and twelve being added in the process of spinning. If 30 hours labour are represented by 15s., then 60 hours are embodied in 30s.

The capital advanced was 27s., so that the capitalist makes a profit of 3s. when selling the goods in the market at their value.

These simple examples illustrate the whole character of capitalist production. Carried on as it may be with all due regard to legal forms, it yet consists of a process of robbery disguised by the exchange of equal values.

The capitalist certainly gives the labourer his “due,” i.e., the value of his energies, or in other words, the cost of production of his commodity labour-power, but if the labourer simply replaced this value the capitalist would gain nothing. For him the transaction is meaningless unless the worker produces far more than that, unless, in fact, his whole life-time becomes but a process of producing value.

In further articles the writer hopes to outline how capital in its lust for self-expansion pushes the exhaustion of labour-power to its limits. For the present it is as well to remember the cause of the subjection of labour-power to capital.

The worker sells himself (in the form of his energies) as a commodity. Why ? His obvious motive is to obtain his price, wages. These as we see, however, only represent sufficient to keep him in existence. It follows, then, that he lacks the means of subsistence and must purchase them, which still further implies that he does not possess the wherewithal to produce them. This is another point to be dealt with later.

Eric Boden

[To be continued.]

Reading Capital as Crisis Theory: Part 2 (2022)

From the February 2022 issue of the Socialist Standard

Link to Part 1

We conclude our article on Marx’s theory of crises based mainly on the interpretation of the Marx-scholar Samezo Kuruma.

What factors within capitalism transform the possibility of crisis (discussed in Part 1) into an actual crisis? Considering this question requires an understanding of what Marx means by his enigmatic statement that the ‘true barrier to capitalist production is capital itself’ (Capital Vol. 3, Penguin, p. 358).

Capitalism tore down the external barriers posed by feudalism and other modes of production, and in so doing freed up the space needed for its own development. But even though it eliminated ‘the limits not corresponding to it, which were barriers to it’, Marx observes, ‘it is by no means the case that it thereby suspended all limits, nor all barriers’; it remains limited ‘by itself’ and ‘by its own conditions of life’ (Grundrisse, Penguin, p. 650).

In Volume 3 of Capital, Marx notes that ‘the methods of production that capital must apply to its purpose and which set its course toward an unlimited expansion of production’ continually run up against the ‘barriers within which the maintenance and valorization of capital-value has necessarily to move’. In short, “the means – the unrestricted development of the forces of social production – comes into persistent conflict with the restricted end, the valorization of the existing capital’ (pp. 359–60).

The powerful drive of capital to continually augment itself by developing the productive forces without limit runs up against a barrier that capital itself imposes as self-expanding value. In Grundrisse, Marx says that capital by its nature ‘posits a barrier to labour and value-creation, in contradiction to its tendency to expand them boundlessly’ and as such ‘it is the living contradiction’ (p. 421).

A crisis can be understood as arising from the tension generated from capital pushing beyond its own barriers to develop productive power without limit.

Capital as a ‘Living Contradiction’

In the first volume of Capital, Marx explains the motive underlying the incessant drive to raise productivity under capitalism. Introducing improved production conditions that raise the productivity of labour allows individual capitals to produce commodities using less labour time. As a result, the ‘individual value’ of those commodities is lower than the ‘social value’ for the given commodity type, which is determined by the labour time necessary under average production conditions. If the commodities produced under improved conditions are sold at the prevailing market price, an ‘extra surplus value’ can be obtained (as the difference between the ‘individual’ and the ‘social’ value). But an even neater trick is to sell the commodities below the ‘social value’ but above their ‘individual value’ so as to still pocket extra surplus value but also ensure the sale of the commodities and undersell competitors.

The desire among individual capitals for profit is insatiable, expressing a survival instinct in the capitalist jungle, so their drive to raise productivity toward that end is also without limit. But this drive that seems absolute collides with barriers imposed by capitalism as a system of production for profit.

In the realm of immediate production, where the aim is the creation of surplus value, capital confronts three barriers according to Marx: it must have the necessary means of production, a sufficiently large working population, and an adequate level of labour exploitation (i.e. rate of surplus value). Capital does everything in its power to secure sufficient labour power that can be adequately exploited, including extending the working day and tapping into cheaper sources of labour power.

But capital cannot rest on its laurels after extracting surplus labour from workers in the production process. That only brings the ‘first act’ to an end: it is still necessary to sell the commodities produced to realise the surplus value created. If this ‘second act’ is a flop, all that good exploitation will have gone to waste and it will be difficult, if not impossible, to continue capital accumulation.

The barriers within the circulation process include the need for sufficient demand for specific use-values (backed by adequate purchasing power), enough money to realise the surplus value created, and the transformation of the commodities produced into money via sales. Capital is restricted, in other words, by the ‘proportionality between the different branches of production and by the society’s power of consumption’. But the barrier posed by consumption is not determined by the absolute consumption needs of society, Marx is careful to note that this is ‘the power of consumption within a given framework of antagonistic conditions of distribution, which reduce the consumption of the vast majority of society to a minimum level’ (Capital Vol. 3, p. 352). Reformists who think that crisis could be overcome by raising working-class consumption are treating capitalism as if it were a system of production for use rather than profit.

‘Double-edged Law’ of Accumulation

Understanding how capital as a ‘living contradiction’ relates specifically to crisis requires taking a closer look at the consequences of raising productivity.

As productivity rises, relatively less labour is needed to utilise the machinery and other means of production, so that the quantity of the means of production increases in proportion to the quantity of labour. Expressed in terms of value, this means that the quantity of ‘constant capital’ invested in the means of production increases compared to the quantity of ‘variable capital’ invested in labour power. Marx calls this a heightening of the ‘organic composition of capital’.

The ‘constant capital’ is so named because its value is merely transferred to the finished product (without adding any new value), whereas the use of ‘variable capital’ in the production process can generate surplus value. This is why the rate of surplus value, which expresses the degree of labour exploitation, is calculated by dividing the quantity of surplus value by the variable capital. The rate of profit, in contrast, is surplus value divided by variable and constant capital. Thus, even if the rate of surplus value remains the same, the profit rate will fall if the proportion of constant to variable capital increases.

Marx argues that the rate of profit will tend to decline as the organic composition of capital rises through the development of productivity. This is his ‘law of the tendential fall in the rate of profit’ presented in Volume 3 of Capital. But Marx is careful to describe this as a ‘double-edged law’ because the ‘decline in the profit rate [is] coupled with a simultaneous increase in the absolute mass of profit’ (p. 326).

