This diary series is a slightly edited version of Contradictions of Capitalism, a book that I wrote in the early 90's which is still available now on Amazon. I have updated some parts of it to reflect the very important changes in the corporate economy since the mid-1990s with the appearance of a global economy rather than a national, which has important effects which much of the socialist movement has still not fully grasped.
Previous entries in this series can be found here:
Part One: http://www.dailykos.com/...
Part Two: http://www.dailykos.com/...
THREE: The Basis of Capitalism
The consolidation of each capitalist regime was accomplished through the phenomenon known as the Industrial Revolution. This economic changeover, which marks the transition from an agrarian feudal system to an industrial capitalist one, first took place in Britain, which was then the most economically advanced nation of its time. The Industrial Revolution quickly spread to engulf the entire capitalist world.
The introduction of machinery and the factory system during the Industrial Revolution brought about a profound change in capitalism.
Before, capitalist manufacture had been small-scale and limited. Most capitalists were merchants who imported commodities from elsewhere and sold them in Europe at a profit. Now, with the factory system, huge numbers of commodities could be manufactured for sale. As factories and industrial machinery grew in number, so too did the working laborers needed to run them. Thus, during this time, the rural peasantry and serfs began to fade from view, and the industrial working class assumed a central role in the capitalist system.
By 1840, the Industrial Revolution had swept across Europe. Capitalist systems were firmly established in Britain and France, and the rise of German nationalism under Bismarck would soon produce another capitalist state. The landed aristocracy and the serf laborers had largely vanished, and the capitalists and their working class adjuncts were the main features on the economic landscape. It was during this time that Karl Marx began his inquiry into the process of capitalist development.
Marx began his investigation as a student of the German philosopher Georg Hegel. While Hegel himself had died shortly before Marx began his philosophical inquiry, his ideas dominated German philosophy during the first half of the 19th century. Marx and a number of other students, known collectively as the “Young Hegelians”, examined Marx’s philosophy intently.
The most influential concept introduced by Hegel was that of the “dialectic”. Dialectics as a philosophy holds that reality is a constantly flowing, interacting and changing continuum, in which everything that exists is in the process of both being what it is and of becoming something else.
This flowing process, Hegel asserted, was produced by the dialectical inter-relationship of entities. Most Marxists use the terms “thesis” and “anti-thesis” to describe this process. These two entities interpenetrate and modify each other, and in the end produce a completely different entity, termed the “synthesis”. This synthesis then becomes the new thesis, to be in turn confronted by a new anti-thesis. The process thus continues.
Hegel coupled this dialectical process with the precepts of philosophical idealism to complete his theoretical outlook. As a philosophy, idealism holds that matter and the material world are illusory and transitory, merely imperfect reflections of underlying ideals.
By combining the precepts of dialectics with philosophical idealism, Hegel produced a theory of social development. According to Hegel, the ideas which guided reality were put into motion by the actions of humans, in the form of their social and political institutions. These ideas, however, were themselves in a constant state of flux as they merged dialectically. As the ideal bases changed, he concluded, so too did the social and political institutions which reflected them. Thus, Hegel saw reality as being the interaction of opposing ideas to produce new ideas, with these ideological changes then being reflected in the structure of the political state and social relationships. An old idea of “justice”, for instance, merged with new ideas to form a new concept of “justice”, and social reality in turn was changed to conform to this new understanding.
A number of Young Hegelians soon abandoned this outlook. A Young Hegelian named Ludwig Feuerbach soon emerged as one of the leading proponents of philosophical materialism. Materialism as a philosophy holds that ideas are an illusion, and that material things are their own source of reality. Reality, materialism asserts, is subject to strict and unchanging “natural laws”, which govern all things according to a complex chain of cause and effect. Human actions or ideas are powerless to change these natural laws, and the human race is unable to influence the course of its destiny. All materialists assert, to a greater or lesser degree, that reality is determined by these laws of development, and that humans can do nothing more than slavishly follow a path that has already been charted for them.
