Marx’s economic analysis of capitalism is simultaneously what he is best known for, and yet also the least-known aspect of his economic analysis. The average person is typically unaware of the Labor Theory of Value (LTV), or what exactly it entails, and if they are, they have been taught a distorted version created by anti-Marxists for greater ease of debunking Marxian economics. This, plus a simplified, liberalized understanding of Marx’s theory of alienation, as well as a false portrayal of him advocating absolute equality as the solution to capitalist exploitation, tends to be as far as popular knowledge of Marxism goes. What our purpose here is to provide an introductory work in Marxist economics, and to dispel myths about Marx’s method of analysis.
Before we start, it is important to remember that the first part of this will be examining Marx’s analysis of the laws and relations of the capitalist mode of production (defined as the system of production and associated social relations), not modes of production across history. To begin, let’s jump into a discussion of the basics of value. A commodity has two value-forms. Marx divided these into use-value and exchange-value. Use-value is not necessarily equivalent to usefulness, or the ability of an item to satisfy a particular need. Usefulness can exist without a commodity-form. Use-value, however, is usefulness as expressed for a commodity. As Marx says in Capital Volume One:
“A commodity is, in the first place, an object outside us, a thing that by its properties satisfies human wants of some sort or another. The nature of such wants, whether, for instance, they spring from the stomach or from fancy, makes no difference. Neither are we here concerned to know how the object satisfies these wants, whether directly as means of subsistence, or indirectly as means of production[…] The utility of a thing makes it a use value. But this utility is not a thing of air. Being limited by the physical properties of the commodity, it has no existence apart from that commodity. A commodity, such as iron, corn, or a diamond, is therefore, so far as it is a material thing, a use value, something useful. This property of a commodity is independent of the amount of labour required to appropriate its useful qualities. When treating of use value, we always assume to be dealing with definite quantities, such as dozens of watches, yards of linen, or tons of iron. The use values of commodities furnish the material for a special study, that of the commercial knowledge of commodities. Use values become a reality only by use or consumption: they also constitute the substance of all wealth, whatever may be the social form of that wealth. In the form of society we are about to consider [capitalism], they are, in addition, the material depositories of exchange value.”
A use-value does not necessarily need to satisfy the bare needs of life, the means of subsistence (i.e. food, water, shelter, etc), in order to be considered “useful”. A social need is not merely the need to satisfy means of subsistence. A social need is determined by the structure of a given society. If there is a social need for batteries in toys, created by the common practice of giving battery-operated toys for children, then batteries are given use-value. If there is a social need for tobacco for spiritual practices, then tobacco is given a use-value.
Having established the parameters of use-value, we have reached the point where we must delve into exchange-value. In the aforementioned text, Marx says of it and its relation to use-value:
“Exchange value, at first sight, presents itself as a quantitative relation, as the proportion in which values in use of one sort are exchanged for those of another sort, a relation constantly changing with time and place[…] As use values, commodities are, above all, of different qualities, but as exchange values they are merely different quantities, and consequently do not contain an atom of use value. If then we leave out of consideration the use value of commodities, they have only one common property left, that of being products of labour. But even the product of labour itself has undergone a change in our hands. If we make abstraction from its use value, we make abstraction at the same time from the material elements and shapes that make the product a use value; we see in it no longer a table, a house, yarn, or any other useful thing. Its existence as a material thing is put out of sight. Neither can it any longer be regarded as the product of the labour of the joiner, the mason, the spinner, or of any other definite kind of productive labour. Along with the useful qualities of the products themselves, we put out of sight both the useful character of the various kinds of labour embodied in them, and the concrete forms of that labour; there is nothing left but what is common to them all; all are reduced to one and the same sort of labour, human labour in the abstract. Let us now consider the residue of each of these products; it consists of the same unsubstantial reality in each, a mere congelation of homogeneous human labour, of labour power expended without regard to the mode of its expenditure. All that these things now tell us is, that human labour power has been expended in their production, that human labour is embodied in them. When looked at as crystals of this social substance, common to them all, they are — Values. We have seen that when commodities are exchanged, their exchange value manifests itself as something totally independent of their use value. But if we abstract from their use value, there remains their Value as defined above. Therefore, the common substance that manifests itself in the exchange value of commodities, whenever they are exchanged, is their value.”
Exchange-value is essentially the value of a commodity relative to another commodity, expressed in terms of that other commodity. In explaining exchange-value, Marx has identified its characteristic as expressing not a commodity’s use value per se, which is merely what makes it salable in the first place, but the socially necessary labor-time embodied in it. In short, the means of evaluating disparate commodities together in exchanging them is to evaluate the socially necessary labor-time embodied in them. What is socially necessary labor-time defined as? From The Poverty of Philosophy by Marx:
“It is important to emphasize the point that what determines value is not the time taken to produce a thing, but the minimum time it could possibly be produced in, and the minimum is ascertained by competition.”
So, unlike what many anti-Marxists claim, Marx did not say that a commodity’s value is merely the equivalent of the specific labor-time embodied in its process, but the minimum average, or socially necessary, labor-time taken to produce it. Further, he did not say that a commodity’s value is the cost of labor in its production, or even the cost of all the factors of production, but that will be dealt with later. Money is a universal means of exchange for commodities, a standard for expressing their exchange-values relative to each other. Prices do not always correspond to things real exchange-values, but this is something we will, again, deal with later.
For now, before we leave exchange-value, let’s get into what the obscuring of use-value and even the labor process embodied in a commodity, which Marx discussed in the previous excerpt from Capital, represents in terms of social attitudes toward commodities. Commodity fetishism is Marx’s term for the phenomenon wherein people presume value to be inherent to commodities, as something they merely arise with. He identifies this as arising from commodity exchange in saying, in Capital Volume One:
“Could commodities themselves speak, they would say: Our use value may be a thing that interests men. It is no part of us as objects. What, however, does belong to us as objects, is our value. Our natural intercourse as commodities proves it. In the eyes of each other we are nothing but exchange values.”
This is the commodity-fetishist view of value, that it is inherent. And yet, as Marx points out in the aforementioned text:
“So far no chemist has ever discovered exchange value either in a pearl or a diamond.”