If individual capitals are to survive through continued expansion, they must make up for the fall in the profit rate by expanding the quantity of profit. For example, a capital of 1,000 at 40 percent produces 400 in profit, so if the profit rate falls by half to 20 percent, the capital invested would have to increase in the inverse ratio, to 2,000, in order to just yield the same 400 in profit. And if the mass of profit is to grow, the capital would have to increase at a higher ratio than the ratio at which the profit rate fell. The declining rate of profit thus accelerates the accumulation of capital.

Marx has been ridiculed for arguing that there is a tendency for the rate of profit to gradually fall, but this was widely considered an unquestionable fact that had to be explained. Adam Smith had attributed the tendency to increased competition among capitals, while Ricardo pinned the blame on increased grain prices due to the ‘law of diminishing returns on land’. For Marx, the key question was not whether the profit rate tended to fall or not but why the decline is not more rapid despite steadily increasing productivity. In other words: Why is the fall tendential rather than absolute?

Marx answers this question by pointing to counteracting factors to the law, which include the more intense exploitation of labour (ie, increased rate of surplus value), the cheapening of the value of constant capital, and the expansion of the relative surplus population that drives down the value of labour. Such factors are said to moderate the tendency for profit to fall. However, it is important to note that the counteracting factors operate within the same ‘law’ since they all arise from the same reasons that produce the tendential fall in the rate of profit, namely the increase in the productive power of labour.

Phases of the industrial cycle

One way to understand the relation of the ‘double-edged law’ to crisis is to trace the way the law unfolds across what Marx calls the ‘industrial cycle’ (also known as the ‘business cycle’). Marx identified the following phases of a typical industrial cycle: moderate activity, prosperity, overproduction, and crisis and stagnation.

The destruction of capital through the explosion of crisis and the stagnation that follows is not enough to get a new cycle going. Some impetus is needed, whether the emergence of important new use-values, expansion of new markets, or improved production conditions. Under such an impetus, stagnation can give way to moderate activity in at least a few sectors of production. At this stage, the relatively low wages and prices for machinery and materials, as well as expanding markets, help to raise the rate of surplus value (and profit), so even when individual capitals raise productivity to obtain extra surplus value, it does not immediately lead to a fall in the rate of profit. The ‘counteracting factors’ mentioned earlier exercise considerable force.

Moderate activity gives way to the phase of prosperity, when the profit rate tends to rise in not only some leading sectors but generally. Moreover, the expansion of one sector leads to increased demand for products in other sectors, creating a virtuous cycle for capital. But the new production methods introduced at first by individual capitals within the leading sectors steadily spread more widely to raise the productive power of labour across the economy. This results in a heightening of the organic composition of capital that begins to bring down the rate of profit. The lower profit rate spurs even more rapid accumulation by making it necessary to invest a greater quantity of capital to obtain even the same amount of profit. And that increased accumulation in turn heightens the organic composition of capital even further.

During the phase of prosperity, the accelerated accumulation and increased sale of products leads to an absolute rise in the quantity of profit despite the falling rate of profit. On the surface, everything seems to be humming along. At this point, as the memory of the last crisis fades away, articles may begin to appear in the financial press about how ‘things are different this time around’.

However, the fall in the rate of profit that accompanies the increased pace of accumulation ‘gives rise to a competitive struggle’ (p. 365) between capitals, marking the point at which the phase of prosperity begins to give way to the phase of overproduction. The ‘competitive struggle’ Marx refers to arises from the need to compensate for the fall in the rate of profit by an increase in the mass of profit. He notes that big capital possesses the conditions necessary to succeed in that endeavour, whereas smaller capital and new capital ‘must first acquire them’, leading to a fierce struggle between these actors.

This competitive struggle is fuelled by an expansion of the credit required by individual capitals to cover the steadily rising minimum level of capital investment. Capitals unable to keep up must either shift to some production sector with a lower minimum level or take the ‘adventurous paths’ of speculation and swindles. The frenzied competition that emerges from (and in turn spurs) accelerated accumulation increases demand for labour power, thus shrinking the ‘relative surplus population’ of workers. The temporary increase in wages that results drives down the rate of surplus value, causing the profit rate to sink further.

Nevertheless, on the surface of things, the economy is ‘booming’: the quantity of profit, wages, stock and real-estate prices continue to rise. But this is just the ‘storm before the calm’ – the phase of overproduction that will be followed by prolonged economic stagnation.

As the cycle enters the phase of overproduction, there is a ‘plethora of capital’, which Marx defines as ‘capital for which the fall in the profit rate is not outweighed by its mass’ (p. 359). Under the sharp decrease in the rate of profit, additional investment of capital only yields the same or even less profit than before. Marx says that the ‘overproduction of capital’ (which ‘always involves overproduction of commodities’) means the ‘overproduction of the means of production’ that ‘can be applied to exploiting labour at a given level of exploitation’ below which ‘disruption and stagnation in the capitalist production process, crisis, and the destruction of capital’ (p. 364) would occur. Crisis is the forcible solution to the overproduction of capital through mothballing or destroying the means of production and labour power that cannot serve the immediate needs of capital augmentation (even though otherwise they could be used to produce useful things).

The contradictory process of capital accumulation that culminates in crisis might be summarised as follows:

The development of productive power in pursuit of profit raises the composition of capital, leading to a fall in the profit rate accompanied by an increase in the mass of profit; this ‘double-edge law’ in turn spurs even faster capital accumulation and concentration that heightens the capital composition further. The falling profit rate raises the minimum level of capital investment necessary, unleashing a ‘competitive struggle’ between individual capitals that larger capitals are in an optimal position to win, while smaller capitals are forced into desperate speculation and swindles (further inflating the real-estate and stock bubbles). Amidst the intensified competition, demand for labour power drives up wages temporarily, leading the profit rate to fall sharply, which generates a ‘plethora of capital’ unable to function at the low profit rate. Crisis temporarily resolves the overproduction of capital by clearing away the excess and driving down wages, thereby exposing the absurdity of a social system that leaves human needs unmet while letting its means of production and labour power go to waste.

Michael Schauerte

Cooking the Books: Accumulate, accumulate! (2021)

The Cooking the Books column from the September 2021 issue of the Socialist Standard

In an article in the Times (14 July) David Smith, Economics Editor of the Sunday Times, mentions that he is revising a book of his which has a chapter on Marx:

‘Marx, you may recall, thought he had pinned down what drives capitalists. As he put it: “Accumulate, accumulate! That is Moses and the prophets . . . Accumulate for accumulation’s sake, production for production’s sake.” By accumulation, Marx meant investment and that the tendency of capitalists to over-invest condemned them to a future of declining profits and, ultimately, the fundamental crisis of capitalism.’

