Cooking the Books: Human capital (2026)

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

Announcing plans to cut nearly 8,000 jobs by using AI instead, Bill Winters, the CEO of Standard Bank, told reporters:

‘It’s not cost-cutting. It’s replacing in some cases lower-value human capital with the financial capital and the investment capital we’re putting in’.

He seemed to have forgotten that he was not addressing a board meeting but the general public. The resulting outrage at him calling his employees ‘lower-value human capital’ forced him to apologise. But he was actually accurately describing a fact.

What a capitalist firm has to set aside to pay its workers is part of its capital. You could call it ‘human’ capital as opposed to the capital invested in plant, equipment, machines, materials and power.  Or, expressed another way, it is the difference between ‘living’ labour and ‘dead’ labour, useful as it brings out that the other factors that capital is invested in have been produced by people working.

The terms Marx used to make this distinction were ‘variable’ capital and ‘constant’ capital, as set out in chapter 8 of Volume I of Capital:

‘The means of production on the one hand, labour-power on the other, are merely the different modes of existence which the value of the original capital assumed when from being money it was transformed into the various factors of the labour-process. That part of capital then, which is represented by the means of production, by the raw material, auxiliary material and the instruments of labour does not, in the process of production, undergo any quantitative alteration of value. I therefore call it the constant part of capital, or, more shortly, constant capital. On the other hand, that part of capital, represented by labour-power, does, in the process of production, undergo an alteration of value. It both reproduces the equivalent of its own value, and also produces an excess, a surplus-value, which may itself vary, may be more or less according to circumstances. This part of capital is continually being transformed from a constant into a variable magnitude. I therefore call it the variable part of capital, or, shortly, variable capital’.

So the money invested in buying the ability to work of employees is indeed a part of capital. Economically speaking, that’s what workers are and that’s what they are treated as.

Winters claimed that it wasn’t about cost-cutting. Of course it was. What would be the point of investing in AI if it wasn’t cheaper than having the work done by humans? What he was probably trying to say was that the board had decided to use a larger proportion of its capital as non-human capital than as human capital and that some of the latter was of ‘lower value’ to his business because it was costing more and so reducing profits.

He would be really ignorant if he thought that human capital in general was of ‘lower value’ to a capitalist business than non-human capital. The source of profits is precisely the extra value over and above its own value that living labour produces, the amount by which such capital ‘varies’ compared to its original value. But perhaps he was misled because he is running a bank and banks don’t actually produce anything but siphon off a part of the surplus value produced in industry.

The indignation of workers at being called ‘human capital’ brings out a key difference between the two types of capital. Humans can think and act and so can get together to end their economic status as a part of a capitalist business’s capital — by ending the whole economic system where production is in the hands of money-investing, profit-seeking businesses.

Revolution’s Reply to Reform. (Part 3) (1910)

From the February 1910 issue of the Socialist Standard

The answer to “Arms for the Workers: A Defence of the Programme of the Social-Democratic Party.” (E. C. Fairchild, Lon. Organiser, S.D.P.)

(Continued from previous issue)

Those who talk so glibly of Minimum Wage enactments cannot, surely, have paid due attention to the manifold ramifications of the competitive mainspring of capitalist production. Even if such an act could, in spite of all the powers against it, be carried into effect, still the be all and end all of capitalist production—profit—would not consent to defeat.

Stronger than Parliaments and the laws of Parliaments, than the colossal armed forces of nations in the hands of Parliaments, are the economic laws. So, if political law affects to limit the degradation of wages, the economic law of machinery under capitalism comes into operation and restores the degree of exploitation.

The law may be stated thus: Every increase in the cost of labour-power tends to the increase and development of machinery.

Many who are not ignorant of this law refuse to accept it because they do not thoroughly grasp its meaning. They argue that Necessity is not so much the mother of Invention that every need of the capitalist class is at once productive of the inventive genius to satisfy it. But such an argument shows a wrong interpretation of the law.

Machinery exists and plays its part in every productive field. But it is in no trade or industry of even perfection throughout. Its development at any given date is a matter of innumerable gradations and degrees. To take an example—the newspaper printing trade. Not every newspaper is printed on the latest “Hoe” machine flashing off 40,000 copies folded and counted in an hour. From this the means in use tail away, through numberless shades of backwardness, into comparative antiquity. But everywhere the means are being used which the individual proprietor judges are most profitable to him, in his circumstances. Thus though the latest “Hoe” marvel is of undoubted value, the machine of fifty years ago still clanks on its way to the scrap-heap.

Each improvement in machinery may be likened to the effect of a stone thrown into a lake. Its circle of profitableness gradually enlarges with time while the degree of its profitableness decreases until it has become too obsolete to yield profit to anyone. In one circle the invention of the hour is eagerly seized upon, in another circle the means of yesterday are most profitable, while yet a third circle of exploiters are limited to the machinery of five years ago, and so on. And everywhere there are owners debating with themselves the question, of whether it would pay them to throw out certain machinery and replace it with something more up-to-date.

Now—to revert to our example—what will be the result of an increase in the cost of labour-power in the case of the newspaper printing trade ? Wages having advanced, the arguments in favour of the further adoption of wage-saving machinery are at once increased. The waverers become decided and the fringe of doubt takes a larger circumference. Each stage of perfection in machinery experiences a rapid extension of its sphere of profitable exploitation, and throughout the whole industry, without the aid of a single new invention, machine development takes a step forward. At the same time at the top of the tree the capitalists are more receptive of new inventions, while at the bottom those who have been struggling to hold their own with antiquated means, are plunged into ruin by the fresh handicap of dearer labour-power, their machines find their way to the scrap-heap, and the work which those machines had been doing with extravagant expenditure of labour-power is transferred to more economic machinery, to the enhancement of the army of out-of-works.

Thus together with the introduction of improved machinery we get displacement of workers and an increased army of unemployed to struggle against any artificial restriction of wages, to defy every penalty with which the most sincere advocates can hedge about the Minimum Wage or any other limitation of the starving multitude’s liberty to compete for work at any price.

It is a fruitless argument to say that the advance of wages demanded by such a “palliative” as the Minimum Wage would be too small to have this general effect. Such a claim cuts against its user, for a reform does not become more worthy on account of insignificance. Moreover, the measure of its extent is the measure of its effect.

And in those trades in which such an Act would most apply—the so-called sweated industries (as if there are any industries which are not sweated) ; the industries which lend themselves to being carried on in the homes of the workers—the law of machine development would operate with two-fold force. In such fields machinery and the factory system are only kept at bay because labour-power is so terribly cheap. Yet, awful as it appears to say it, any legislative attempt to raise the wages of these poor creatures can only, as far as it is effective at all, result in handicapping them against their merciless competitor, machinery.

