“A critique of political economy” was the subtitle of Marx’s book Capital. The political economists portrayed profit, rent & wages as the just returns for the three factors of production: land, labour & capital. Marx argued that such surface level appearances were seriously misleading. That both profit & rent actually came from value created by workers. Furthermore, that capitalism was just the latest mode of production, & that because of its contradictions would be replaced by a higher form called communism.
Marx’s book on capital was part of a wider plan. He also intended to write books on landed property, wage labour, the state, international trade & the world market. As it turned out he only managed to publish volume I of Capital with volumes II & III being published after his death. Volume I looks at the production of capital, volume II at the circulation of capital & III considers capital as a whole.
The first part of volume I, ‘Commodities & Money’ is widely recognised as the most difficult part of the book. To fully appreciate what Marx is trying to say it is worth reading it alongside David Harvey’s ‘A Companion to Marx’s Capital’. Marx defines the commodity as something produced for sale not for immediate consumption. Commodity production is what largely distinguishes capitalism from previous modes of production. A commodity has use-value & exchange-value. A thing has a use-value if it can find a use. The use-value refers to the physical properties that make it potentially an object of use. Marx states that “exchange-value appears first of all as the quantitative relation in which use-values of one kind exchange for use-values of another kind”, e.g. one pair of shoes equals 25 pairs of socks. The fact that commodities can have this quantitative relationship is because, as even the intellectual guru of capitalism Adam Smith, recognised, “labour is the real measure of the exchangeable value of all commodities”. It is labour that is the common denominator. Marx made an important qualification to Smith & David Ricardo’s labour theory of value though. For Marx the value of a commodity is not the amount of concrete labour actually expended, but that portion of social labour that is credited to that commodity, which can only be known in exchange, i.e. in the market. The capitalist market does not rest upon barter though; a commodity becomes the ‘universal equivalent’, in otherwords money. Historically this role has mainly been filled by precious metals, gold in particular. All commodities can be expressed in terms of monetary values; exchange-values that ultimately reflect the portion of social labour the market credits them. The important point that Marx is making is that the market is a particular way of allocating social labour. It is a human invention & although not exclusive to capitalism, markets are not eternal like the weather. They are not something that has always existed or need exist in the future.
Marx then goes on to describe the general formula for capital: M – C – M’ (money –commodities – more money). This addition to the original sum of money laid out is called surplus value. This is an important term. Marx’s great insight was to show that the source of surplus value lies in the difference between the value of labour-power (the wage) & the value created by labour. This is the key insight that shows that workers are the source of all profits (interest & rent) & that the capitalists exploit workers just as feudal landowners exploited peasants.
The capitalist not only spends money on workers’ wages (referred to as variable capital) but also raw materials, machinery & factories (constant capital). Economists have argued that by investing their money instead of spending it, the capitalists by foregoing consumption ‘earn’ a return on their investment. Marx explained that all constant capital is the result from earlier living labour; somebody had to make the machines. Hence constant capital is also known as ‘dead labour’. It is the result of earlier capitalist exploitation of workers.
The difference between variable capital & constant capital is only the former adds value in production. This is because wages are generally less than the value created by labour, whereas the cost of machines, through depreciation, gets past on in the price of the commodity. In otherwords, machines exchange, in general, at their values, but labour is the source of new value. Hence the rate of exploitation is a key measure. It is defined as the percentage of workers’ time that the capitalist ‘steals’ as surplus value relative to the amount the worker gets in wages, (rate of surplus value = surplus value divided by variable capital).
Surplus value can be increased in absolute terms by increasing the length of the working day, or in relative terms by increasing productivity, which means the amount of time necessary to produce the means of subsistence for workers falls as a percentage of the working day. It is competition that drives capitalists to increase productivity & so gain a competitive advantage. But although this is beneficial to the cutting-edge capitalists, as other capitalists follow suit or go out of business, the increase in productivity by lowering the value of variable capital relative to constant capital means the organic composition of capital increases. That is, a greater percentage of capital goes to non-value adding constant capital rather than surplus value producing variable capital. What benefits individual capitalists initially actually works against them all eventually by lowering the rate of surplus value & so profit rate. This is important to the argument in volume III that there is a tendency for the rate of profit to fall.
In volume II Marx considers the circulation of capital. He shows that alongside the rate of exploitation & the organic composition of capital, that the circulation time also affects the rate of profit. Marx observes that labour employed in the circulation of capital (except transport) is unproductive labour. That is, these workers do not add value by producing surplus value. Volume II is also where Marx introduces his reproduction schema, whereby he considers how capitalism reproduces itself. Marx divides capitalists into those that produce the means of production & those that produce the means of consumption. The former are referred to as department I, the latter as department II. He then further sub-divides department II into those that produce the means of subsistence for the workers (IIa) & those that produce luxuries for the capitalist (IIb). Such a division is useful when considering things like changes in productivity. For example, greater productivity gains in department I relative to department IIa will mean that rather than an increase in the organic composition of capital, there is it fact a decrease & so a higher rate of profit.
Volume III is where Marx, having abstracted out complexity to get to the essence of the capitalist system, adds back in the complexity & returns to the surface appearance of separate factors of production (land, labour & capital) getting their ‘just’ rewards. But Marx has achieved more than just demonstrating that all profit originates from labour & that the system is based upon exploitation of workers. He also argues that the days of the capitalist system are numbered. That through the long-term tendency of the rate of profit to fall, capitalists will be forced to further attack & exploit workers. Given the numerical superiority of the workers they must eventually win out & move humanity to a higher classless mode of production where the means of production are democratically controlled; that is communism. Capitalism sows the seeds of its own destruction & no amount of ideological excuses offered up by economists can change it.