This is accurate enough until the word ‘investment’. After that it’s wrong.

Marx certainly thought that investment to make profits (most re-invested in expanding productive capacity, hence ‘the accumulation of capital’) was the driving force of capitalism. In a boom, capitalists in some key industry tend to ‘over-invest’, resulting in overproduction in relation to its market; this has a knock-on effect on other industries, causing a general slump in production. But this is not the end of the road for capitalism. It is a phase of the boom/slump cycle that is part of the way the capitalist system works. Slump conditions, by eventually restoring profitability (as by the clearance of stock, depreciation of capital, low interest rates, lower real wages), pave the way for a recovery leading to a boom, and the cycle repeats itself.

What is ironic about Smith’s criticism is that Marx would have agreed with the article’s heading ‘Without investment the recovery we’re seeing is built on sand’ precisely because he saw investment (for profit) as the driving force of capitalism.

In writing ‘the tendency of capitalists to over-invest condemned them to a future of declining profits’, Smith is presumably referring to what Marx called, in chapter 13 of Volume 3 of Capital, ‘the law of the tendency of the rate of profit to fall’ (often miscalled, by opponents and some supporters of Marx, ‘the law of the falling rate of profit’).

Marx’s point here was that as capital accumulation proceeded there was a tendency for a greater and greater proportion of new capital to be invested in plant and machinery relative to labour power, whose application in production was the only source of surplus value and so of profits.

Marx called the ratio of surplus value to labour power purchased (the amount of profit produced per worker) ‘the rate of exploitation’. The rate of profit was the ratio of profit to total capital. If the rate of exploitation remains constant, it follows mathematically that, when production becomes more and more ‘capital intensive’, then the rate of profit will fall – because the amount of profit comes to be related to a larger and larger amount of capital.

In practice, however, the rate of exploitation does not remain constant but increases; in which case the rate of profit does not necessarily fall. It depends on how the rate of exploitation moves. It was because there was no way of predicting this that Marx spoke of the fall in the rate of profit being a tendency rather than an iron law.

Smith is confusing the rate of profit with the amount of profit. Marx pointed out that it was possible for the amount of profits to increase even if the rate fell. In fact this is what he expected to happen as capital accumulation meant that more workers were employed and so more profits were produced. He even called this a ’law’, writing ‘this double-edged law of a decrease in the rate of profit and a simultaneous increase in the absolute mass of profit arising from the same causes’ (his emphasis).

Smith is mistaken, then, in saying Marx expected capitalism to end in a ‘fundamental crisis’ due to fewer and fewer profits being made.

The Weight of the Chain (1939)

From the October 1939 issue of the Socialist Standard

In “Wage Labour and Capital” Marx states that the forest of arms begging for employment becomes ever denser and the arms themselves ever leaner.” He points out that this is the inevitable result of the growth of the means of production, under capitalist conditions, but he says also that this development is at the same time in the interests of the working class—the sooner capitalism reaches the limits of its expansion the better.

In June, 1936, The Economic Journal contained an article by A. E. Feavearyear on “Capital Accumulation and Unemployment,” in which he endeavoured “to make an estimate of the rate of capital accumulation in this country in recent years and, secondly, to give some indication of the quantity of investment likely to be required to set the present unemployed to work and provide for future recruits.”

The result of Mr. Feavearyear’s investigations are of great importance and, whatever one may think about his conclusions, it must be admitted that he has been painstaking and thorough in his work; he gathered an enormous amount of data and carefully sifted it before attempting to point out its significance.

It is obviously impossible, within the scope of an article, to deal exhaustively with the writer’s views : we will let him speak for himself.

 “The whole subject is obviously bristling with theoretical difficulties. For instance, how are we to value the capital? Is it to be the written down value of the fixed assets together with working capital, or the market value of the business as a going concern—that is to say, in the case of a company, the total market value of the share and loan capital ? The chief objection to the latter is that where a business has been keeping its workpeople fully employed for some years, but making little profit and paying low dividends, the valuation will be too low, and where a business has temporarily had the advantage of windfall profits the valuation is likely to be much too high—that is to say, much greater than the cost of erecting such a business. … As the most practical method it was decided to take, for mining, manufacturing, and trading concerns, the sum of the paid-up share and loan capital at par, the reserves, and any long-term bank loans, less any substantial outside investments. The method involves the assumption that sundry debtors and cash are together equal to sundry creditors, and it values as capital goodwill and any other intangible assets which may remain in the balance sheet.”

The following table can be followed with comparative ease. The inquiry has been restricted by the fact that for only a limited number of firms is there any published information of the staff they employ, and in some of these cases, where there are subsidiary undertakings, it is not possible accurately to relate the capital to the labour.

In addition to the figures given above we have other information.

In his estimate of the national capital in 1928 Sir Josiah Stamp placed the total of farmers’ capital at £450 millions, excluding the value of land and buildings. If the total of the operative staff at that period is taken at the round figure of one million, the average per head is £450.

Public utility undertakings of all kinds have a very high average of capital per head, due chiefly to the heavy absorption of capital in mains, whether they be water, gas, or electric mains, or telephone trunk line. A London gas company, for instance, has a capital of £4 millions and a total staff of 2,500, with an average of £1,600 per head; and a London electric, supply company a capital of £9 millions, a staff of 2,700 and an average of .£3,300 per head.

If all the assets of Railway Companies are taken together, including steamboats, canals, hotels, the total capital is £1,020 millions and the total staff about 630,000, the average per head being £1,620.

In the case of Shipping Companies there is the shore staff as well as the crews. A line of twelve cargo vessels of about 5,000 tons each stood on the owners’ books at £903,000 and employed crews numbering 600 altogether, an average of £1,500 of capital each.

In 1931 the book value of the P. and O. fleet of forty-six vessels was about £15 millions and they employed crews totalling 11,000, the average capital being £1,360 per head.

The Empress of Britain was reputed to have cost £3 millions and her crew numbers about 720, while the Queen Mary, which has cost £5 millions, apparently requires a crew of only 1,270. The average is about £4,000 in each case and it is clear that building luxury liners is a very costly way of giving permanent employment to the new recruits to industry.