In a later section Mr. Fairchild talks of initiating measures to deal with the consequences of the “initial proposals.” The consequences of the “introduction of a law of minimum wage,” supposing that it could be effectually enforced, will be the extension of machinery and increased unemployment. When our reformer convinces us that he has a measure capable of dealing with this obliterating “consequence” it will be time enough to agree with him that the share of the total wealth production taken by the working class can be caused to rise by wage legislation.

The Position of the Working Class.

In the next four sections our author abandons all serious effort to deal with his subject, and indulges in a little quiet fun at the expense of his readers. He tells us, for instance, that “we do not know the things we cannot see.” The blind man, then, doesn’t know when he is hungry. Can it be also, that our reformer knows nothing of economic laws because he cannot see them ? Then an exuberance of spirits leads our opponent to have a fling at those who argue that the enactment of the palliative proposals retards the realisation of Socialism. And this is how he proves his case:

“The outcast may complain in whining minor tones while he stands shivering on the wind-swept Embankment, but a basin of soup, shared with cabinet ministers in court dress, is enough to make him suspend criticism of the social system.”

He gets a good hold and swings his opponent clean off his feet, yet when the fall is consummated our S.D.P. champion is underneath. For the starving wretch at least complained until they shut his mouth with the palliative basin of soup, after which the social system was above criticism and, presumably, Socialism was retarded.

But the greatest joke of all is that Mr. Fairchild deludes his readers with the section heading ,”The Position of the Working Class,” and then, fails to give them any information upon the subject. As a proper understanding of the position of the working class is essential to the intelligent consideration of the “palliative” question, the omission must be rectified.

The working class is the class which works for wages. Wages represent food, clothing and shelter, therefore, it may be said that the working class is the class which works for food, clothing and shelter. To give this definition is to imply that there is a class which does not work for these things. Now as a man may not always be able to work, while he must always have the necessaries of life or he must die, it is obviously of advantage to him that work, and food, clothing and shelter should not hang together, in other words that his living should not depend upon his working.

While it is true that man, as a natural order, cannot live without labour, that very truth tells us that if one class does not work for its living, it must subsist upon the product of the class which does work. So we get the first two conditions of the working-class position—it is the class which works for its own living in the first place ; it is the class which works for the living of the non-working class in the second place. What is the reason of this double disadvantage ?

If it is disadvantageous for a man’s livelihood to depend upon his working it is doubly so for him to have to labour to support others. Why does the worker do it, then ? Why, in the first place, does he not do as the non-worker does—live without labour? Why, in the second place, does he not produce food, clothing and shelter for himself alone ? Why, in the third place, does not the non-worker do the same as the member of the working class—work for his living ?

Those things which we indicate by the term livelihood, all come in the category “economic wealth.” Wealth (we must be understood to use the term in the economic sense) is natural objects which have been changed in form or rendered accessible to man by the expenditure of human labour-power. The fish of the sea is not wealth until it is caught—it is not caught without labour. Therefore the two essentials in wealth production are the natural objects and human labour-power.

No man or class, then, can produce wealth without command of or access to these two factors. Have the workers this access to the means of wealth production ? We know that (save through permission) they have not, for though they have one essential—labour-power—the source of the other essential—the natural object—is the land (or water) and the land belongs to others. We find the answer to our second question first. The working class cannot produce wealth except upon terms, because the land and—what are quite as necessary to the process in these days—the machinery of production and distribution, are held by a class.

We now learn concerning the position of the working class, that it is one of subservience to the class which hold the means of life ; and this further—that as the question of the terms upon which the workers can get access to the means of production must be referred to continuous struggle, their position must necessarily be one of opposite interests to that of the possessing class, and therefore of antagonism. In other words, their position is clearly that of one party to a class struggle, which must continue as long as there are opposing class interests, as long as one class stand between another class and their means of living, as long, finally, as private ownership in the land, factories, machinery, mines, railways, and the like shall exist.

Now what are the terms upon which the workers are permitted to use the machinery of production ? Common experience, that fount of all our knowledge, teaches us that the terms are the surrender of their labour-power in return for wages. With the product of their toil they have nothing to do—that remains with the purchaser of their labour-power. So far the worker has obtained his living, but how has the non-worker materially benefitted ? If the value of the product of labour which is left in his hands is no greater than his expenditure upon it has been, it is very clear that he has had no material gain from the fact of his dominance of the means of life, and upon such result he cannot maintain his position as a non-worker. We must therefore look for increased value in the product of the worker’s toil.

Working-class economics teach us that what really happens is this. The master or capitalist purchases labour-power and raw material (natural objects to which labour-power has been applied), and expends the former upon the latter. The labour-power, once expended, has ceased to exist: it has been transformed into labour, stored up in the material upon which it has been expended. To say that its value has entered into the latter is not the whole truth. It has undergone change, and this fact is of vital importance. When the capitalist purchased raw material he really only paid for the stored up labour within it. The actual substance of it did not count. He therefore purchased on the one hand labour (stored up in the raw material) and labour-power (stored up in the body of the labourer). Now that the labourer has expended his strength or labour-power, neither he nor the capitalist longer possesses it, but the latter possesses an increased volume of human labour accumulated in the material of the natural object.

The only difference, then, in the position of the capitalist at the time of purchasing labour and labour-power and now when the power has been expended, is, then he owned two factors—labour and labour-power—while now he owns but one—congealed labour. Yet if he is any better off, any richer or more able to live without working, the why and the wherefore must be sought in this conversion of labour-power into labour.

If a labourer by consuming one loaf of bread could gain therefrom only sufficient labour-power to produce another and equal loaf of bread, there could be no increase of value. It is quite imaginable that given sufficiently primitive means of production, no better result could attend human effort. In that case there could be no non-working class. But if the means of production improve so that the labourer by consuming one loaf generates sufficient power to produce two loaves, then an increase of value becomes possible.

Herein is the whole secret of the source of capitalist wealth. Labour-power is purchased for what it costs to produce. The energy produced by a loaf of bread is bought for wages equalling a loaf of bread (we must take broad averages, of course). It cannot be bought for less, for the labourer must have the cost of production of his labour-power in order to reproduce it and continue in working efficiency. It will not (in the long run) sell for more because machinery provides an unemployed army and the competition of these keeps wages down to this level. But the labour-power created by one loaf produces other loaves in number according to the development of the machinery of production.

If then, the consumption of a loaf by the labourer results in labour-power sufficient to produce two loaves, which the capitalist buys for one loaf, the exploitation of that labour-power leaves the latter with two loaves instead of one. He has succeeded in getting the means of life without working for them—simply by virtue of his power of keeping the worker away from the productive machinery save upon terms. These terms give to the capitalist all the difference between the value of the labour-power and the value of its product—between the one loaf which it cost the labourer to produce his energy and the two or more loaves which that energy in turn produces.