After a period of study, Marx was led to reject the “mechanistic materialism” of Feuerbach. Such an outlook, he concluded, did not give sufficient weight to humanity’s own ability to influence the course of its development through ideas, reason and action.
At the same time, Marx was forced to jettison the idealism of Hegel, saying that ideas meant nothing if they were divorced from the reality within which they operated. Hegel and the other idealists, he declared, had failed to recognize that all ideas and philosophies are merely abstractions from reality. To Marx, it seemed as though the idealists depended too much on what they thought reality was instead of what they could see reality to be.
To escape this dilemma, Marx adopted the philosophical outlook which would later come to be known as “naturalism” (although Marx always continued to refer to it as “materialism” to distinguish it from Hegel’s thought). As a philosophical outlook, naturalism asserts that nothing exists which is outside of the natural system. Idea and matter were each essential to the functioning of the natural process, and neither one could exist independently of the other.
Human ideas and desires could influence the course of social reality, Marx concluded, but only to the extent that those ideas and desires were applicable to reality. In the Marxian conception, the actions and ideas of humanity influenced the development of reality to the same extent as the conditions of reality produced new actions and ideas. The two sides are dialectically interpenetrating.
Thus, Marx concluded, a serious study of human society must begin with the study of actual human conditions. Since the most basic function of any group of human beings is to stay alive and reproduce, Marx concluded that the largest factor influencing human actions were those steps taken to produce food, shelter and other necessities, how these necessities were distributed among the members of the group, and how this pattern of production was able to maintain itself. This is the major focus of the science of economics (or, as it was known in Marx’s day, “political economy”). Thus, Marx concluded, the basic reasons for human actions are found in the economic and social system by which they reproduce their lives, or, in Marx’s terminology, in their “mode of production”.
Marx thus began a period of intensive study of political economy, and pored over the works of classical economists such as Smith, Ricardo, and Say. From this study, it became obvious to Marx that every mode of production which had appeared in human history had divided people into various sections, each composed of people who performed similar socio-economic functions. Feudal society was divided into serfs (who labored to produce the wealth of society) and the aristocracy (which lived by appropriating the output of the serfs). The capitalist mode of production, Marx realized, was being divided into two groups; the capitalists (who own the machinery of production) and the working class (which owns nothing more than its ability to perform labor). Marx called these distinct socio-economic groupings “classes”.
Here, Marx concluded, was the Hegelian dialectic at work. Throughout human history, the existing mode of production was marked by the opposed interests of differing classes. The synthesis of this struggle led to a new and different mode of production, which in turn produced its own class struggles and its own dialectical development. In this manner, the class struggle between the feudal aristocrats and the industrial merchants led to the destruction of the feudal system and the rise of the capitalists. The new mode of production, however, was producing its own class struggle in the form of the capitalist owners and the working class. According to the dialectic, these classes would eventually produce a new mode of production, which would develop from the internal conflicts and contradictions of the present system.
This conception of social development would later become known as “dialectical materialism”, although Marx himself never used this term and, as we have seen, Marx was a naturalist and not a materialist. For the first half of his life, Marx’s writings concerned themselves with pointing out the inadequacies of the materialist and idealist outlooks and with promoting his own naturalist and dialectical outlook. It was not until he began research for his giant work Capital that Marx began to systematically apply his conceptions of class warfare and dialectical development to the capitalist system.
In the earlier modes of production, such as the tribalism practiced by ancient hunter/gatherer societies, the production of economic goods was motivated solely by the need for them. The hunter/gatherer made baskets, pottery, weapons and other implements simply because they were needed by individuals for their utility, or, as Marx put it, for their “use-value”.
In hunter/gatherer economies, the exchange of products only occurs on occasions when the trading partners each have a temporary surplus of something and can afford to trade it away. As commodity production became more prevalent under feudalism, however, certain individuals began to specialize in specific items—weapons, pottery, cloth. These objects had only a limited use-value to their producer; their value lay chiefly in the ability of the producer to exchange them for other objects. The production of these “exchange-values” was in turn greatly aided by the introduction of money as a medium of exchange.