“If we deduct from Sir Josiah Stamp’s figure of £18,045 millions for the total wealth of the United Kingdom in 1928 the value of the land and items such as furniture and movables, which are not a part of the industrial equipment, we have a sum of £14,000 millions as the value of the capital being used to house and employ the working population, which, for an occupied population of 21 millions, represents an average of £666 per head. Since by far the greater part of this is old equipment and old houses, it seems unlikely that the average amount of new investment required to house and employ the additional personnel for which the nation still has to provide each year can be much less than £1,000 per head.”

This is certainly interesting, especially when we perceive the gigantic developments now taking place in the armament race.

Where will our masters obtain the necessary capital with which to employ those at present unemployed in the production of munitions, etc.? The workers are compelled to forge the very chains that enslave them. Let’s see what Marx says:—

“The law by which a constantly increasing quantity of means of production, thanks to the advance in the productiveness of social labour, may be set in movement by a progressively diminishing expenditure of human power, this law, in a capitalist society—where the labourer does not employ the means of production, but the means of production employ the labourer—undergoes a complete inversion and is expressed thus : the higher the productiveness of labour, the greater is the pressure of the labourers on the means of employment, the more precarious, therefore, becomes their condition of existence, viz., the sale of their own labour power, for the increasing of another’s wealth, or for the self-expansion of capital. The fact that the means of production and the productiveness of labour increase more rapidly than the productive population expresses itself, therefore, capitalistically, in the inverse form that the labouring population always increases more rapidly than the conditions under which capital can employ this increase for its own self-expansion.

“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 of a machine, destroy every remnant of charm in his work and turn it into 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 children 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. The law finally, that always equilibrates the relative surplus population, or industrial reserve army, to the extent and energy of accumulation, this law rivets the labourer to capital more firmly than the wedges of Vulcan did Prometheus to the rock. It establishes an accumulation of misery, corresponding with accumulation of capital. 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.”

Marx was evidently full of moral indignation when he penned this analysis; he often wrote at a white heat, for it was his passionate sympathy with the victims of the industrial revolution that made him see the importance and significance of facts which were hidden from the academically minded economist.

Karl Kautsky says: 

“Political and social struggle is impossible without moral indignation against the opponent. The moral indignation against given political and social conditions, against the material oppression of the social powers, is therefore the first and the last, the basic form of the manifestation of the class differences, the most primitive and lasting mainspring of the class struggle.”

And then he states, referring to Menger’s ethical theory and the statement of some reviewers, that it was identical with the theory of ethics of the Materialistic Conception of History:

“To say that the conception of historical materialism is generated by the material conditions of society, is the same as Menger’s conception, that it is generated by material force is just as false and misleading as is the oft-repeated confusion of material conditions with the material interests of the individual, which reduces Marxism to that low level of ethics according to which all morality is reduced to egoism. People who so represent and propagate the Materialist Conception of History may consider themselves good Marxists, but they really belong to those who reflect little credit on the Marxian teachings, who made Marx shudder and with whom he begged not to be confounded.”

“….. While the growing contradiction between the changing social conditions and the stagnating morality expresses itself in the Conservative, that is, in the ruling classes, in growing immorality, hypocrisy and cynicism, which often go hand in hand with a weakening of the social instinct, the effect upon the rising and exploited classes is entirely different. The interests of those classes stand in direct opposition to the social foundations which created the reigning morality. They have not the slightest reason to defer to it, and all the reasons to oppose it. With the growth of their consciousness of their opposition to the existing social order, grows their moral indignation, their opposition to the old, antiquated morality, to which they oppose a new morality, which they advocate as the morality of society as a whole. Thus there arises in the rising classes a moral ideal, which grows in intensity with the growth of the power of these classes. At the same time, as we have already seen, the social instincts of these same classes gain in strength and are particularly developed by the class struggle, so that with the intensity of the new moral ideal grows also the enthusiasm for the same.”

Capital is the means of exploitation. It is the chain on labour’s limbs and grows heavier.

Slavery is involved in the wages system. As a result of realising the cause of their enslavement the working class will obtain a knowledge of what is essential to their emancipation.

When they understand what capital is and the place they occupy in society as a result of being bound to it the working class will generate within themselves the will to be free.

Charles Lestor

Cooking the Books: Consumption – not the driver (2020)

The Cooking the Books column from the August 2020 issue of the Socialist Standard

Interviewed on the Andrew Marr Show on 14 June, the Chancellor Rishi Sunak stated that the economy was ‘driven by consumption’. It is understandable why he might think this since consumption (consumer spending) accounts for some two-thirds of GDP. But it does not follow that it is therefore this that drives the economy. In fact, it isn’t.

Apologists for the system claim that under capitalism ‘the consumer is king’; that, in other words, production is carried on – even initiated – in response to what consumers want as indicated by what they are prepared to pay for and do pay for. But this does not explain how consumers come to have money to spend in the first place.

Most consumers are wage and salary earners who get their spending money from the sale of their capacity to work at a particular job, their labour-power, to an employer. So, where do employers get the money to pay them from? It’s a part of the capital they must have to start up a business and keep it going. Marx divided the capital of a business into constant capital (plant, machinery, raw materials, power, etc) and variable capital (the money to pay the wages of the productive workers it employs).

Under capitalism production is initiated by capitalist firms seeking to expand their capital by making and accumulating profits. It goes like this. Capitalists invest in production, including hiring workers; workers exercise and use up their labour power to produce new value, including the value of their labour power; capitalists pay workers as wages the value of their labour power; workers spend their wages on buying what is needed (food, housing, clothes, entertainment, holidays, etc) to recreate their labour power to replace what they used when they worked; capitalists buy the renewed labour power; and so the circuit recommences.

Marx put it this way:

  ‘From the point of view of society, then, the working class, even when it stands outside the direct labour process, is just as much an appendage of capital as the lifeless instruments of labour are. Even its individual consumption is, within certain limits, a mere aspect of the process of capital’s reproduction … Individual consumption provides, on the one hand, the means for the workers’ maintenance and reproduction; on the other hand, by the constant annihilation of the means of subsistence, it provides for their continued re-appearance on the labour market’ (Capital, Volume 1, chapter 23. Penguin edition p. 719).

What this means is that what workers buy to consume is the reproduction of what variable capital is invested in. Capitalist apologists speak unashamedly of workers as ‘human capital’. Some Marxists describe workers’ consumption as variable capital. This is not strictly true (it’s only that both have the same value) but it gets over the point that workers’ consumption is a part, not the initiator, of the circuit capital goes through to increase its value.