It is ridiculous to think that exchange-value is something inherent, or even use-value as a whole. Value is an expression of social relations. Use-value is not inherent and unchanging, the usefulness of a commodity-form change in accordance with changes in social relations and modes of production. What use were fossil fuels to humans before they could harvest them and put them to use in industrial production? They had no usefulness, and so could not become commodities, at least not by that use-value. Now that they have use-value, they can also have exchange-value, and be compared to other commodities’ values through exchange. This exchange does not fall from the sky, however. It is an expression of social relations, specifically social production; large groups of people cooperating in the production of something. Its exchange-value is the socially necessary labor-time embodied in it, which itself is not even unchanging, as improvements in the harvesting and refinement of fossil fuels decreases its value by decreasing the socially necessary labor-time embodied in it. The social relations behind value, however, are obscured by the minds of those engaging in commodity production and exchange, it appears merely to be natural, inherent. Let’s say 1 basket has a value equivalent to 3 combs. To the commodity fetishist perspective, this is merely due to the inherent values of each, not due to the basket taking 3 times the socially necessary labor-time to produce as that of a single comb.
So, if a commodity’s exchange-value is an expression of the socially necessary labor-time embodied in it, does all labor have value? No. Value, as mentioned previously, is representative of very particular social relations, of commodity production, production for exchange rather than direct consumption. When a peasant living in a society without significant commodity production grows, say, wheat for the direct consumption of themselves and their family, the labor they put into raising and harvesting that wheat has no value. They do not enter into social relations with other producers in the production of their wheat, and so it is sans-value. Labor itself does not in and of itself have value, and this is why we Marxists object to the phrase “the worker sells their labor to the capitalist.” Labor is the capacity to engage in production, a worker does not sell this capacity to the capitalist to be used for all time and in all manners. However, labor can take a form which has value: labor-power. Labor-power is the commodity form of labor, it is the sale of a worker’s labor capacity for a definite period of time and in a definite manner. The sale of one’s labor-power in exchange for payment as compensation to that time period and manner is wage-labor. If our peasant growing wheat for themselves is transformed into a farmhand working for a capitalist, then they become a wage-laborer who sells their labor-power. Their labor has a definite value, as they are producing a commodity rather than merely means of subsistence to be used for direct immediate consumption. Having identified the form of labor that has value, we come to a place where we can delve into the most important of Marx’s discoveries: surplus-value.
Wages are not always, and are almost never, equivalent to the value of labor-power. For this example, we will pretend as if they are, in order to more easily demonstrate the process at hand. We will also assume an average rate of productivity for ease. Let’s say a firm’s workers are paid $10 per hour, assuming that their labor-power for each hour is equivalent to an exchange-value expressed as $10 per hour. This means that for every hour, they each expend a certain amount of socially necessary labor-time corresponding to a $10 value. Now, the workers are to be given about 30 hours of work per week, giving them a $300 weekly paycheck. In this scenario, while the workers are being paid for all of their labor-time, there is nothing left for the bourgeoisie. The necessary labor-time, the time in production it takes to reproduce the value expended on the workers’ wages (essentially how much it takes to ensure the reproduction of their labor-capacity), is here the 30 hours. In order to turn a profit, the capitalist must increase their labor-time beyond their necessary labor-time. In this case, we’ll say he increases it to a 40 hour work week, with no increase in the rate of wages. Now, the workers’ labor-power produces an equivalent of $400 per week, being paid $300 per week, leaving us with a surplus-value of $100 per week, which is appropriated by the capitalist. Surplus labor-time is unpaid labor-time, surplus-value represents unpaid labor-power. This surplus labor-time, beyond the necessary labor-time, is not literally in the extra hours added, but is there in the mass, in the rate of variables at hand. If a worker labors 8 hours, with the first 5 hours reproducing the equivalent of their necessary labor-time, the first 5 hours do not literally go to paying for their wages and the next 3 hours to surplus-value. It is the fractions that matter here. It is important to note that wages are not fixed by the capitalist arbitrarily, the lowest wages can be made and still have the supply of labor-power available is at the minimum necessary for the worker to purchase their means of subsistence. Capitalists do not always fix wages this low, though some may falsely claim Marx said this, and can be raised, for example, in order to encourage productivity or loyalty among workers, as with Ford in the early 20th century. Further, the capitalist does not pocket all of the surplus-value, for their personal consumption or as profit. The surplus-value is broken into a fund for upkeep of the means of production (to be explained later), a fund for expenditure on raw materials, a fund for insurance, a fund for personal consumption of the capitalist, a fund for management of the workers, and, finally, profit. Profit can become realized surplus-value in being used to expand the process of production, or, being invested.
Having come to profit, we also come to the issue of price and money. In critiquing Marxism, bourgeois economists and their parrots often raise the accusation that Marx thought the value of a commodity is equivalent to the cost of labor or the cost of production, when (in their minds at least) value is really determined according to marginal utility. This essentially means that it’s subjective, determined according to its usefulness to the individual buyer and seller. Its value is apparently the highest the buyer is willing to buy it and the lowest the seller is willing to sell it, determined of course according to the individuals’ subjective evaluation of the commodity. Now this is all well and good if you make no distinction between price and value. Marx never equated the two, as identified earlier. Marx in fact spends significant time in all 3 volumes of Capital distinguishing between the two, with Volumes Two and Three being almost entirely dedicated to examining the relationship between price and value. In Wage Labour and Capital, Marx says of price:
“By what is the price of a commodity determined? By the competition between buyers and sellers, by the relation of the demand to the supply, of the call to the offer. The competition by which the price of a commodity is determined is threefold. The same commodity is offered for sale by various sellers. Whoever sells commodities of the same quality most cheaply, is sure to drive the other sellers from the field and to secure the greatest market for himself. The sellers therefore fight among themselves for the sales, for the market. Each one of them wishes to sell, and to sell as much as possible, and if possible to sell alone, to the exclusion of all other sellers. Each one sells cheaper than the other. Thus there takes place a competition among the sellers which forces down the price of the commodities offered by them. But there is also a competition among the buyers; this upon its side causes the price of the proffered commodities to rise. Finally, there is competition between the buyers and the sellers: these wish to purchase as cheaply as possible, those to sell as dearly as possible. The result of this competition between buyers and sellers will depend upon the relations between the two above-mentioned camps of competitors — i.e., upon whether the competition in the army of sellers is stronger. Industry leads two great armies into the field against each other, and each of these again is engaged in a battle among its own troops in its own ranks. The army among whose troops there is less fighting, carries off the victory over the opposing host.”