This marks the beginning of the commodity economic relationship. A commodity, in the Marxian sense, is simply any object which is produced for its exchange-value rather than its use-value. Under the simplest commodity exchange system, the economic relationship follows the formula:
C —M —C
where C represents a commodity and M is the monetary medium of exchange. In this relationship, the producer makes a particular commodity C and converts its exchange-value into the corresponding sum of money by selling it. This money, in turn, can at any time be converted by exchange into any desired commodity C.
As the capitalist system developed within the limits of feudalism, however, this formula began to be drastically altered. Those merchants in the feudal economy who were able to acquire large amounts of money (usually through the conquest and plunder of foreign colonies) found that they were able to use this ready cash to procure commodities which, instead of being sold for the purpose of later purchase of desired commodities, could be sold simply to produce more money for the production of new exchange-values, which in turn could be sold for more money. In this manner, the role of money is altered—it is no longer a simple means of exchange; it is transformed into a means of creating and expanding wealth. Money has become capital.
In the capitalist economic relationship. the formula is:
M —C —M’
where M is the original capital invested in production, C is the exchange-value which is produced, and M’ (pronounced “M-prime”) is the money resulting from the sale of this exchange-value.
If M’ is the same as M, the capitalist gains nothing from the transaction; he merely regains his original outlay. Therefore, the aim of the capitalist is to increase the value of M’ and to make the difference between M and M’ as large as possible, thereby finishing the process with more money than he started with.
It is important to realize the difference between this economic relationship and the earlier simple commodity relationship. Even in the capitalist economy, laborers and other non-capitalists still follow the C—M—C formula; that is, they sell one commodity (their own labor power) to the capitalist in exchange for a sum of money M. This money is then exchanged for a desired use-value C. No new wealth is created in this relationship—it is merely changed in form.
The capitalist formula of M—C—M’ is very different. The capitalist does not sell his commodities merely to obtain money to exchange for other commodities. Rather than simply selling in order to buy something else, the capitalist aims to create new wealth. He buys commodities in order to sell them for more money than he used to buy them.
The key to understanding the capitalist mode of production lies within this process of creating and expanding wealth. Since the M’ realized at the end of the capitalist exchange relationship is larger than the M capital originally invested in production, we are forced to ask where the added value comes from—that is, how is the original sum M transformed into the higher sum M’? The answer to this lies in Marx’s “labor” method of measuring value.
In any production process, the first step is to assemble in one place all of the materials needed for production. If one wishes to make a chair, for example, one must gather the leather, wood, upholstery, and any other materials which are to go into the chair. If this process is to be carried out with the aid of machinery, this equipment must also be procured and provided with the lubricants, electricity, fuel or anything else it needs to operate.
But, it is obvious, these gathered materials will never produce a new chair all by themselves. Left to sit in a corner, unacted upon, they will forever remain a scattered pile of wood and other materials. Only when the materials are acted upon by human labor can they be transformed into a chair. Thus, the element that makes the completed chair more useful than the materials that went into it is the addition of human labor power.
This holds true whether the commodity to be produced is a chair, a jet airliner or a piece of literature (since human brain-power must be expended to produce literature). All economic commodities can therefore be viewed as “solidified labor”, and all commodities take their value from the labor which produces them.
Further, since all commodities can be compared according to the amount of labor time which is necessary to produce them, it is obvious that the value of commodities is directly related to the necessary amount of labor power they require to be produced. A product requiring six hours of work to produce, for instance, is twice as valuable (or, to put it another way, twice as costly to produce in terms of expended labor) as one containing only three hours, and three times as valuable as one requiring only two hours.