What drives the economy is business investment for profit. This depends on the prospects for profit-making and goes up or down depending on whether these are good or bad. Less business investment means fewer workers employed and so less consumption; more business investment means more consumption. So, far from consumption driving the economy, it’s the other way round. Consumption is the tail not the dog.

Cooking the Books: Cash Mountains (2019)

The Cooking the Books column from the June 2019 issue of the Socialist Standard

On the basis of figures released by the Office for National Statistics, the Times (9 April) reported:

  ‘Private companies, excluding financial institutions, have tucked away £173 billion since March 2016, the last full quarter before the referendum, and are sitting on £747 billion of cash, a level not seen before. At 35.3 per cent of GDP, the size of their pile of cash as a proportion of national output is at a historic high (…) In 2017, before the financial crisis, cash balances as a share of GDP were only 25 per cent. In 2000 they had been 20 per cent. They started to climb in 2012.’

This brings out how capitalist firms operate. A firm is an independent unit of capital seeking, through the actions of its top managers, to expand itself by making a profit and re-investing this in more productive capacity and production.

Cash mountains arise when the money profit acquired from selling the product is not immediately re-invested. This happens when the market for the product becomes saturated through overproduction, so that it is no longer profitable to produce them. In the particular case highlighted by the ONS figures, however, the reason seems to have been different.

Since the referendum, which went the wrong way as far as most of them are concerned, firms have been waiting to see what the post-Brexit profit-making conditions are likely to be. But the Brexit negotiations have dragged on and on. Profits are still being made from maintaining production at current levels but, in view of the uncertainty, they are not being re-invested in expanding production. Firms seem to have been marking time and as a result, have accumulated profits as cash.

The Times described this as ‘cash hoarding’ but this is not an entirely accurate description. It is not as if the cash is being stored in some safe. It is used to bring in an income as interest through buying stocks and shares and government bills and bonds, in effect by being lent.

Some critics of the present economic system describe it as a ‘debt-based economy’. This suggests that capitalism is driven by the pursuit of interest. Some have even absurdly suggested that capitalism has been kept going by loans to workers to buy things. Actually, capitalism is based on the pursuit of profits, of which interest is a sub-division. Some firms borrow money to invest in production for profit and, when they make a profit, share a part of this with the banks or other financial institutions that put up the money.

Those who talk of a ‘debt-based economy’ tend to think that banks create the money they lend by a few keyboard strokes. In fact, they can only lend what they have. The present ‘cash mountain’ is a reminder of where some of the what-banks-lend comes from – those who have lent them money either directly, or indirectly via the money market, including from firms that for one reason or another have built up cash mountains from uninvested profit.

50 Years Ago: What is Capital? (1966)

The 50 Years Ago column from the July 1966 issue of the Socialist Standard

We have now to consider money a little further in the form of capital in the process of accumulation, or in other words the phenomenon of “money making money". For money in itself is not necessarily capital. Only when it is used for the purpose of adding to itself does it become so. When the independent producer (peasant or handicraftsman) brought his goods to market he received for them a certain sum of money which sooner or later he expended on articles of a different sort, largely for his own personal use and partly, of course, to buy fresh raw materials, etc. To him the money entering transiently into his possession was not capital, nor were the goods he sold, for he received in exchange goods of equal value. No interest, no profit accrued to him in the transaction.

Otherwise is it with the modern capitalist with a sum of money which is constantly expanding in volume. He buys commodities not for consumption for himself, but in order that in some form or other he may resell these commodities and realise a profit on the transaction. Apart from this profit his activities as a capitalist would be meaningless.

The independent producer bought commodities mainly in order to realise their use value in his own person. The capitalist buys them only to throw them bad into circulation and receive in return an increase in exchange-value. The simplest definition of capital, then, is money thrown into circulation only to be received back with an increase to itself, which increase becomes part of the capital which is again advanced to return with a fresh increase.

This increase or profit, Marx calls surplus value . . . In order to obtain surplus value the capitalist must find in the market not merely ordinary commodities (which are incapable of producing for him more value than they themselves possess) but some commodity which actually produces value, i.e., labour. This commodity he finds in the energies of the modern wage-labourer.

(From the Socialist Standard, July 1916).

Marxism's Relevance to China (1973)

From the September 1973 issue of the Socialist Standard

One of the bits of evidence produced by Maoists to show that the policies of the Chinese rulers are “firmly rooted in Marxist theory” is to point to the widespread circulation in China of works by Marx and Engels (and Lenin and Stalin too, of course). In itself, this is an absurd argument: one wonders how many bibles there are in that Christian and neighbour-loving country, the United States. Nevertheless, the prospect of large numbers of Chinese workers reading Marxist writings is one that Socialists can only welcome.

A reading of the writers mentioned above will reveal that they cannot all be fitted into a single system of thought. Marx and Engels provided a scientific basis for the establishment of Socialism, that is, for the emancipation, by their own action, of the propertyless wage-workers who had been brought into being by capitalism. The Bolshevism of Lenin and his successors, in contrast, furnished an ideology for the capture of political power in countries where capitalism was still in its infancy by a minority who would then develop the means of production in those countries along state-capitalist, not socialist, lines. The atrocious experiences of the Russian people under Stalin were an example of such state-capitalist development carried out in a particularly ruthless and violent manner — they were in no sense regrettable aberrations of Marxism.

Exactly which works are published in China is not always clear. One of the works which ought to see the light of day in China is Stalin’s pamphlet Anarchism or Socialism?, originally written in 1906-7. In this quite remarkable tract, the future dictator makes it quite clear that Socialism (he makes no distinction between Socialism and Communism) will be a society without buying or selling, with no need for political power, and without wage labour. No-one could read this section of Stalin’s pamphlet and believe that China was socialist.

However, there are some passages in the writings of Marx and Engels which, considering that they were written upward of sixty years before the Chinese revolution of 1949, are amazingly appropriate to developments in China.

For example let us examine Engels’ essay Socialism: Utopian and Scientific. At one point Engels discusses the way in which the social nature of the productive forces causes competition to give way to monopoly, with the creation of joint-stock companies or trusts. Following this, the state itself (“the official representative of capitalist society”) will have to undertake the direction of production. But, says Engels, the capitalist mode of production remains, whether ownership is in the hands of joint-stock companies or of the state:

The modern state, no matter what its form, is essentially a capitalist machine, the state of the capitalist, the ideal personification of the total national capital. The more it proceeds to the taking over of productive forces, the more does it actually become the national capitalist, the more citizens does it exploit. The workers remain wage workers — proletarians. The capitalist relation is not done away with.