The cost (reckoned in amount of sustenance) of producing labour-power remains pretty constant. A pound of wheat generated very much the same quantity of physical force a century ago as to-day. The value created by labour remains exactly constant, for labour is the measure of value and, notwithstanding the improvement in machinery, the product of an hour’s work a hundred years ago was the same value as the product of an hour’s work to-day—in each case the value is an hour’s labour. The difference, however, between the cost of producing labour-power and the productive capacity of labour-power increases with the development of machinery, and this increase has an important influence upon the position of the working class.

If the wages of the labourer equal one loaf and his product two,, he will be able to buy back one loaf, while his master may presumably consume the other. In such case the services of the former are needed to produce bread the next day. But if by the improvement of machinery the worker is able to add to existing value (raw material) not only the loaf represented by his wages and the loaf consumed by his master, but an additional loaf, then his services can be dispensed with until that loaf is disposed of ; in other words he has produced too much and may become-unemployed. Apply this to the whole field of industry, and it is seen that every advance of the productive machinery heaps up against the workers a greater burden of “surplus” wealth to “slump” the market and throw them out of work ; that the increasing fertility of human labour renders more precarious and more hopeless the position of the working class.

From what has been said it is apparent that the development of the industrial process, ever rendering human labour more productive, ever increasing the difference between the cost of producing the workers’ efficiency and the productive capacity of that efficiency, ever heaping up against the worker a larger share of his own products which wages will not enable him to consume, draws ever clearer and firmer the line between the two classes. The development of productive instruments means increased wealth for their owners and increased poverty for those who, as a class, operate them. Here is antagonism of interests. Here is war to the knife. ]t shows itself in the banding together in trade unions, in myriad strikes and lock-outs, and in the universal endeavour of the workers to-limit output.

The position, then, of the working class is, on the economic field, fundamently one of opposition to the master class. As material interests must be fought for or surrendered, there must necessarily eventuate from these opposing class interests a class struggle. Such a class struggle, we affirm, exists. It cannot remain a struggle on the economic field for terms, for the laws arising from the productive system prescribe those terms and decrees such a struggle hopeless to the workers. Their only hope, then, is in a new system—the Socialist system. Towards this end the class struggle must be directed.

And the recognition of this class struggle is the first essential to its intelligent and successful prosecution.

A. E. Jacomb

(To be Continued.)

Letter: The Rate of Profit (1977)

Letter to the Editors from the December 1977 issue of the Socialist Standard

The Rate of Profit

Did Marx hold that the rate of exploitation of workers increased inevitably? This appears to contradict his theory of the falling rate of profit, though I am aware he adduced counteracting tendencies that could increase the rate of profit?

Robin Cox

Haslemere

Reply:

The outstanding feature of what Marx wrote on this subject is his insistence that he was dealing only with tendencies, some working in one direction and some in the opposite direction. So at the beginning of Chapter XIV in Capital Vol 3 he wrote: “For this reason we have referred to the fall of the average rate of profit as a tendency to fall.”

The chief factor leading to a fall in the rate of profit arises from the tendency of the composition of capital to change in the direction that of every £1,000,000 capital invested a larger part takes the form of constant capital and a smaller part variable capital (wages). He illustrated this (see Chapter XIII) by showing how, with the same rate of exploitation and the same amount of surplus-value, the rate of profit on a capital of low composition would be 50 per cent. and on a capital of higher composition 20 per cent.

In Chapter XIV he listed some counter-acting tendencies, the first of which was increasing the intensity of exploitation, i.e. extracting more surplus-value from the workers.

But the capitalist cannot increase the intensity of exploitation simply because he wants to. He has to take account of the degree of resistance the workers can put up. Marx dealt with this in Chapter XIV of Value, Price and Profit. He showed that the actual rate of profit “is only settled by the continuous struggle between capitalist and labourer, the capitalist constantly tending to reduce wages to their physical minimum and to extend the working day to its physical maximum, while the working man constantly presses in the opposite direction. The matter resolves itself into a question of the respective powers of the combatants.”

That this is not just an academic question is shown by Engels in his 1892 Preface to The Condition of the Working Class in 1844, where he points out that in the fifty years since 1848 the factory workers “are undoubtedly better off” and that the condition of the workers organized in trade unions “has remarkably improved since 1848".

On the other hand a glance at Chapter XIV of Capital Vol. 3 will show that some of the factors listed by Marx as tending to raise the rate of profit are still operating.

It should also be borne in mind that in dealing with the rate of profit Marx was concerned with the workers in the productive sphere where alone value is created. This should not be confused with the different question of the proportion of annual national income received by the whole working class. In Chapter II of Value, Price and Profit Marx accepted the possibility that at that time 86 per cent. of the population received only 33 per cent, of the national income. Even if that figure exaggerated the actual degree of inequality, it is undoubtedly true that 86 per cent. of the population in this country now receive a larger proportion of national income than when Marx wrote.

Editors.

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.]

Marxian Economics (2002)

Book Review from the June 2002 issue of the Socialist Standard

Karl Marx and the Classics. An Essay on Value, Crises and the Capitalist Mode of Production. By John Milios, Dmitri Dimoulis and George Economakis. Ashgate. 2002.

The book’s title reflects the fact that in one sense Marx was in the tradition of Classical Political Economy, building on the work of Adam Smith and David Ricardo both of whom like him propounded a labour theory of value. On the other hand, Marx regarded his work as a “critique of political economy” (the title of one of his books and the subtitle of Capital).

Marx’s critique is straightforward enough. Smith, Ricardo and the others imagined that they were studying economics as if it were a natural science like physics or chemistry whose laws were valid for all times and places. Marx pointed out that what they (and he) were in fact studying were phenomena that only came into being under specific historical and social circumstances – predominating production for sale on a market with a view to profit – and that the laws and categories they used (such as value, price, money, wages, profits, rent and interest) were not useful or valid for all time and for all economic systems. Value didn’t exist before capitalism came on to the historical scene and wouldn’t exist after capitalism had disappeared.

This meant, the authors point out, that when Marx used the word “value” he did not mean the same thing as, in particular, his immediate predecessor, Ricardo. Whereas for Ricardo value was an empirically observable phenomenon that could be measured directly in terms of the amount of socially necessary labour-time needed to produce it from start to finish, for Marx value was an intangible social relation and which would exist under any economic system. As such it could not be measured directly, not even in terms of labour-time. All that could be measured was its expression as “exchange-value”, ultimately as a monetary price (which, due to the averaging of the rate of profit, was only indirectly linked to a commodity’s notional labour-time content).