These commodities will therefore exchange in such a way that the exchanged labor values are equal. Suppose, for instance, that it normally takes a potter one hour to produce a bowl, while a carpenter, using socially available methods, takes three hours to make a chair. The carpenter would not agree to exchange his chair for just one bowl, since he would then be exchanging three hours of work for only one hour. It would be more advantageous for the carpenter to simply keep his chair and expend one hour of work to make his own bowl. Therefore, the carpenter will exchange his chair for three bowls, three hours of labor value for three hours of labor value. In this example, we could say that one chair is worth three bowls.
The use of machinery in the factory system makes it easier for human labor power to produce commodities, but it does nothing to alter the basic measurement of value. Using machinery and equipment, for example, the potter may be able to produce a bowl in just ten minutes instead of an hour. This machinery, however, is itself the product of human labor, and must first be produced before the potter can use it. Thus, the labor value of the bowl now contains not only the ten minutes of labor needed to actually manufacture it, but also a portion of the labor power necessary to produce the machinery used in the manufacturing process. If, in its lifetime, this machine produces a million bowls, each bowl contains one-millionth of the total labor power used to produce the machine. This gradual transfer of value from machinery to commodity is recognized in the capitalist concept of “depreciation”.
Of course, the argument could be made that it is not proper to compare labor power in this manner, since some workers are more skilled, and therefore more valuable, than others. This argument does not, however, contradict the labor method of measuring value. Skilled labor is more valuable simply because more effort was expended in educating and training the skilled worker; i.e., the skilled laborer embodies a higher proportion of human brain power.
Moreover, in the capitalist factory system, the distinction between “skilled” and “unskilled” workers gradually loses its meaning, since the assembly line and mechanization tend to reduce all production tasks to the simple repetition of easily-learned movements. Workers on an automobile assembly line, for instance, do nothing more than bolt one piece onto the assembly as it moves down the line before them. Workers in an assembly plant are in essence interchangeable, and can be moved from task to task with little training.
This interchangeability of labor can also be seen in the rise of the “temporary employment service”. For a fee, capitalists can hire workers for short-term assignments from a central “pool”. These tasks are so simple that temporary workers are able to move from one enterprise to another with little or no training. This is true even of clerical or “white collar” workers, since the introduction of computerized equipment has reduced the tasks of most of these workers to simple keyboard entry.
Marx thus asserted that labor under capitalism is reduced to “abstract labor”. It is a mere commodity, as necessary for running the capitalist’s factories as are machinery, raw materials and utilities. Workers under capitalism are not people—they are merely another expense which the capitalist must pay if he is to continue to expand his capital and make money. Workers are no different from a computer terminal, a conveyor belt or a shovel—the capitalist buys laborers, uses them until they wear out or break down or become obsolete, then he throws them away and buys new ones.
It is within this commodity relationship, the capitalist’s purchase of human labor power as a commodity, that we can determine the source of the extra value created by the capitalist production process—of the difference between M and M’.
The value of any commodity can be measured according to the amount of labor which is necessary to produce it. Human labor power comes from human beings, and in order to produce human beings we need food, shelter, clothing, etc. Thus, the amount of labor necessary to produce human labor as a commodity is equal to the amount of labor needed to produce all of the various things which the worker uses in his life.
Since the food, clothing, etc., used by the workers are themselves the products of human labor, it follows that some definite amount of labor time is required to produce all of these various things, and that this labor time represents the labor value of the worker’s labor power. Let us say that the time necessary to produce all of these things is five hours; in other words, it takes five hours a day to produce “one day’s worth” of the worker’s living.
If the exchange relationship between the worker and the capitalist were equal, the laborer would exchange five hours of labor for five hours of labor value (in its monetary wage equivalent). However, the worker is compelled to work in the capitalist’s factory not for merely five hours, but for eight. In this extra three hours, the worker continues to expend labor and produces new value above and beyond the five hours of value he receives in wages. In essence, he gives up eight hours of labor time, but receives only five hours in exchange for it. The surplus value which is created, the three “extra” hours of work, are appropriated by the capitalist.
Some readers may find this process easier to understand if we picture it in monetary terms rather than in labor value terms. Since labor power as a commodity can also be expressed in its monetary form, this does not change at all the essence of what we are saying.