What better description could there be of state capitalism as it exists today in China, Russia and (in the case of nationalized industries) in Britain? Only one step remains to be taken (though Engels does not take it), the realization that under such a system those who control the state machine can be identified as the ruling class.

Another passage which readers in China would do well to ponder occurs in Engels’ introduction to the English edition of this same pamphlet. He discusses the struggle of the bourgeoisie against the strictures of feudal society, a struggle which ended in the eclipse of feudalism and the victory of capitalism, and singles out “three great, decisive battles” — the Protestant Reformation in Germany, England in the seventeenth century, and the Great French Revolution of 1789. In comparing the features of these revolutionary movements, Engels comments:

Curiously enough, in all the three great bourgeois risings, the peasantry furnishes the army that has to do the fighting, and the peasantry is just the class that, the victory once gained, is most surely ruined by the economic consequences of that victory.

This is a brilliantly accurate picture of what was to happen in China. Peasant armies defeated both the Japanese invaders and the Nationalists under Chiang Kai-shek, bringing to power the Chinese Communist Party. Land reform, the aim of the peasantry and the main reason why they supported the CCP, was carried out over the period of 1950-2, and resulted in a more equitable distribution of landholding, but it was followed by various types of collectivisation, culminating in the communes. There are now no peasants in China (in the sense of agriculturalists who produce primarily for their own consumption on family holdings), only rural wage-workers. The peasantry as a class have certainly been ruined by the consequences of the victory for which they fought so hard (though their material standard of living has certainly been improved — but that is not the point).

One text which certainly ought to be available in China is Marx’s Capital. Its opening sentence is justly famous: “The wealth of those societies in which the capitalist mode of production prevails, presents itself as an immense accumulation of commodities”. This is undeniably correct with regard to China. However much one reads about state regulation of prices, and so on, this does not alter the fundamental reality of commodity production there. Let us look at a recent and naively enthusiastic account of the Chinese economy, Joan Robinson’s Economic Management: China 1972. How can an economist like Robinson, who has read her Marx, reconcile claiming that there is "production for use not profit” with saying “so long as industry yields profit to the state overall, it does not matter that some commodities are sold at a loss”? The proposition that exchange-values and production for use can co-exist is not one that would have appealed to the author of Capital.

Study of the section of Capital dealing with accumulation would help to explain some elements of the Chinese economy which Chinese workers may otherwise find puzzling. The need to accumulate capital is eloquently reflected in labour legislation in China: trade unions, for instance, were urged to organize labour emulation drives and strive to increase production, while workers involved in disputes with management were to maintain production (i.e., not strike). The legislation which set up the first communes laid down that the rate of increase in members’ wages was to be slower than the rate of increase in production; indeed in 1959, about thirty per cent, of commune income was allocated for accumulation. A dilemma of the sort familiar to capitalist governments the world over occurred in 1958: it was found that higher urban wages tended to attract country-dwellers into the cities, so the regime called on enterprises to lower the wages of the lowest-grade workers to the level prevailing in nearby rural areas in order to stem the flow of manpower into cities — in other words, part of the Chinese working class suffered a decrease in their standard of living as a calculated part of national policy. None of this makes sense if one believes that what exists in China is a higher kind of social system than capitalism, but if one views China as a late-developing capitalist country in a hurry to catch up, it is all perfectly natural.

It should be said that some Chinese workers have already realized the true nature of the social system they live under — the Sheng-wu-lien group in Hunan; see the Socialist Standard for November 1969. (In passing, one would like to ask those who believe that the Chinese dictatorship is “democratic”, whether the Sheng-wu-lien document is openly available in China.) Anyone who is able to use his eyes in China is quite likely to come across some of the usual features of capitalism, such as pollution (which is especially bad in big cities like Peking; see the Guardian, January 13), a wealthy élite (who apparently still exist today: see our companion journal the Western Socialist, 1972, No. 3) and, less concretely, an increasing concern with foreign trade. The Chinese rulers may perhaps be aware that in encouraging their subjects to read the basic works of Scientific Socialism, they are placing in the latter’s hands an exceedingly dangerous weapon — a knowledge of Marxism. In other words, capitalism, in China as elsewhere, produces its own gravediggers.

Paul Bennett

China Since 1949: A Survey (1974)

From the October 1974 issue of the Socialist Standard

When the Chinese People's Republic was inaugurated in 1949, Mao Tse-tung was careful to point out that the new society would not be Socialist. His inaugural speech said:

To counter imperialist oppression and raise her backward economy to a higher level, China must utilize all the factors of urban and rural capitalism that are beneficial and not harmful to the national economy and people’s livelihood . . . Our present policy is to regulate capitalism, not to destroy it.

The teaching of 1949 was that the workers and peasants of China still had to endure the development of capitalism — “several decades of hardship” (Mao, 21st September 1949) — before the change to “socialism” could be achieved. In the sophistries of the time China was “semi-feudal”; there were “semi-proletarians”, and the peasants were divided neatly into rich, middle and poor. There was also a “national bourgeoisie”, who were considered revolutionary allies, and a petty bourgeoisie who could be conveniently used as either comrades-in-arms or whipping-boys. The bogeys were the big landowners and the Kuomintang bourgeoisie.

Under “the people’s democratic dictatorship” the Chinese capitalists would develop the means of production together with a widening State sector and eventually the whole would fall into the laps of the workers. In the meantime the “democratic” structure would ensure that though a large section of the economy would remain capitalist, the capitalists would never exercise political power. Because the political institutions were democratically elected it followed naturally that the Chinese Communist Party, representing by definition the great majority of the population, would always be m power. It was similar, in fact, to the Chinese Imperial doctrine of “merchant operation, official supervision”.

The Capitalists

Of course it didn’t work. The idea of regulating capitalism had to be abandoned, largely because of the weakness of Chinese capitalists; the foreign capitalists who mattered — Mattheson & Lang, Butterfield, Russel & Co. — pulled out to Hong Kong after a very short time, leaving a gap which the Chinese had a hard struggle to fill. It was from this time, in the mid-fifties, that Mao and the CCP began to claim that China was socialist (the prefix “semi-” in front of "feudal” and “proletarian” was dropped at the same time). Chinese capitalists were bought out on terms described by Yuan-li Wu in The Economy of Communist China (1965) as follows:

A nominal ‘‘fixed interest” or “dividend” of 1-6 per cent a year, payable quarterly, regardless of the profit or loss of the enterprises in question, was promised to private stockholders for a period of six years. The amount was subsequently revised to a uniform 5 per cent per annum.