Marx very well takes account of the mechanisms behind price, and the distinction between price and value. So, what’s the relationship of price to profit? The cost of production is determined, in part, by the price of the factors of production, by upkeep of the means of production, and of labor-power. A capitalist can increase their profit in one manner by decreasing the cost of one or more of these. A capitalist’s ability to turn a profit also depends on whether the price of their finished commodity on sale can realize some or all of the surplus-value embodied in it. At times, price can be driven uncomfortably close to the cost of their production by competition, giving little chance to realize any surplus-value, or they can be purposely sold at or below their cost of production by larger companies in order to outcompete smaller companies who cannot afford such an expenditure, as John D. Rockefeller did with Standard Oil. The resale of a commodity at a price above that which it was purchased by does not disprove the Marxist understanding of price and value. Marx says of this practice in Capital Volume Three:
“The merchant’s sale price is above his purchase price not because it is above the total value, but rather because his purchase price is below this total value.”
Essentially, the merchant purchased the commodity at a price where the total value of it was not realized, usually at a price that includes some of the surplus-value. Thus, they can sell it at a price that realizes the cost of their purchase and a greater share of the surplus-value that has not yet been realized. This doesn’t mean a commodity cannot be sold at a price above its value. Done by an individual or a smaller firm, this practice is unsustainable, and tends to be phased out by competition, as Marx explained in the Wage Labour and Capital excerpt quoted earlier. A firm can, however, sell at a price above a commodity’s value sustainably when they are a monopoly, and thus can sell at monopoly prices. As a monopoly, this firm eliminates the factor of competition which tends to drive overpricing down, and so price gouging tends to occur. This sort of monopoly pricing can also occur when demand is inflexible, or consumers lack much of a choice in opting out of consumption of the commodity at hand. For example, think of stores gouging the prices of means of subsistence like bottled water during disasters. When a firm sells at monopoly prices, they can realize a profit beyond the value embodied in a commodity. These various fluctuations in price lead to price distortions, and makes it more difficult to determine the true value of something. That does not, however, mean value and price are the same. Marx’s analysis proves to hold far greater nuance and correctness than childish marginal utility theory.
All of this discussion of value, of labor-power, of surplus-value and so on, and yet we haven’t even examined the means of production. What are they anyways? Everyone knows Marx’s famous call to “seize the means of production”, but do they know what the means of production are? In Capital Volume One, he says:
“If we examine the whole process from the point of view of its result, the product, it is plain that both the instruments and the subject of labour, are means of production, and that the labour itself is productive labour.”
So, means of production are the tools and machines involved in production and the factors of production, the latter being the “subject of labor”. Marx does not ignore the history of the means of production, and in fact details their history from the first tools in Capital Volume One. Tools, machines, means of production, they are defined by a body’s use of them to labor beyond its natural capacity. In calling for the seizure of the means of production, Marx also recognizes that the means of production are now privately owned by capitalists. The means of production are used to produce means of subsistence, the latter being in a commodity form, having exchange-value, and owned by the capitalists by extension of their ownership of the means of production. So, for a proletarian to access the means of subsistence, they must sell their labor-power to a capitalist in exchange for a wage, which they use to purchase their means of subsistence. The proletariat engages in socialized production, cooperating among itself, in order to produce commodities for the consumption of society. And yet, the capitalists appropriate their produce. Marx describes this situation thusly, in Capital Volume One:
“That which is now to be expropriated is no longer the labourer working for himself, but the capitalist exploiting many labourers. This expropriation is accomplished by the action of the immanent laws of capitalistic production itself, by the concentration of capitals. One capitalist always kills many. Hand in hand with this concentration, or this expropriation of many capitalists by few, develop, on an ever extending scale, the co-operative form of the labour-process, the conscious technical application of science, the methodical collective cultivation of the soil, the transformation of the instruments of labour into instruments of labour only usable in common, the economising of all means of production by their use as the jointly owned means of production of combined, socialised labour. Along with the constantly diminishing number of the magnates of capital, who usurp and monopolise all advantages of this process of transformation, grows the mass of misery, oppression, slavery, degradation, exploitation; but with this too grows the revolt of the working class, a class always increasing in numbers, and disciplined, united, organised by the very mechanism of the process of capitalist production itself. Capital becomes a fetter upon the mode of production, which has sprung up and flourished along with, and under it. Concentration of the means of production and socialisation of labour at last reach a point where they become incompatible with their capitalist integument. This integument is burst asunder. The knell of capitalist private property sounds. The expropriators are expropriated.”
We will deal with the contradiction of socialized production and private appropriation and of the expropriation of expropriators later. Before we finish our discussion of the means of production, we must ask: Have they always been owned privately, by a few capitalists? No. In most of human history, before the globalization of capitalism, the producer or a firm of producers own the means of production and directly reap the product of their labor or labor-power. This is true in peasant agricultural societies, and it is also true in hunter-gatherer societies.
Through this power over the means of production and subsistence, the laborers had a degree of control over their lives. The expropriation of the means of production by the bourgeoisie, or primitive accumulation, as is famously represented by the Enclosures of the commons in England, represents both the divorce of the producer from the means of production and the accumulation of initial capital in the form of the newly seized property. It creates the initial capital and the wage-laborers to toil on it (for more on primitive accumulation and capital accumulation broadly, please read The Accumulation of Capital by Rosa Luxemburg and Caliban and the Witch by Silvia Federici). The divorce of the producer from the means of production leads us to yet another famous, yet often misunderstood, Marxist concept: that of alienation. The most well-known definition of Marxian alienation is the loss of meaning, of self-recognition, in the laborer’s toiling. The product of their labor becomes something alien to them by it being appropriated by the capitalist through the latter’s ownership of the means of production. This is not the only facet of Marxian alienation, however. Marx identifies at least 4 kinds of capitalist alienation: The aforementioned alienation from the product of labor, from the process of production, from other people (who the worker interacts with largely in relation to the labor-process rather than as personalities), and from species-essence. Now, by species-essence, Marx does not mean some sort of innate human nature. He means those characteristics which make a human a human, such as needing to engage in social interaction due to human beings, due to our particular physical and psychological characteristics, relying on social labor in order to survive. A human lacks the sharp teeth, rapid speed, and so on to acquire the means of subsistence as individuals sustainably, we tend toward cooperative labor and thus social behavior. This is what is meant by species essence.