The authors criticise Marx for not always sticking in his writings to this distinction and for occasionally slipping back into Ricardo’s position. This may well be true – there is certainly a discrepancy between his endorsement, albeit rather lukewarm, of labour-time vouchers in one place and his devastating criticism of schemes for labour-money elsewhere – but it should be borne in mind that in his first publications – The Poverty of Philosophy (1847) and A Critique of Political Economy (1859) – Marx didn’t distinguish between value and exchange-value and that, apart from Volume I of Capital (1867), all his other writings on economics were unedited, hand-written notes, prepared for publication by others after his death (Volumes II and III of Capital, Theories of Surplus Value, the Grundrisse). Since Volume I of Capital was carefully edited and seen to publication by Marx himself (incidentally, after most of his posthumous publications had been written) in cases of ambiguity or even contradiction it is what he wrote in this that must be regarded as his considered view.

On two keys points of understanding the way capitalism works the authors reach the same conclusion as we have, on the so-called “law of the falling tendency of the rate of profit” and on the reason for economic crises.

Much ink has been spent on the falling rate of profits (sometimes called, in view of so many predictions which failed to materialise, the falling rate of prophets). Many consider it to be a key element of Marxian economics, an economic law of capitalism uncovered by Marx. Marx’s point is simple enough. Capital is divided into “constant” capital (buildings, machinery, materials, etc) whose value is simply transferred unchanged to the product in the course of its production and “variable” capital (the capital laid out in employing productive labour) so-called because this is the only element of total capital whose value “varies” through productive wage-labour producing a “surplus value” over and above its original value. Marx calls these C, V and S respectively and so expresses the rate of profit as: S/(C + V). It is clear that, from a purely mathematical point of view, that as long as S/V (the rate of exploitation) remains unchanged if C increases faster than V the rate of profit will fall. Marx set out one good reason why C would tend to increase faster than V: technological advance. With this more of the accumulated capital takes the form of means of production (C) than of additions to the wages bill (V).

However, Marx deliberately chose not to call this the “law of the falling rate of profit” but merely the “law of the falling tendency in the rate of profit” (an odd formulation since something must either be a law or tendency but not both, but this was taken from one of Marx’s unedited papers). This was because he knew that other factors than technological advance could affect the outcome and that it could not be assumed that these would always be constant (as “the law of the tendency” as stated above assumed). Marx went on to list various “counter-tendencies”. Two in particular stand out.

The first is what he called the “cheapening of the elements of constant capital”, by which he meant factories, machinery, etc, and the ways of using and organising their use, becoming cheaper than previously. For instance, technical advance need not necessarily translate itself into C rising faster than V and would not if the inventions and innovations were more “capital saving” than “labour saving”. C could also rise less than V for non-technological reasons such as falls in raw material and energy prices due to market conditions.

The second was an increase in the rate of exploitation (S/V), i. e., the amount of surplus value produced per unit of productive wage labour. This in fact is another consequence of technical advance and indeed, under capitalism, is precisely why technical inventions and innovations are introduced, the capitalist class waging a non-stop class war against the working class to increase the amount of surplus value extracted from their labour—what might be called the “law of the rising tendency of the rate of exploitation” or indeed even the “law of the rising rate of exploitation”.

It should be clear that if C does not increase faster than V and/or if S (the amount of surplus value) increases, then (other factors remaining the same) the rate of profit (S/C + V) will not fall. Which means that, in the world of real capitalism, the outcome of these tendencies and counter-tendencies cannot be predicted in advance. As the authors put it:

“. . . the Marxist ‘law of the falling tendency’ in the rate of profit, although logically sound, is not a theoretical reflexion of the actual trend of the rate of profit . . . it applies under certain conditions . . . that may well not exist in a given capitalist society. Furthermore, it influences the rate of profit along with a variety of other factors not directly associated with technological innovation, factors which Marx considered to remain constant when presenting his ‘law’. This means that a falling profit rate in a given capitalist economy over a time period, which may be established on the basis of concrete empirical analysis, can be due to factors other than those related with technical innovation and the ‘law of the falling tendency’, which means that a further investigation will be necessary, if one wants to locate the exact causes of the profit rate’s course” (pp. 155-156).

The authors take the same approach to the reason for economic crises under capitalism to reject the same views held by some in the Marxist tradition as we do:

“Crises are conjunctural suspensions of the conditions for unimpeded reproduction of total social capital. They constitute transitory manifestations of the internal contradictions of capitalism and not permanently operative causal relationships inherently governing capitalist relations (a permanent deficiency in consuming power as against production, or the ever acting ‘law of the falling tendency in the profit rate’)” (pp. 182-3).

We are obliged to add that chapter 4 on “The Question of ‘Commodity Fetishism’“ is both confused and confusing and detracts from the rest of the book. In fact, when the authors venture into philosophical matters they follow too much the theories of the now completely discredited French philosopher, Louis Althusser, who ended up murdering his wife and confessing that the only work by Marx he had read properly was his journalistic The Eighteenth Brumaire of Louis Napoleon. There is also a hint, at the very end of Chapter 3, that the authors could think that the banking system has the power to “create” a “volume of credit . . .which constitutes a multiple of all forms of liquid assets and reserves”. If this were true—that the banks can lend out more, much more than what has been deposited with them – then it wouldn’t be true that labour is the sole source of newly created value. Not only Marx but the Classics Smith and Ricardo too would have been mistaken.

Adam Buick

The Economics of Capitalism - Part 4 (1954)

From the December 1954 issue of the Socialist Standard

(Continued from the November issue.)

Surplus value is the pivot of Capitalism and the theory of surplus value was Marx’s principal contribution to political economy. It solved the problem of the accumulation of wealth in a system in which value is exchanged for value, yet one portion of society gets enormously rich and the other pitifully poor.

We have already seen that commodities exchange at their values, that is, according to the labour required to produce them. The worker also possesses a commodity, his labour-power or physical and mental energy, which he sells to the Capitalist in return for wages. The value of the worker’s labour-power, contained in his brain and muscles, is determined in the same way as the values of other commodities, by the labour time used up in producing it. This may sound strange as labour-power is not an article that can be seen, like a chair or a table. It is the stored-up energy in the human body, and it is only expressed when in action producing something like a chair or a table; it is represented by the finished chair or table. It is not paid for until it has been in operation producing something, and even then only for the time it has been in operation producing.

The worker’s labour-power comes from the food he eats, and he must have clothes to wear and somewhere to sleep in order that this labour-power may be conserved and capable of functioning productively. He must also be able to bring up children to replace him as a producer when he is worn out. The cost of production of labour-power is determined by the cost of the food, clothing, shelter, and so forth, that is necessary to enable the worker to do the particular kind of work required. The value of labour-power is therefore equal to the value of what the worker needs in order to live and bring up a family. The worker sells his labour-power by the week or the month for a sum of money that enables him to buy what he needs in order to live, and in getting these things he gets the full value of his labour-power; value has been exchanged for an equivalent value.