Suppose that, in order to obtain the things which are socially accepted as being necessary to make a living, the worker must receive a wage of $5 an hour. The exchange-value of the commodity produced in the factory (as determined by the capitalist marketplace) is $20. Suppose it takes one hour for the worker to produce each commodity, and that each commodity requires $5 worth of raw materials and $3 in depreciated machinery. Thus, in one hour, the worker’s labor power transforms $8 worth of raw materials and machinery into $20 worth of commodity. In other words, the worker’s labor has created $12 worth of value.
For this $12 worth of created value, however, the worker is only paid $5 by the capitalist. The difference between the value created by the worker and the wage value he receives in exchange for it is $7, which goes directly into the capitalist’s pocket. It is the surplus value, the difference between the M capital laid out by the business owner and the M’ taken in by him. This difference is created solely by the capitalist not paying the worker for the full value of his work. In essence, the capitalist compels the laborer to work under the agreement, “I’ll give you $5 if you give me $12.”
Since the labor value necessary to produce the machinery and materials for production is fixed at the beginning of the production process, and transfers this value to the commodities at a constant rate, this value is referred to in Marxian economics as “constant capital”. Wages and other employee compensations, which are subject to change from one production run to another, are referred to as “variable capital”. Thus, the total value of a commodity in a capitalist system is:
total value = C + V + S
where C is the amount paid for the machinery and raw materials (constant capital), V represents wages and employee benefits (variable capital) and S equals the surplus value appropriated by the capitalist. This formula, it can be seen, is similar to the financial statements put out by capitalist businessmen, in which total value is listed as gross revenues, constant capital is listed as materials, physical plant and depreciation, variable capital is shown as wages and benefits, and surplus value is shown as gross profits.
To the charge that he makes his living by appropriating a portion of the value created by his workers, the capitalist is apt to respond, “But I deserve a share of the profits, because I am the one who is risking my capital, and I am the one who is providing the management know-how to run the business.” In reality, this claim is nonsense. Since the capitalist produces no new wealth and creates no new value, all of the money which he invests has as its source some prior exploitation of labor (unless the capitalist has a printing press in his basement and prints his own money). As for the contention that the capitalist’s profit is a reward for his managerial skills, modern corporate practice, as we shall soon see, has already eliminated this argument.
A portion of the surplus value which the capitalist appropriates is used to purchase the use-values which he needs or wants, but the major portion of this surplus value is reinvested into his capital. This reinvestment expands the sum M and in turn increases M’, thus producing more surplus value for re-capitalization and re-investment. This process of accumulation, of continuously investing more money in order to make still more money, is the driving force of capitalism. Thus, whether he wants to or not, the capitalist is driven to continuously expand his capital in order to maintain his position as a capitalist.
There are three ways in which the capitalist can increase the amount of surplus value extracted from the workers: (1) he can lengthen the working day to produce more hours of unpaid surplus labor, (2) he can use machinery and improved production methods to increase the productivity of the work force, thus reducing the number of hours necessary to reproduce the workers’ wages, or (3) he can take over and absorb the capital of some smaller enterprise, thereby expanding his capital supply.
In practice, the organized labor movement has tended to rule out the first option (although in pre-union days it was common for business owners to increase the length of the working day to twelve or fourteen hours). The second option (the “speed-up”) allows the capitalist to produce more commodities cheaper, and thus to capture a larger share of the market. In addition, smaller capitalists cannot afford to invest as much in improved machinery and mechanization, and thus fall in competition with those who can. This makes the third option all the more easier.
The early stages of capitalism are thus characterized by ruthless cutthroat competition, as each individual capitalist tries at all costs to eliminate his competitors and seize their capital. In their quest to expand surplus value, the capitalists scramble over each other’s corpses to get to the top.
In this process of ruthless competition, however, the groundwork is laid for a new stage of the capitalist system—the gradual elimination of competition.