These compensation agreements were in fact extended for further periods, and as far as can be ascertained dividends are still being paid. Many capitalists were also offered State agencies on relatively generous terms. However, the smallness of the area in which these owners operated must be borne in mind. It was the confiscation of banking and manufacturing interests of owners identified with the Kuomintang that gave the Communists, at the beginning of their rule, a nucleus of important financial and manufacturing enterprises in addition to already-State-owncd enterprises.

By 1956 it was claimed that the proportion of the “capitalist enterprises” in the gross value of output of industry had declined to 0.1 per cent. However, as with so much else in China, hard facts are not so easily come by. As in Russia, illegal manufacture and trading have been widespread and persistent. Wu says:

In fact, among the “crimes” the Communist authorities have tried to stamp out are the matter of unauthorized invoices and purchase orders, purchase and sale of raw materials on the black market, and production in “underground factories”. These “deviations" became especially prominent in the spring of 1963 and required the institution of official drives to eliminate them along with the “rectification" of various "individualistic trends" contrary to the spirit of planning. The 1963 drives were reminiscent of similar campaigns in 1952. The Soviet tolkachi (pushers) most definitely have their Chinese counterparts.

It is often assumed that Soviet aid was, before the breach between the two countries, highly important to China. Certainly it was the major source of foreign capital, but its volume was quite negligible. In The Journal of Asian Studies, XXI, 1961, F. H. Mah estimated that only 727 million yuan out of 3 billion yuan loaned by Russia to Communist China during the First Five-Year Plan consisted of economic loans — about 1.5 per cent, of the state capital investment; the remainder was military loans and transfers of assets already in China. Wu estimates the total of Soviet loans between 1950 and 1957 at 5.2 billion yuan. (Exchange rate between yuan and $: 1 yuan = $2.5.) Thus, the principal source of capital investment was domestic capital formation.

Party and Bureaucracy

In an article “China’s ‘New Economic Policy’ ” in China Under Mao (1973) Franz Schurmann says: “The bitterness against the Soviet Union runs very deep in China.” Mao Tse-tung and Hoxha of Albania are the only political leaders in the world today still singing the praises of Stalin, yet Mao can have nothing for which to thank Stalin. When after 1917 the European revolution did not materialise for them the Bolsheviks turned their interest to China. From the time when the Chinese Communist Party was formed in 1921, until 1940, it was under the domination of the CPSU. (The name adopted was the Chinese CP, and not the CP of China: this is a unique distinction among national Communist parties, implying a subordinate status.)

In the ’twenties and ’thirties the advice from Russia to the Chinese Communists in their struggle against Chiang Kai-shek was continually disastrous. When the struggle resumed after the war Stalin gave little encouragement, and at the point of the Communists’ victory in 1949 urged a compromise settlement: a divided China was a better prospect for Russia than a united one. John Gittings says in The History of the Twentieth Century (Vol. 6, p. 2483): “the Chinese knew that Stalin’s foreign policy was dictated by national interest rather than by ‘proletarian internationalism’.” After a few years of alliance marked by well-founded mistrust, the rift came over nuclear weapons. The line taken in China, however, was that Stalin’s successors had departed from the principles of Lenin. An Editorial commemorating the 50th anniversary of the CCP in June 1971 said:

Khrushchev, Brezhnev and company are renegades from the proletarian revolution, and present-day social-imperialists and world storm-troopers opposing China, opposing Communism and opposing the people. It is our Patty’s bounden internationalist duty to continue the exposure and criticism of modem revisionism with Soviet revisionism at the centre and carry the struggle through to the end.

(Translated Peking Review, 2nd July 1971)

The historical oppressors of the Chinese people are the Imperial Despot and the bureaucracy which administered the despot’s will; and, by implication, the Confucian philosophy which sanctioned them. Mao’s declared aim is the abolition of bureaucracy. The ideological quarrel with the Soviet Union is that, according to Mao, it is the interests of the bureaucracy which govern the politics of Russia: the Party must be a wholly separate institution if it is to identify with the interests of the people. Yet all Mao’s attempts to curb the bureaucracy have failed. From the Great Leap Forward, through various rectification and education campaigns, to the Cultural Revolution and the anti-Confucius campaign, immediately the pressure has been eased the bureaucracy has re-established itself. The reasons are only too obvious, given the industrial and commercial structure China is building. Schurmann describes it:

Factory administration has been recentralised, with major decisions once again being made at the executive level, rather than on the production floor. Money is stressed over production . . . much of the talk about economising could come from the mouths of good Republicans in the United States. Concern over money also implies an orientation to some kind of professional or technical élite (bankers, executives, etc.) and so it is not surprising that the present turn toward accumulation has gone hand in hand with a return of authority to the country’s professional intellectuals.

The ideal of every regime is to see ideology and organization go hand in hand. When they fail to do so, scapegoats are usually sought; and since the advent of “socialism” in China Mao’s speeches and writings have been about little else than the dangers of subversion from “capitalist-roaders”.

Workers and Peasants

The living conditions of the Chinese peasant and worker are hard by any western standard. By their own standards, it can be said that things have never been otherwise and would be no different under any other government in China. It can be said, further that millions do not now die every year from starvation. Yet, since China has adopted the devices and modes of organization necessary to being a major power in the capitalist world, it is the standards of that world that must be applied.

The primary task for the Communist régime was the accumulation of capital. In Problems of Capital Formation in Underdeveloped Countries (1964) Ragnar Nurkse writes:

External resources, even if they come in the most desirable forms, are not enough. They cannot automatically provide a solution to the problem of capital accumulation in backward areas . . . Greater efficiency in food production is the basic way of releasing human energy for capital construction. The domestic saving potential consists here in an increment of real income, and the task of mobilizing it is to withhold the highest possible proportion of this increment for investment purposes. (Our italics.)

Thus, along with the establishment of “mutual-aid teams” — predecessors of the agricultural communes — in the early years political means were used to curtail consumption. As well as heavy taxation, compulsory saving, and rationing of necessities, "conspicuous consumption” was made a crime. According to Choh-ming Li’s article “Economic Development” in China Under Mao, per capita consumption of food, cloth and housing services declined from 1952 to 1957 and in the following two years “took a deep dive. The severe shortage of staple (rice and wheat) and subsidiary food was nation-wide.” In the rural areas, where 50-70 per cent, of total output was required to be set aside as accumulation, there was considerable discontent. Yuan-li Wu in his book says:

In the course of the programme to establish control over resources for accumulation, a principle of low wages and low farm income was evolved. The system of low wages, according to Communist Chinese authors, is one under which all workers would have enough to eat while improvements in the standard of living would be gradual and would be granted only on the basis of further development in production.