We have just traced the facets of capitalist production. It is necessary to now examine the circuit of commodities, and the associated composition of capital. Under capitalist production, a commodity’s circuit is expressed in Marxian terms as being Money — Commodity…. Production…. Increased Value Commodity — Increased Value Money. In symbolic terms, this is expressed as M-C…P…C’-M’. The capitalist begins with a quantity of money, equivalent in exchange-value to a certain mass of a certain commodity, typically raw materials. They use the money to purchase this mass, again, usually raw materials, and puts it through the process of production. The commodity comes out the other side with a changed form and an increased value composition. We will be getting into its valorization very soon. The commodity is sold for a mass of money greater than that initially held. This M-C…P…C’-M’ circuit can be expressed focusing on each different step in the process of production, (for example P…C’-M’…M [new expression of M’]-C…P…C’-M’) and is repeated into infinity, at least in theory. It expresses the overview of capitalist production, and identifies its purpose: the realization of surplus-value. To understand the circuit, however, we must understand how the capitalist increases the value they hold, and to do that, we must examine capital and its composition.
What is capital? As the well-known quote goes, from Capital Volume One:
“Capital is dead labour, that, vampire-like, only lives by sucking living labour, and lives the more, the more labour it sucks. The time during which the labourer works, is the time during which the capitalist consumes the labour-power he has purchased of him.”
Capital is essentially an accumulated form of the value of socially necessary labor-time, owned by the capitalist through their appropriation of surplus-value. When we went into the dividing up of surplus-value into different funds, we identified one of these funds as that which goes into further investments. This new fund is new capital. This new capital can only be accumulated, can be realized, by this investment, and investment means the hiring of new laborers. Capital does not only go to this investment, however. It also goes to the factors of production and the maintenance of the means of production, as well as insurance and other funds, though those do not interest here. These expenditures on labor, factors of production, and means of production are the composition of capital, and are what goes into the valorization process.
What is labor-power called as a compositional part of capital? It is called variable capital. Variable capital is the only source by which a capitalist can extract surplus-value, as we outlined earlier. You cannot “pay” a machine less than its cost of purchase and maintenance. Variable capital transfers to the valorized commodity not only the value of the necessary labor-time embodied in the commodity, but also the surplus labor-time embodied in it. The capitalist’s command over new variable capital comes from from the ownership of the product of old variable capital, of dead labor.
How can the capitalist increase the mass of surplus-value reaped from variable capital? There are two general method-forms of surplus-value: absolute and relative. Marx, in Capital Volume One, explains absolute surplus as being reaped through:
“The prolongation of the working-day beyond the point at which the labourer would have produced just an equivalent for the value of his labour-power, and the appropriation of that surplus-labour by capital[…]”
In short, the capitalist merely increases the total time worked, and increases the yield of surplus value, while also increasing the cost of necessary labor-time. This latter downside leads the capitalist to relative surplus-value. On this, Marx says, in the aforementioned book:
“The latter presupposes that the working-day is already divided into two parts, necessary labour, and surplus-labour. In order to prolong the surplus-labour, the necessary labour is shortened by methods whereby the equivalent for the wages is produced in less time. The production of absolute surplus-value turns exclusively upon the length of the working-day; the production of relative surplus-value, revolutionises out and out the technical processes of labour, and the composition of society.”
Relative surplus-value is reaped through far more refined means than absolute, it deals more with rates than masses. Economizing on the cost of production is achieved by reducing the time dedicated to the reproduction of necessary labor-time. This is done by decreasing the rate of wages, increasing the rate at which workers labor (which can be measured by dividing their new average hourly product to their old average hourly product, thus finding the rate of increase in labor productivity) decreasing the cost of factors of production, and increasing the productivity of the means of production. The latter method points us right toward the direction of the other compositional bodies of capital.
What is the non-labor-power composition of capital called? This composition, which is more often recognized as capital, is called fixed capital. Fixed capital is divided into constant capital, the means of production, and circulating capital, the factors of production or object of labor. Constant capital’s initial value comes from the socially necessary labor-time embodied in its production, in the production of the means of production. It transfers its value to the commodities not all at once; the means of production do not merely drop all of their value onto one commodity. Rather, value is transferred from constant capital to the commodity according to the rate at which the commodity exerts wear-and-tear on the means of production. This wear-and-tear that goes into producing the commodity represents a transfer out of the constant capital into the product. When a capitalist makes expenditures on maintenance of the means of production, they are reproducing this value that has been transferred. Think of this like a stamp. You rub a stamp in ink, think of the ink as the total value of the constant capital. Each time you stamp something, some ink, or value, comes off the constant capital and transfers to the product. Eventually, the ink, or value, is depleted, and you must reproduce it by expending value, or ink, on the maintenance of the constant capital, the means of production. An increase in the productivity of constant capital decreases the rate at which it transfers value, as the wear-and-tear is decreased, and a greater mass of commodities is produced than before, thus explaining the method of relative surplus-value identified earlier.
Circulating capital represents the total value of the factors of production, of the raw materials. This value is essentially the total socially necessary labor-time embodied in them, and is transferred over to the finished product along with the value transferred by the constant and variable capital. It is important to note that value is not always carried over perfectly, just as its important to note that price does not always allow for the total or even partial realization of value. Damage to a commodity or shoddy production can lead to a lower than average transfer of value, and a devalued commodity. Marx’s model does not presume perfection of the production process.