In working for the capitalist the worker produces commodities that, although sold at their values, yet realise a profit for the capitalist, in spite of the fact that the values of the commodities are determined by the quantity of labour required to produce them.

It may be wondered where the profit comes from when all commodities, including the workers labour- power, exchange at their values. The answer to the riddle is a simple one but it is concealed by the buying and selling system. The answer is that the labour-power the worker sells differs from all other commodities in that its “consumption” results in a greater value than itself. Labour-power in action produces more value than the value of the food, clothing, and other tilings upon which its own value is based. If it costs in money, say, £5 to purchase what will keep the worker for a week, then, in the course of that week, he will add value to products far in excess of £5, otherwise he would not be employed. The difference between the £5 the worker gets and the greater value he produces is the source of the capitalists’ profits.

Thus by employing workers the capitalist makes a profit, and, generally speaking, the more workers he employs the more profit he makes. Although the worker is able to get the value of his labour-power the worker is robbed in the course of the productive process because more value is produced by him than he receives in wages. While he is producing commodities the worker is also producing surplus-value for the capitalist.

We have seen that the worker sells his labour-power at its cost of production, the value of his means of subsistence; if half a day’s labour is sufficient to reproduce the value of this labour-power then the value, or price, of a full day’s labouring is equivalent to the value of the product of half a day’s labour. The other half of the day the labourer works for nothing, gives his labour free. Here Marx distinguishes the first half of the day’s work as necessary labour, labour necessary to reproduce the workers’ cost of subsistence, and the second half of the day’s work as surplus labour, or surplus-value. Out of this surplus-value comes rent, interest, profit, taxes, the means to replace worn out means of production, and the means to expand production. After rent, interest, taxes, and the personal needs of the capitalists have been met, as well as any other incidental expenses, the amount of surplus value (previously turned into money) left over is invested in fresh means of production, that is to say, it is converted into capital; it carries on, in ever growing volume, the process of producing value and surplus-value.

Although the term “capital” is applied to instruments of production of all kinds, these instruments only become capital under special conditions; these conditions are that they shall be employed for the purpose of producing commodities whose sale will realise a profit to their owners. A machine is not capital just because it is a machine; it only becomes capital under social conditions where it is used to extract surplus value from the worker. All modern productive processes commence with the investment of money; it has even become a general conviction, in spite of the contrary evidence of history, that there cannot be any production without money ; yet money is only a link between the production and consumption of articles and only exists in social systems where there is buying and selling, and even there, is limited to those articles that are bought and sold, commodities.

The capitalist buys buildings, machinery, raw materials and labour-power, and then the production of commodities commences. Thus originally all capital is money; it is money invested for the purpose of profit. In the finished commodity the value of the buildings, machinery, and raw materials is passed over intact, and for this reason Marx calls the capital invested in these things “constant capital.” Thus if the total value of these three items over a period amounts to say £20,000 then the finished articles during the period will only contain £20,000 worth of buildings, machinery, and raw material. Of course, in practice, buildings and machinery only give up their values piecemeal; for example, a machine that wears out in five years gives up, or passes over, to the yearly product one fifth of its value each year. With labour-power the position is entirely different. The worker carries over the value of the constant capital to the product and also adds fresh value, the quantity of which is determined by the amount of time he takes to produce the commodity; Marx defines capital invested in labour-power, wages, as “variable capital,” because the quantity of value it adds varies according to a number of conditions.

We have already shown that the wages the worker receives in return for his labouring are not the equivalent of the fresh value he adds to the commodity, but a much lower figure than this. The peculiarity of labour-power, and the secret of the accumulation of capital, is that labour-power in action produces a greater value than it itself possesses. The value of the finished commodity, then, is equal to the values of the buildings, machinery, raw materials, and labour-power plus the surplus above the value of labour-power.

This surplus-value is the portion out of which the capitalist gets his profit, and which enables him to go on expanding production; the greater the relative portion of surplus-value he extracts from the worker, the greater the capacity of capital to expand. It is the real reason for the existence of capital. The greater the expansion of production then, generally, the greater the number of workers the capitalist employs, and the larger grows the absolute quantity of surplus-value. It is only out of the workers’ labouring that the capitalist grows rich and capital accumulates. Hence between capitalist and worker there is an antagonism of interest; the capitalist tries to increase the relative quantity of surplus-value extracted from the labour of each worker, while the worker tries to diminish it by increasing the price he receives for his labour-power. The capitalist, owing to an increase in the productiveness of labour, may get more this year than last and yet pay the worker higher wages, still the relative portion of the total production taken by the worker, as represented by his wages, is smaller. The increase in the worker’s wages has not kept pace with his increasing productivity; he is more exploited now than he used to be.

The aim of the capitalist is to accumulate capital on an ever-increasing scale; for this purpose there must be a corresponding expansion of the market for commodities; the thirst for markets becomes unquenchable and a source of conflict between national groups. In their feverish and insane scramble to get rich, money is invested in productive undertakings that periodically glut the markets; masses of commodities remain unsold and crises develop that ruin investors and put workers out of work, progressively reducing the buyers and accentuating the crisis. Commodities, for which starving and ill-clad people are badly in need, deteriorate or are destroyed. The effects of crises eventually slow down production until the commodities that are stopping up the pores of circulation trickle away; then production is once more stepped up and the way is prepared for another crisis. Periodical crises and unemployment are two problems the capitalist has been trying to solve for over a hundred years but both problems continue to exist. They are not solvable under Capitalism; they are rooted in the system of private production for an unpredictable market. A considerable influence on the production of crises is the introduction of labour-saving machinery and methods. As we have already shown the source of profit is the exploitation of the worker and hence the capitalist aims at increasing this exploitation as much as possible by getting a larger product with a smaller expenditure in wages; mass production methods is an instance of this, demanding huge productive units employing a relatively small number of workers turning out commodities in bewildering quantities. But it must be remembered that profit only comes out of the worker’s unpaid labour, and therefore, there is a limit to how far the capitalist can go in dispensing with workers.

The rate of profit on capital invested does not indicate the extent of the surplus-value produced by the worker. The rate of profit and the rate of exploitation, that is, the rate of surplus-value, are quite distinct. If a capitalist invests say £20,000 in a year as constant capital (machinery, raw materials, etc.), and £5,000 as variable capital (wages) and the value of the year’s product is £30,000; then the profit on the total capital invested is £5,000, that is 20 per cent. The capital invested in wages, however, is only £5,000, for which a value of £10,000 has been freshly produced (the £20,000 constant capital has been incorporated in the product unchanged). The rate of exploitation is £5,000 beyond the £5,000 invested in wages, that is 100 per cent. Thus, if the enormous increase in the quantity of capital that has to be invested in buildings, machinery, and raw materials now-a-days caused a fall in the rate of profit, it would go hand in handed with an increase in the rate of exploitation. In other words the legalised robbery of the workers grows. In fact, the rate of profit does not fall.