Industrial wage differentials on an eight-point scale were introduced in 1956. It was estimated in 1964 (Charles Hoffman: Work Incentives in Communist China) that the wage rates of the highest grades in Manchurian industry were 2.5 to 3.2 times those of the lowest grades; and in the ’sixties other material incentives — rewards and bonuses — were extended. A social welfare system has been steadily expanded with the familiar range of insurance benefits and including subsidized housing. The role of trade unions is similar to that of other Communist countries: enforcing labour discipline, performing welfare functions, and acting as a department of the government rather than as guardians of the workers’ interests.

All Toe the Line

What is considered one of Mao’s most important theoretical statements is his 1957 speech On the Correct Resolution of Contradictions among the People. It is part of life in China that absolute conformity is demanded; while speaking of the dignity of “socialist” man, Mao encourages every deception for degrading opponents and non-conformists. Though the CCP has not reproduced the slaughtering political purges which took place in Russia in the nineteen-thirties, in another sense a purge goes on all the time in the form of the continual “rectification” campaigns.

The Party in China has probably played a more crucial role than its counterpart did in the early Soviet Union. It aims to be in command in every department of social endeavour. Its legitimacy is its interpretation of Marxist-Leninism, conveyed through “the mass line”. By definition, the correct policy of the CCP must be one which will be acclaimed by its own model worker (assumed to be the overwhelming majority); the mass line is Mao’s attempts to give practical demonstration of this.

The CCP has built an elaborate system of communication. A decision made at the centre is carefully graded as information, directive or instruction; it is elaborated in the newspapers, and suitable correspondents procured to identify the CCP with the mass line. A meeting — the vital part of the system — follows. Pretending the possibility of CCP fallibility, the meetings are market-research exercises at which some notice may be taken of views from the floor. Though local party fractions are allowed latitude in the means they adopt, each exercise is stage-managed to give no choice as to the decision over the mass line. Preparatory open and secret sessions are held, the speakers selected, questions planted and bogeys exploited. In the end, the CCP’s correctness is demonstrated, and opposition becomes the evil intent of recalcitrant workers influenced by bad elements (“poisonous weeds”).

On the other hand, the Chinese rulers have discovered what western ones learned: that they can go too far. During the Great Leap Forward workers toiled to the point of exhaustion and produced shoddy goods in the factories, while the bumper crop of 1958 suffered heavy losses from the tiredness, hunger and resentment of the peasants. The disaffection was not confined to economic factors: it concerned corruption, maltreatment by the militia, the threat of labour camps, and the enforced disintegration of family life in the communes. The mass line has had to be accompanied by reforms.

Socialism or Sam's Image ?

What kind of social system exists and is being developed in China ? They claim it to be Socialism:

Article I. The People’s Republic of China is a socialist state of proletarian dictatorship led by the working class (through the Chinese Communist Party) and based on the alliance of workers and peasants.

(Draft Constitution, 1970-71)

The economic, political and social resemblances to Russia of, say, forty years ago are striking — even to the humourless ponderosity of speeches and writings and the endless sloganizing, and their repetition by parrot-brained supporters abroad.

Not one of the economic characteristics of Socialism is to be seen existing in China. The wages system is not abolished but flourishes. Production in its entirety takes place not for use but for accumulation and profit. So far from withering away or becoming an “administration of things” the State has consolidated itself and taken pride in being a dictatorship — of “the proletariat”, which would not exist if there were Socialism.

However, it is not even a question of theoretical shortcomings. The idea of Socialism is founded on the desire for equality, freedom of choice, and the population to be able to claim the fruits of its labour. Because it is opposed to capitalism, there is an over-riding implication that the consequences and concomitants of capitalism — war, economic crises, the shyster dealing between nations — would be absent. And if by some word-magic the theoretical rules for Socialism could be shown to be complied with but the latter conditions were not fulfilled, all Socialists would say that Socialism wasn’t worth having. What they have in China is not Socialist life.

One argument is that though the Chinese system is admittedly not Socialism, it is not capitalism either, because investment is in the hands of the State and a capitalist class in the traditional sense cannot be seen. The obvious point to be made is that, as in Russia, this makes no difference whatever to the social relationships of production; with the State behaving as the capitalist, the working class is exploited to produce interest and profit just the same. Given favourable historical circumstances, some nations can do all the time what others can do only part of the time. Ragnar Nurkse makes plain that this has nothing to do with “socialist” as against capitalist economies:

The country that affords the most notable instance of forced collective saving is Soviet Russia under the five-year plans since 1928. In this case private investment activity was entirely suppressed . . .   I mention it along with the others only in order to bring out the point that in countries with widely different political ideologies the system of collective saving appears to have arisen from basic economic needs which those countries had in common. It worked of course imperfectly, being man-made; but it worked nevertheless. It became very prominent in the post-war reconstruction effort of Western Europe in the 1940’s, but that is an example that does not come from an underdeveloped area.

Moreover, the State can respond to economic needs by admitting outside investment and private enterprise at times. After 1961 (see China Under Mao, pp 222-228) the right of enterprise management to make autonomous use of the capital furnished by the State, so long as quotas and targets were met, was emphasized. The purpose was to overcome defects in the planning system; it was accompanied by permitting open markets to develop, and one immediate consequence was the growth of advertising. Obviously the State at another time will seek to repress what it has licensed and encouraged — leaving the position that sometimes individual profit-makers can be discerned and sometimes not.

The centralized Soviet-type economy is sometimes thought to have greater stability than “free enterprise” and “mixed” economies. This is not true (the difference is the difficulty of obtaining information). It is now generally accepted that the failure of the Great Leap Forward was “a depression, such as in the capitalist world: overproduction, underconsumption, drying up of savings, unemployment, decline in business morale, disruption of the market, etc.” (Schurmann, ibid.) Nor has the Chinese régime escaped the problem of rising prices, or abstained from inflationary “deficit financing” (increasing the note circulation).

What has been set on its feet in China therefore is capitalism: where the privileged smirk and philosophize, and the peasant and the worker bear the burden. The announcement of the American President's visit there in 1971 said :

The meeting between the leaders of China and the United States is to seek the normalization of relations between the two countries and also to exchange views on questions of concern to the two sides.

It might have been more simply put: Uncle Sam recognizes his own image.

Robert Barltrop