We have given a broad overview of capitalist production. We will now briefly identify how the capitalist mode of production spells its own doom due to internal contradictions. Let us quote from Rosa Luxemburg’s Reform or Revolution? for this purpose:
“The scientific basis of Socialism rests… on three principal results of capitalist development. First, on the growing anarchy of capitalist economy, leading inevitably to its ruin. Second, on the progressive socialization of the process of production, which creates the germs of the future social order. And third, on the increased organization and consciousness of the proletarian class, which constitutes the active factor in the coming revolution.”
The anarchy of capitalist production lies in its own mechanisms. We, however, will confine ourselves to the primary issue leading to its anarchy: the tendency of the rate of profit to fall (TRPF). The TRPF occurs as the composition of capital changes. Specifically, capitalists increase the relative composition of constant capital through technological improvements which increase productivity. Thus, the capitalists can expend less on variable capital and make the same quantity of commodities, so they hire fewer workers. As we have identified before, variable capital is the only source of surplus-value. With less variable capital, there is, true, less expenditure on necessary labor-time, but there is also less surplus-value relative to the cost of production.
Here we must get into the rate of profit and rate of surplus-value versus the mass of profit and of surplus-value. We have already explained the distinction between profit and surplus-value, which profit is merely a component of. But what is the rate of surplus-value? The rate of surplus-value is the ratio of surplus-value relative to the variable capital expended in production. The rate of profit is the ratio surplus value to the cost of production (constant, variable, and circulating capital). The rate of profit, on a social level, is equalized to a general, or average, rate of profit by competition. This competition leads to a general cost of fixed capital, and thus a general rate of profit. If the quantity of surplus-value decreases, due to a decrease in variable capital, relative to the other compositions of capital, then the rate of profit decreases. Because capitalism develops productive technology, categorized as constant capital, it increases the composition of constant capital relative to variable capital. Thus, it creates a tendency of the rate of profit to fall. It is important to identify that it is a tendential decline, not absolute. This means the rate of profit is not eternally declining, but over time tends to fall.
Let us again quote from Marx, in Capital Volume Three, on the ramifications of the TRPF:
“A fall in the profit rate, and accelerated accumulation, are simply different expressions of the same process, in so far as both express the development of productivity. Accumulation in turn accelerates the fall in the profit rate, in so far as it involves the concentration of workers on a large scale and hence a higher composition of capital. On the other hand the fall in the profit rate again accelerates the concentration of capital, and its centralization, by dispossessing the smaller capitalists and expropriating the final residue of direct producers who still have something left to expropriate. In this way there is an acceleration of accumulation as far as its mass is concerned, even though the rate of this accumulation falls together with the rate of profit. On the other hand, however, in view of the fact that the rate at which the total capital is valorized, i.e. the rate of profit, is the spur to capitalist production (in the same way as the valorization of capital is its sole purpose), a fall in this rate slows down the formation of new, independent capitals and thus appears as a threat to the development of the capitalist production process; it promotes overproduction, speculation and crises, and leads to the existence of excess capital alongside a surplus population. Thus economists like Ricardo, who take the capitalist mode of production as an absolute, feel here that this mode of production creates a barrier for itself and seek the source of this barrier not in production but rather in nature (in the theory of rent). The important thing in their horror at the falling rate of profit is the feeling that the capitalist mode of production comes up against a barrier to the development of the productive forces which has nothing to do with the production of wealth as such; but this characteristic barrier in fact testifies to the restrictiveness and the solely historical and transitory character of the capitalist mode of production; it bears witness that this is not an absolute mode of production for the production of wealth but actually comes into conflict at a certain stage with the latter’s further development.”
Capital is not unaware of this tendency of the rate of profit to fall. It engages in emergency economizing measures to reconcile the issue and to temporarily stall the tendency of the rate of profit to decline. One method is by decreasing wages. The increase of the productivity of constant capital, and resulting decrease in the workforce, creates a surplus of unemployed workers, an industrial reserve army of labor. This industrial reserve army’s competition is used to decrease wages of employed laborers through competition, decreasing expenditure on variable capital and thus temporarily relatively increasing the rate of profit. The capitalist may also increase the rate of labor while keeping the same rate of wages, increasing the surplus labor-time. The capitalist can also engage in swindling methods to economize on the cost of production, like through wage theft or price gouging. They cannot, however, forestall the tendency’s reality, or its meaning: that capitalism’s characteristics inherently tend towards crises, that the spread of capitalist production and increase in the scale of production creates a greater risk of crises, and the world market combined with socialized production ensures the far spread of these crises. If you doubt the reality of the TRPF, simply have a look at the US economy.
Let us now come to the contradiction of social production and private appropriation. This is what represents a tendency toward socialism as a result of capitalist collapse. Engels explains, in Socialism: Utopian and Scientific:
“Then came the concentration of the means of production and of the producers in large workshops and manufactories, their transformation into actual socialized means of production and socialized producers. But the socialized producers and means of production and their products were still treated, after this change, just as they had been before — i.e., as the means of production and the products of individuals. Hitherto, the owner of the instruments of labor had himself appropriated the product, because, as a rule, it was his own product and the assistance of others was the exception. Now, the owner of the instruments of labor always appropriated to himself the product, although it was no longer his product but exclusively the product of the labor of others. Thus, the products now produced socially were not appropriated by those who had actually set in motion the means of production and actually produced the commodities, but by the capitalists. The means of production, and production itself, had become in essence socialized. But they were subjected to a form of appropriation which presupposes the private production of individuals, under which, therefore, every one owns his own product and brings it to market. The mode of production is subjected to this form of appropriation, although it abolishes the conditions upon which the latter rests. This contradiction, which gives to the new mode of production its capitalistic character, contains the germ of the whole of the social antagonisms of today. The greater the mastery obtained by the new mode of production over all important fields of production and in all manufacturing countries, the more it reduced individual production to an insignificant residuum, the more clearly was brought out the incompatibility of socialized production with capitalistic appropriation. The first capitalists found, as we have said, alongside of other forms of labor, wage-labor ready-made for them on the market. But it was exceptional, complementary, accessory, transitory wage-labor. The agricultural laborer, though, upon occasion, he hired himself out by the day, had a few acres of his own land on which he could at all events live at a pinch. The guilds were so organized that the journeyman of today became the master of tomorrow. But all this changed, as soon as the means of production became socialized and concentrated in the hands of capitalists. The means of production, as well as the product, of the individual producer became more and more worthless; there was nothing left for him but to turn wage-worker under the capitalist. Wage-labor, aforetime the exception and accessory, now became the rule and basis of all production; aforetime complementary, it now became the sole remaining function of the worker. The wage-worker for a time became a wage-worker for life. The number of these permanent was further enormously increased by the breaking-up of the feudal system that occurred at the same time, by the disbanding of the retainers of the feudal lords, the eviction of the peasants from their homesteads, etc. The separation was made complete between the means of production concentrated in the hands of the capitalists, on the one side, and the producers, possessing nothing but their labor-power, on the other. The contradiction between socialized production and capitalistic appropriation manifested itself as the antagonism of proletariat and bourgeoisie.”