What we have put forward in these articles is only an outline of some of the ideas contained in Marx’s Capital. Numerous professors of political economy have attacked these ideas, in spite of which the main propositions still hold the field, 80 years after the book was published.

Gilmac.

Economics in brief. (1913)

From the April 1913 issue of the Socialist Standard

The science which, treats of the production and distribution of wealth is termed political economy, and has been described as the “dismal science”—which name the contradictions and confusion of the orthodox economists render not inapplicable. To study these economists is like studying astronomy without a knowledge of gravity. But just as astronomy was brought out of chaos by that discovery which enabled us to understand the movements of the heavenly bodies, so about fifty years ago political economy was placed on a firm foundation by Karl Marx, the founder of scientific Socialism.

In his work “Capital” Marx brought to light certain facts which the orthodox economists could not accept without admitting truths which quite upset their teachings. And the dissemination by the university professors of the Marxian teaching that the capitalists live upon the exploitation of the workers would surely have resulted in their removal from their posts, just as Prof. Thorold Rogers was deprived of an office “for tracing certain social mischiefs to their origin.”

Many of the older economists made no fundamental distinction between modern production and that of former epochs. But to Marx the production of wealth under capitalist society differs from all previous production in that the wealth under former systems was produced primarily or solely for use, while under modern conditions it is produced for the purpose of exchange. But this is not all, for no one to-day enters into the production of commodities, as goods created for exchange are termed, simply for the purpose of exchanging them for other commodities. And to understand the motive for which industry is carried on we must for a moment glance at the modern manufacturer and see why he is a manufacturer.

He starts out with a certain sum of money with which he purchases his plant, raw material, and other things essential to his particular line of business, and the finished commodities are exchanged for money. But if the object aimed at is achieved, then not only the original sum of money is returned, but an excess also. It matters not what class of goods is produced, how many or what quality, unless this surplus appears at the close of the cycle, the manufacturer is said to have failed.

The question then arises, how does this excess of wealth come about ? It is obvious that it does not arise in the process of exchange, for what one capitalist would gain another would lose. We must therefore look elsewhere for this source of profit.

The wealth used in modern society for the purpose of obtaining profit we call capital, and its owners capitalists. When the commodities of the industrial capitalist are produced they are placed upon the market for exchange, and the amount of other commodities he will receive for them does not depend upon his “will,” but upon conditions beyond his control. Once on the market his goods come face to face with other commodities of similar nature, and if our capitalist asks for his articles more than the average usually given, he will not sell them. Therefore he has to accept the average that society will give. Should, however, the market become overstocked, as it does periodically owing to the anarchical nature of present-day production, then each capitalist, in order to dispose of his particular commodity, will accept less than usual, while if, on the other hand, there is a greater demand for those articles they will ask and obtain more than the average.

Now these fluctuations take place round a certain point, but if a modification in the process of production takes place, then that point shifts. For instance, according to Babbage (“Economy of Manufacture”) the price of a sheet of plate glass 50″ x 30″ was in 1771 £24 2s. 4d., and in 1832 £6 12s. 10d., while small sheets (for a reason to be explained later) rose in price. The fall in price was due to the adoption of improved methods in producing largesheets, which reduced the time necessary to accomplish the operation.

We see, then, that the reduction in the time necessary for the production of a commodity results in a fall in its value, therefore what determines the value of a commodity is the time needed to produce it–not the time taken by the individual, but the average time taken to produce that particular line of commodities.

Commodities taking on the average the same time to produce will be equal in exchange, e.g., if A takes on the average 10 hours to produce and B also takes 10 hours, then they will both possess the same exchange value—one will exchange for the other. But if the time necessary for the production of B falls to 5 hours, then A will exchange for 2 Bs.

The direct exchange of one commodity for another without the intervention of any intermediary is a very primitive form of exchange and is known as barter. In primitive communities, where exchange takes place on a very small scale, where articles are produced primarily for use, and only the surplus is exchanged, barter is the common practice, but later an intermediary comes between the goods exchanged. This we term the medium of exchange, and many things have been used at different times for this purpose, such as salt, cattle, shells, copper, silver and gold. But this medium is not a thing outside the world of commodities. It is in itself a commodity whose value is known to society, and which will be accepted by all those desiring an exchange.

In modern society gold is used as the medium of exchange, having been selected as being convenient, portable, fairly constant in value, and as containing great value in small bulk.

When we say that a certain commodity is worth £1 we do but express the fact that the same quantity of human labour measured by time has been expended on the average in the production of each, and we say that the £1 is the price of this commodity.

But let us look a little farther. We will say that a gun is equal in value to £1, that is to say they each represent the same amount of human labour time. If the time necessary for the production of the gun falls by half, it is obvious that on our theory it will be worth only 10s. But now let us assume that no alteration takes place in the value of the gun, while the time necessary to produce the £1 falls by half, £2 would now be required to equal the value of the gun. Although no alteration has taken place in the value of the gun, its price has risen through a fall in the value of gold.

A fall in prices is generally looked for on the introduction of quicker methods of producing a commodity, but our second case seems to be in comprehensible to most people, and all sorts of theories are put forward to explain a general rise in prices.

It was the fall in the value of the medium of exchange that explains the increased price of the small sheets of glass referred to above, and the fact that the price of the larger sheets fell informs us that the fall in their value was greater than the fall in the value of the coin.

So far we have presumed that the owner of the commodities was their producer. Such an assumption might have sufficed in the handicraft system, where the producer owned the tools he used and the goods he produced. But under capitalist production the basis of our analysis is incomplete. We must therefore follow our capitalist into business again.

We said he starts out with a certain sum of money which we call his capital, with which he purchases his plant and raw material. This is termed constant capital, because its value does not alter during the process of production. It is true the plant deteriorates in value, as does also the quantity of the raw material, as production proceeds, but its value is not lost, but transferred to the finished commodities.

Obviously the constant capital cannot create even the smallest amount of value, for no matter how long it was left it would remain inoperative, and there would be no increase in value until another factor was introduced.

The manufacturer, therefore, has to have more capital with which to obtain this other factor in order to set this machinery in operation, and as the modern methods of production are far too vast for the owner to operate them by himself, even if he desired to do so, he has to seek the aid of others.

The capitalist purchases, not the worker, but his energies, his power to labour, and what the worker receives in return for this labour power we call wages.

Now there is a constant struggle going on amongst the workers for the jobs, which prevents wages rising, on the average, above a certain point. The large army of unemployed, the necessary adjunct of capitalist society, in their eagerness to obtain work, are prepared to accept a wage just sufficient to cover their cost of subsistence. The result is that those who are in employment have to accept the same or give way to those who will. Thus competition keepa wages, on the average, at the subsistence level. In other words, wages are governed by the cost of living.

The capitalist, then, has to purchase the requisite labour-power to operate his tools of production. And when this labour-power is expended in the production of useful articles a further value is created.

Now the value the workers create does not depend upon the wages they receive, which, we have seen, is determined by the cost of living. Hence it does not matter how much value they create, their wages remain the same. And it is obvious that if they do not create a value at least equal to that they receive in wages the manufacturer’s capital would soon become exhausted. But if this was all that could be obtained there would be no inducement for the capitalist to enter into business at all. The workers must, therefore, produce a value greater than their wages in order to ensure their continued employment.

This “surplus value,” as the excess of value over and above their wages created by the workers is called, increases with the increase in the productivity of labour. The more the workers produce the more goes into the pocket of the capitalist. And as the wages of the former are determined before ever they commence work, they will be unaffected by any alteration in the amount of value they create.

The appropriation of the surplus value by the capitalist is his sole motive for entering into production. But he is not able to retain the whole of this surplus value for himself : he has to make certain payments in the form of rent and interest.

We have said that the values of commodities are determined by the average amount of human labour time necessary to produce them. Equal quantities of labour time will, on the average, produce equal values. We have said further that the constant portion of capital does not create value, and therefore does not create surplus value.

Now the production of some commodities necessitates the use of a larger proportion of constant capital in proportion to the amount of labour employed. If all commodities were sold at their value it would mean that those capitals containing a larger percentage of constant capital would obtain less surplus value than those containing a smaller percentage.

For example, a certain capital, say £1,500, is composed of constant capital £1,000 and variable capital (that portion used for the payment of wages) £500, and the labour employed creates a value of £1,000. The total value of the product will be composed of constant capital £1,000 plus £1,000 created by the workers, making a total value of £2,000. The cost in money to the capitalist of producing the commodities will have been £1,500, leaving a surplus value of £500, or, roughly, 33 per cent. on the outlay.

Now we will take another illustration. Another capitalist also commences business with £1,500 of which he spends only £500 in constant capital and £1,000 in the purchase of labour power. Equal quantities of labour power produce equal values, hence the value of the product will be composed of £500 constant capital plus £2,000 created by the workers, making a total value of £2,500. The cost price to the capitalist will have been the same as in the previous illustration, viz., £1,500. The surplus in this instance will be at the rate of just over 66 per cent. on the outlay.

Now when analysing the capitalist mode of production we have always to remember that it presupposes competition in all its ramifications. And if all commodities were sold at their value capital would be withdrawn from those spheres of production which necessitated a large percentage of constant capital and invested in those which needed a smaller percentage. The withdrawal of capital and the consequent reduction in the competition in one sphere would allow of an increase in the prices of the commodities while in that sphere in which the influx of capital took place the increased competition would force down prices, thus causing an increase of profit in one sphere and a decrease in the other.

This competition is continually going on between the different capitals seeking investment, reducing the price of commodities in some spheres of production below their value and in other spheres raising the price above their value, at the same time and through this process bringing about an average rate of profit through out society.

The fact that there is a tendency to the formation of an average rate of profit in society resulting in commodities being sold at prices varying from their value does not in the least alter the Marxian theory of value as explained in the first volume of “Capital.” And although there is a deviation of price from the value of individual commodities, yet the total value of the commodities of society will equal the sum of their prices.

The point in political economy that is of paramount importance to the working class is the fact that they are robbed of the wealth they create over and above the cost of their subsistence. This robbery takes place because a certain class of people are allowed to own all the means for producing and distributing wealth—the land, mines, railways, factories, machinery, etc.

We of the Socialist Party, recognising this, are organising to wrest the means of life from the hands of these people and make them common property. When this is accomplished, then for the first time since the dawn of chattel slavery the exploitation of human labour-power will cease. Each member of the community capable of assisting in the production and distribution of wealth will be expected to perform his share of the necessary labour, and the wealth that is created will be the common property of the whole people.

The system of society based upon such a property condition we call Socialism.

H. A. Young

What law of breakdown? (2022)

Book Review from the October 2022 issue of the Socialist Standard

The End of Capitalism, The thought of Henryk Grossman By Ted Reese, Zero Books, 2022. Paperback, £13.99

‘Breakdown theory’ was a speciality in German-speaking Marxist circles. The revisionist Eduard Bernstein threw down the gauntlet in 1899 when he stated that capitalism would never break down of its own accord.

One of the first to take up the challenge and try to show that it would was Rosa Luxemburg. Another was Henryk Grossman. He agreed with Luxemburg that, if it couldn’t be demonstrated that capitalism would collapse, then the case for socialism would become just a moral one, but disagreed with her proposed solution. His argument, as set out in 1929 in his The Law of Accumulation and Breakdown of the Capitalist System, was that capitalism would collapse economically because eventually a point would be reached when not enough profits would be generated to keep capital accumulation going.

Grossman was born in 1881 in Kracow, now in Poland but then part of the Austro-Hungarian Empire. He joined the local Social Democratic Party and was active in agitation amongst Yiddish-speaking workers. After the war he found himself in Poland where he joined the Communist Party but, facing persecution, had to leave in 1925. He emigrated to Germany where he took up a post with the Institute of Social Research (Frankfurt School) for whom his book on the collapse of capitalism was written. He was always a sympathiser of the Communist Party and the USSR, though as Reese shows by no means an uncritical one, and in 1949 moved from the US to East Germany where he died in 1950.

To demonstrate his theory about capitalism eventually reaching a point where there would not be enough profits to continue capital accumulation, he accepted the assumptions made by the Austrian Social Democrat, Otto Bauer, to refute Luxemburg. The most important were that the accumulation of what Marx called ‘constant capital’ (machines, factories, materials, etc) would increase at 10 percent a year but that the amount (mass) of surplus value would increase at only 5 percent. The rate of exploitation (the ratio of surplus value to capital invested in hiring wage-workers) was assumed to be constant.

On the basis of these assumptions he was able to demonstrate mathematically that after 35 years capitalism would collapse because it would not be able to maintain a 10 percent annual increase in constant capital. By then the rate of profit would have fallen below 10 percent, which meant the mass of profits generated was below the level required to increase capital invested in machinery, etc by 10 percent. He called this ‘over-accumulation’.

This conclusion was in fact built into the assumption that the amount of profits would increase at a slower rate than the amount of constant capital (the figures don’t matter as long as the increase in profits is slower). This meant that the rate of profit would gradually fall from year to year. This would not be a problem as long as the amount of profits was greater than the amount of constant capital required. But, as soon as the rate of profit fell below the rate of increase of the constant capital, the increase in the amount of profits would not be enough.

The question that arises is how realistic were the assumptions on which Grossman’s based his ‘law of breakdown’.