These antagonistic classes brings us to the third basis of socialism within capitalism: the tendency for the mass of the proletariat, or proletarianized classes, to grow. The proletariat is necessary for capitalist production, the production process is carried out by wage laborers. Capitalism proletarianizes people from large swathes of the population, from the peasantry to the petite-bourgeoisie, the guildmasters to the slaves. That is not to say there are no other classes than the bourgeoisie and proletariat, take a glance at The 18th Brumaire of Louis Bonaparte for proof that Marx makes no such claim. He mentions the intelligentsia, the peasantry, the petite-bourgeoisie, the lumpenproletariat, the landed estates, and so on. It is to say that they are the primary classes, the classes directly engaged in production, the classes which all other classes take the side of one or another in their struggle. The proletariat has no investment in capitalism, they own no property to hold onto that would make them fear revolutionary chains. To quote the famous Communist Manifesto, they “have nothing to lose but their chains. They have a world to win.” This world is the socialized appropriation of socialized production. Those classes which also become revolutionary, such as the peasantry, become so largely because they are threatened by proletarianization or pauperization, and so find common cause with the proletariat. The tendency for the proletariat to grow represents capital’s production of the very class which will land a death-blow upon its head.
When the expropriators are expropriated, what does this represent? It represents the seizure of political power by the proletariat. What is this? Marx refers to it as lower-stage communism, though most modern Marxists simply call it socialism. Marx, of course, did not detail the specifics of communist society very much, as he was not a utopian. He only identified the basics of their modes of production and distribution, as well as giving a broad outline of their society according to the preconditions which produce them. Marx deals with lower- and higher-stage communism in scattered sections throughout his works, including in all three volumes of Capital, but we will focus on what he detailed in the Critique of the Gotha Programme, which is the most focused on the subject. On the question of the state, he says:
“Nevertheless, the different states of the different civilized countries, in spite or their motley diversity of form, all have this in common: that they are based on modern bourgeois society, only one more or less capitalistically developed. They have, therefore, also certain essential characteristics in common. In this sense, it is possible to speak of the ‘present-day state’ in contrast with the future, in which its present root, bourgeois society, will have died off. The question then arises: What transformation will the state undergo in communist society? In other words, what social functions will remain in existence there that are analogous to present state functions? This question can only be answered scientifically, and one does not get a flea-hop nearer to the problem by a thousand-fold combination of the word ‘people’ with the word ‘state’. Between capitalist and communist society there lies the period of the revolutionary transformation of the one into the other. Corresponding to this is also a political transition period in which the state can be nothing but the revolutionary dictatorship of the proletariat.”
Essentially, the proletariat must hold absolute political power, and wield it over the bourgeoisie. This represents the primary preliminary process toward lower-stage communism, or socialism. The dictatorship is the assertion of class power, socialism is the process of abolition. The proletariat must combat the bourgeoisie, seeking the elimination of them as a class (not a group of people) in order to abolish class distinctions broadly. Socialism represents the development of productive capacity toward the state wherein production for direct immediate consumption (communism) can be established, the destruction of class distinctions (primarily characterized by war with the bourgeoisie), and the development of socialized appropriation. These characteristics are carried out by the proletariat organized as the ruling class, as a state which is “the revolutionary dictatorship of the proletariat.” Marx clarifies that, “the working class cannot simply lay hold of the ready-made state machinery, and wield it for its own purposes.” The proletarian dictatorship must be a new state, crafted to the necessities of proletarian class rule.
We will refer to Lenin for the specifics of how this state is characterized. For those who may be told that Lenin misrepresents Marx’s view of the state in The State and Revolution, we recommend referring not only to Marx’s Critique of the Gotha Programme, but also The Civil War in France, and The 18th Brumaire of Louis Bonaparte to see that there is no contradiction in Marx and Lenin’s understanding of the state, Lenin is not a liar. With that out of the way, Lenin says, in The Proletarian Revolution and the Renegade Kautsky,
“Take the structure of the state. Kautsky picks at all manner of ‘trifles,’ down to the argument that under the Soviet Constitution elections are ‘indirect,’ but he misses the point. He fails to see the class nature of the state apparatus, of the machinery of state. Under bourgeois democracy the capitalists, by thousands of tricks — which are the more artful and effective the more ‘pure’ democracy is developed — drive the people away from administrative work, from freedom of the press, freedom of assembly, etc. The Soviet government is the first in the world (or strictly speaking, the second, because the Paris Commune began to do the same thing) to enlist the people, specifically the exploited people, in the work of administration. The working people are barred from participation in bourgeois parliaments (they never decide important questions under bourgeois democracy, which are decided by the stock exchange and the banks) by thousands of obstacles, and the workers know and feel, see and realise perfectly well that the bourgeois parliaments are institutions alien to them, instruments for the oppression of the workers by the bourgeoisie, institutions of a hostile class, of the exploiting minority. The Soviets are the direct organisation of the working and exploited people themselves, which helps them to organise and administer their own state in every possible way. And in this it is the vanguard of the working and exploited people, the urban proletariat, that enjoys the advantage of being best united by the large enterprises; it is easier for it than for all others to elect and exercise control over those elected. The Soviet form of organisation automatically helps to unite all the working and exploited people around their vanguard, the proletariat. The old bourgeois apparatus — the bureaucracy, the privileges of wealth, of bourgeois education, of social connections, etc. (these real privileges are the more varied the more highly bourgeois democracy is developed) — all this disappears under the Soviet form of organisation. Freedom of the press ceases to be hypocrisy, because the printing-plants and stocks of paper are taken away from the bourgeoisie. The same thing applies to the best buildings, the palaces, the mansions and manorhouses. Soviet power took thousands upon thousands of these best buildings from the exploiters at one stroke, and in this way made the right of assembly — without which democracy is a fraud — a million times more democratic for the people. Indirect elections to non-local Soviets make it easier to hold congresses of Soviets, they make the entire apparatus less costly, more flexible, more accessible to the workers and peasants at a time when life is seething and it is necessary to be able very quickly to recall one’s local deputy or to delegate him to a general congress of Soviets.”