It is obvious that the rate at which capital can accumulate must depend on the mass of profits made since that is where the additional capital comes from. The argument seems to be that competition forces capitalist enterprises to introduce more efficient machinery so as to stay in the battle of competition and that this sets the pace of capital accumulation, a pace that could come to be greater than the amount of profits available for this. This could happen in theory but not for long. If it did happen this would provoke an economic crisis but not the collapse of capitalism.

In practice, productivity increases at a rate of around 2 percent a year. There is no reason to suppose that the amount of profits could not – and has not – increased at a similar rate, especially as the rate of exploitation does not remain constant but goes up over time. In any event, capitalism has not collapsed through there not being enough profits to continue accumulation.

Reese seems to think that ‘the absolute limit to the accumulation of capital’ has already been reached. The evidence he presents for this is mainly about world debt levels which have, in his view, become unsustainable and will soon lead to global hyperinflation. Grossman would have expected ‘absolute over-accumulation’ to result in steadily growing unemployment, but that is not happening today.

Despite this, Reese’s work is a basic introduction to the life and views of Grossman.

Adam Buick

The Importance of Marxism—(continued) (1940)

From the September 1940 issue of the Socialist Standard

Continued from the August 1940 issue.

In the concluding paragraph of last month’s article we stated that surplus-value is produced in industry. Let us now examine the productive process.

Constant and Variable Capital

The capital of the industrialist can be divided into two parts. One part consists of buildings, machinery and raw materials, the other of human labour-power. Marx calls the former part constant capital, because its value undergoes no change in the process of production but is simply transferred to the article; whereas the latter part Marx refers to as variable capital on account of the fact that in the productive process it produces a greater value than that contained within itself. This distinction in the two aspects of capital is not one made by the capitalist. The latter usually lumps the whole of his capital together and calculates his profit on the total sum invested. If he makes any distinction at all it is between what he calls fixed capital, i.e., buildings and machinery, and circulating capital, i.e., raw materials and wages, etc. The Marxian classification, however, enables us to penetrate the inner mechanism of capitalist production. Its full meaning will become clear at later stages of the argument.

Labour and Labour-Power

During the course of our discussion we have frequently used the expression “labour-power.” So as to avoid all possible misunderstanding, let us give the Marxian definition of the term : —

“By labour-power or capacity for labour is to be understood the aggregate of those mental and physical capabilities existing in a human being, which he exercises whenever he produces a use-value of any description” (page 186, Vol. I, Modern Library Ed.). Labour-power is therefore the energy contained within a worker’s body and brain. On the other hand “labour” is the energy thrown out from his body, the juice itself, so to speak. When this energy is incorporated in a product it forms the substance of value. The capitalist economists were wrong in assuming that the worker sells his “labour” to the capitalist. The worker cannot sell something that does not belong to him. What he in fact sells is his labouring-power for a day, or a week, or a month, and so on.

Wages

Wages are the price of labour-power. The value of labour-power is determined by the labour time required to reproduce it, which, in effect, means the labour time required to produce the food, clothing and shelter necessary to keep the worker (and his family, if he has one) alive. Wages are therefore determined by the cost of subsistence of the worker. It must not be assumed, however, that the worker’s standard of living is a fixed quantity. On the contrary the standard is influenced by the climate of a country and by historical factors. So Marx points out: —

“His natural wants, such as food, clothing, fuel, and housing, vary according to the climate and other physical conditions of his country. On the other hand, the number and extent of his so-called necessary wants, as also the mode of satisfying them, are themselves the product of historical development, and depend, therefore, to a great extent on the degree of civilisation of a country, more particularly on the conditions under which, and consequently on the habits and degree of comfort in which, the class of free labourers has been formed. In contradiction, therefore, to the case of other commodities, there enters into the determination of the value of labour-power a historical and moral element. Nevertheless, in a given country at a given period, the average quantity of the means of subsistence necessary for the labourer are practically known” (page 190).

As far as the skilled worker is concerned, his labouring-power possesses a greater value than that of the unskilled worker because more labour time has been required to produce it, i.e., to train him, consequently he can command a higher price for his commodity on the market. Let us assume, for the sake of example, that the means of subsistence necessary to maintain the worker for a day can be produced in four hours. Let us also assume that in four hours 12s. gold can be produced. In that case, if the worker, say, sells his labouring-power to the capitalist for a day and receives the sum of 12s., he is getting a price corresponding to the full value of his day’s labour-power. Utilising this example let us see what happens in the factory. Our figures are, of course, quite arbitrary, but they will serve the purpose of illustration.

The Production of Surplus Value

Let us assume that the factory owner is a manufacturing furrier, selling, say, marmot coats at £10 3s. per coat, that he has bought the labour-power of a worker for a day (8 hours) and that the worker produces the entire coat, from start to finish. For the production of marmot coats the factory owner requires buildings, machines, benches, boards, skins, lining, etc., and labour-power. Now let us set down the expenditure of the capitalist on a single coat :—

If, according to the above example, the worker produced only one coat a day, the capitalist would actually lose. But let us assume that the worker can produce a coat in one hour. In that case, after eight hours he will have produced eight coats, each valued at £10 3s., making a total value of £81 4s. (£80 being previous value, and 24s. fresh value), thus producing a surplus value of 12s. Now let us set down the expenditure of the factory owner for a day:—

The value of the coats is £81 4s., and the capitalist has made a surplus-value of 12s., or appropriated four hours of labour for nothing if he sells the goods at their value.

Rate of Surplus Value

As we have seen, surplus-value is labour-time for which the capitalist does not return any equivalent. It does not matter whether we regard surplus-value from the aspect of time work or piece work. The formula for surplus value can be expressed : —

With regard to the formula (b) Marx says : —

“After the investigations we have given above, it is no longer possible to be misled by the formula unpaid labour/paid labour, into concluding, that the capitalist pays for labour and not for labour-power. This formula is only a popular expression for surplus-labour/ necessary-labour. The capitalist pays the value, so far as price coincides with value, of the labour-power, and receives in exchange the disposal of the living labour-power itself. His usufruct is spread over two periods. During one the labourer produces a value that is only equal to the value of his labour-power; he produces its equivalent. Thus the capitalist receives in return for his advance of the price of the labour-power, a product of the same price. It is the same as if he had bought the product ready made in the market. During the other period, the period of surplus-labour, the usufruct of the labour-power creates a value for the capitalist, that costs him no equivalent. This expenditure of labour-power comes to him gratis. In this sense it is that surplus-labour can be called unpaid labour (pages 584-585).

Marx calls the surplus value, calculated on the variable capital, “the rate of surplus value.” In the instance we have given it would be 100 per cent. The rate of surplus value discloses the degree of exploitation of the worker. Once we know the length of exploitation, which may vary, how long the worker has been engaged in producing his wages and surplus value, we then know the degree of exploitation of the proletarian.

Solomon Goldstein

(To be continued.)