The Soviet state represented an example of an organ of proletarian class rule crafted for Russia’s conditions, and its mode of production was socialist. What was Marx’s sketch of the socialist mode of production? Is there still surplus labor-time? Is surplus-produce taken by the individual? We’ll quote from The Critique of the Gotha Programme again, where he states:
“Let us take, first of all, the words ‘proceeds of labor’ in the sense of the product of labor; then the co-operative proceeds of labor are the total social product. From this must now be deducted: First, cover for replacement of the means of production used up. Second, additional portion for expansion of production. Third, reserve or insurance funds to provide against accidents, dislocations caused by natural calamities, etc. These deductions from the ‘undiminished’ proceeds of labor are an economic necessity, and their magnitude is to be determined according to available means and forces, and partly by computation of probabilities, but they are in no way calculable by equity. There remains the other part of the total product, intended to serve as means of consumption. Before this is divided among the individuals, there has to be deducted again, from it: First, the general costs of administration not belonging to production. This part will, from the outset, be very considerably restricted in comparison with present-day society, and it diminishes in proportion as the new society develops. Second, that which is intended for the common satisfaction of needs, such as schools, health services, etc. From the outset, this part grows considerably in comparison with present-day society, and it grows in proportion as the new society develops. Third, funds for those unable to work, etc., in short, for what is included under so-called official poor relief today.”
Engels further elaborates on the socialization of surplus-produce in Anti-Dühring:
“A surplus of the product of labour over and above the costs of maintenance of the labour, and the formation and enlargement, out of this surplus, of a social production and reserve fund, was and is the basis of all social, political and intellectual progress. In history, up to the present, this fund has been the possession of a privileged class, on which also devolved along with this possession, political domination and intellectual leadership. The impending social revolution will for the first time make this social production and reserve fund — that is, the total mass of raw materials, instruments of production and means of subsistence — a really social fund, by depriving that privileged class of the disposal of it and transferring it to the whole of society as its common property.”
Many may decry that the socialist states represented or represent a degeneration, as they had commodity production, did not immediately abolish the state, and did not reach higher-stage communism. We will refer first to the aforementioned text by Marx:
“What we have to deal with is a communist society, not as it has developed on its own foundations, but, on the contrary, as it emerges from capitalist society; which is thus in every respect, economically, morally and intellectually, still stamped with the birthmarks of the old society from whose womb it emerges. Accordingly the individual producer receives back from society — after the deductions have been made — exactly what he gives to it. What he has given to it is his individual amount of labor. For example, the social working day consists of the sum of the individual labor hours; the individual labor time of the individual producer is the part of the social labor day contributed by him, his share in it. He receives a certificate from society that he has furnished such and such amount of labor (after deducting his labor for the common fund), and with this certificate he draws from the social stock of means of consumption as much as the same amount of labor costs. The same amount of labor as he has given to society in one term, he receives back in another.”
Marx did not describe this society summed up by “from each according to their ability, to each according to their contribution” according to moral values of productivity. As he says in Value, Price, and Profit:
“What you think just or equitable is out of the question. The question is: What is necessary and unavoidable with a given system of production?”
Socialism arises out of the conditions of capitalism. It not only must develop productive capacity in order to reconcile this, to eliminate commodity production over time, thus abolishing the value-form, but repress and disintegrate the bourgeoisie as a class, thus why the state remains for a long time, in fact it must remain until the bourgeoisie is eliminated. As Lenin says in The Proletarian Revolution and the Renegade Kautsky:
“For a long time after the revolution the exploiters inevitably continue to retain a number of great practical advantages: they still have money (since it is impossible to abolish money all at once); some movable property — often fairly considerable; they still have various connections, habits of organisation and management; knowledge of all the ‘secrets’ (customs, methods, means and possibilities) of management; superior education; close connections with the higher technical personnel (who live and think like the bourgeoisie); incomparably greater experience in the art of war (this is very important), and so on and so forth. If the exploiters are defeated in one country only — and this, of course, is typical, since a simultaneous revolution in a number of countries is a rare exception — they still remain stronger than the exploited, for the international connections of the exploiters are enormous. That a section of the exploited from the least advanced middle-peasant, artisan and similar groups of the population may, and indeed does, follow the exploiters has been proved by all revolutions, including the Commune (for there were also proletarians among the Versailles troops, which the most learned Kautsky has ‘forgotten’).”
In the same text, he says:
“The transition from capitalism to communism takes an entire historical epoch. Until this epoch is over, the exploiters inevitably cherish the hope of restoration, and this hope turns into attempts at restoration. After their first serious defeat, the overthrown exploiters — who had not expected their overthrow, never believed it possible, never conceded the thought of it — throw themselves with energy grown tenfold, with furious passion and hatred grown a hundredfold, into the battle for the recovery of the ‘paradise’, of which they were deprived, on behalf of their families, who had been leading such a sweet and easy life and whom now the ‘common herd’ is condemning to ruin and destitution (or to ‘common’ labour . . .). In the train of the capitalist exploiters follow the wide sections of the petty bourgeoisie, with regard to whom decades of historical experience of all countries testify that they vacillate and hesitate, one day marching behind the proletariat and the next day taking fright at the difficulties of the revolution; that they become panic-stricken at the first defeat or semidefeat of the workers, grow nervous, run about aimlessly, snivel, and rush from one camp into the other[…]”
So the proletarian state must remain to serve its purpose, the final struggle to destroy class distinctions is long and drawn out. The socialist states were and are not “failures”, these critics simply cannot grasp the enormity of historical epochs, modes of production, and social relations.
We have established the reality of socialist development. Let us now close this essay by dealing with communist development, which is often disparaged as utopian by anti-Marxists. Communism has a very real basis in capitalist development, which we have already identified. But what is the communist system? Communist society is well-known to be described as a stateless, classless, moneyless society. What does this mean specifically? By stateless, it means there is no longer a specialized body for the organization of repression, an organ of class rule, as class distinctions have been abolished. The abolition of class distinctions leads to the withering away of the state. Do not picture this as something immediate. It is a long, drawn out process. The state, as has been detailed, is an organ of class rule. It arises with classes, as Engels explains in On the Origin of the Family, and will fall with them:
“But here was a society which by all its economic conditions of life had been forced to split itself into freemen and slaves, into the exploiting rich and the exploited poor; a society which not only could never again reconcile these contradictions, but was compelled always to intensify them. Such a society could only exist either in the continuous open fight of these classes against one another, or else under the rule of a third power, which, apparently standing above the warring classes, suppressed their open conflict and allowed the class struggle to be fought out at most in the economic field, in so-called legal form. The gentile constitution was finished. It had been shattered by the division of labor and its result, the cleavage of society into classes. It was replaced by the state… The state is therefore by no means a power imposed on society from without; just as little is it ‘the reality of the moral idea,’ ‘the image and the reality of reason,’ as Hegel maintains. Rather, it is a product of society at a particular stage of development; it is the admission that this society has involved itself in insoluble self-contradiction and is cleft into irreconcilable antagonisms which it is powerless to exorcise. But in order that these antagonisms, classes with conflicting economic interests, shall not consume themselves and society in fruitless struggle, a power, apparently standing above society, has become necessary to moderate the conflict and keep it within the bounds of “order”; and this power, arisen out of society, but placing itself above it and increasingly alienating itself from it, is the state… As the state arose from the need to keep class antagonisms in check, but also arose in the thick of the fight between the classes, it is normally the state of the most powerful, economically ruling class, which by its means becomes also the politically ruling class, and so acquires new means of holding down and exploiting the oppressed class. The ancient state was, above all, the state of the slave-owners for holding down the slaves, just as the feudal state was the organ of the nobility for holding down the peasant serfs and bondsmen, and the modern representative state is the instrument for exploiting wage-labor by capital. Exceptional periods, however, occur when the warring classes are so nearly equal in forces that the state power, as apparent mediator, acquires for the moment a certain independence in relation to both… The state, therefore, has not existed from all eternity. There have been societies which have managed without it, which had no notion of the state or state power. At a definite stage of economic development, which necessarily involved the cleavage of society into classes, the state became a necessity because of this cleavage. We are now rapidly approaching a stage in the development of production at which the existence of these classes has not only ceased to be a necessity, but becomes a positive hindrance to production. They will fall as inevitably as they once arose. The state inevitably falls with them. The society which organizes production anew on the basis of free and equal association of the producers will put the whole state machinery where it will then belong–into the museum of antiquities, next to the spinning wheel and the bronze axe.”
Why does the state wither away? Because, with class distinctions, there are antagonisms of interests; what benefits one harms another. Without class distinctions, what benefits one benefits all, and so a state is not necessary to mediate between classes to ensure social cohesion, or to exert the rule of the dominant class. This does not mean the abolition of authority, which is something necessary to the organization of certain industries (see On Authority by Engels). It is the abolition of the state as something beyond the direct actions of society as a whole. In short, the members of society regulate their own intercourse, as the antagonisms caused by class distinction and a lack of socialized appropriation of developed productive capacity have been eliminated. The abolition of classes, it must be noted, does not necessarily mean absolute equality. Engels says, in a letter to August Bebel (March 18–28, 1875):
“‘The removal of all social and political inequality’ is also a very questionable phrase in place of ‘the abolition of all class differences.’ Between one country and another, one province and another and even one place and another, there will always exist a certain inequality in the conditions of life, which can be reduced to a minimum but never entirely removed. Mountain dwellers will always have different conditions of life from those of people living on plains. The idea of socialism as the realm of equality is a one-sided French idea resting upon the old “liberty, equality, fraternity” — an idea which was justified as a stage of development in its own time and place, but which, like all one-sided ideas of the earlier socialist schools, should now be overcome, for they only produce confusion in people’s heads and more precise modes of presentation have been found.”
Difference in conditions means it is impossible to compare two different people in different contexts, and thus establish equality.
The “moneyless” aspect of communism merely means abolition of commodity production and the establishment of production for direct, immediate consumption. This is precluded by the development of productive capacity, and does not mean that every single need is met. It merely means that appropriation has been sufficiently organized in a socialized manner, and that productive capacity has been developed enough, in order for commodity production to be totally wiped out. As Marx says in Capital Volume Three:
“The real wealth of society and the possibility of a constant expansion of its reproduction process does not depend on the length of surplus labor but rather on its productivity and on the more or less plentiful conditions of production in which it is performed. The realm of freedom really begins only where labour determined by necessity and external expediency ends; it lies by its very nature beyond the sphere of material production proper… Freedom, in this sphere, can consist only in this, that socialized man, the associated producers, govern the human metabolism with nature in a rational way, bringing it under their collective control instead of being dominated by it as a blind power; accomplishing it with the least expenditure of energy and in conditions most worthy and appropriate for their human nature. But this always remains a realm of necessity. The true realm of freedom, the development of human powers as an end in itself, begins beyond it, though it can only flourish with this realm of necessity as its basis…”
In short, the summary of the communist mode of distribution is “from each according to their ability, to each according to their need”. This is precluded not by utopian desires, but by material tendencies already embodied in capitalism.
Recommended Further Reading:
Value, Price, and Profit by Karl Marx
The Reproduction of Labor-Power in the Global Economy by Silvia Federici
The Accumulation of Capital by Rosa Luxemburg
Imperialism: The Highest Stage of Capitalism by Vladimir Lenin
Neo-Colonialism: The Last Stage of Imperialism by Kwame Nkrumah