MARXIAN POLITICAL ECONOMY - A Introduction to Capital 1 9788189487

Table of contents :
Prelims.pdf......Page 1
Chapter 1 (1-13).pdf......Page 15
Chapter 2 (14-25).pdf......Page 28
Chapter 3 (26-36).pdf......Page 40
Chapter 4 (37-49).pdf......Page 51
Chapter 5 (50-62).pdf......Page 64
Chapter 6 (63-75).pdf......Page 77
Chapter 7 (76-87).pdf......Page 90
Chapter 8 (88-99).pdf......Page 102
Chapter 9 (100-110).pdf......Page 114
Chapter 10 (111-124).pdf......Page 125
Chapter 11 (125-136).pdf......Page 139
Chapter 12 (137-149).pdf......Page 151
Chapter 13 (150-161).pdf......Page 164

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F R O M . T H E . P A G E S . O F. S O C I A L . S C I E N T I S T

MARXIAN POLITICAL ECONOMY An Introduction to Capital I

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F R O M . T H E . P A G E S . O F. S O C I A L . S C I E N T I S T

MARXIAN POLITICAL ECONOMY An Introduction to Capital I

VENKATESH ATHREYA

Tulika Books

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Published by Tulika Books 35 A/1 Shahpur Jat, New Delhi 110 049

First published in 2013 © Social Scientist 2013 ISBN: 978-81-89487-

Typeset in Sabon at Tulika Print Communication Services, New Delhi; printed at Chaman Offset, Delhi 110 002

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Contents

Foreword by Prabhat Patnaik

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Preface

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1 Marx’s Method

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2 The Commodity

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3 The Emergence of the Capitalist Mode of Production

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4 The Source of Surplus Value

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5 Absolute and Relative Surplus Value

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6 Machinery and Modern Industry

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7 Wages,Value of Labour Power and Rate of Surplus Value

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8 The Process of Capitalist Accumulation

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9 The General Law of Capitalist Accumulation

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10 Prices and Values: Marx’s Critique of Bourgeois Price Theory

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11 Process of Reproduction of Capital

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12 Economic Crises under the Capitalist Mode of Production

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13 Contemporary Capitalism in the 1970s

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Index

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Foreword

Social Scientist completes forty years of publication this year. We are planning to bring out on this occasion a number of volumes containing articles on specific themes from past issues of the journal. The present volume is a part of this series. It contains a set of essays written by Professor Venkatesh Athreya under the pseudonym A.V. Balu (which is a transposition of his actual name), to provide readers with a basic introduction to Marxian Political Economy. The essays are mainly concerned with Volume I of Capital, with a focus on the origin of surplus value which is the key to the anatomy of capitalism. These essays had attracted wide attention at the time they were published and were used extensively in Marx study circles all over the country. What distinguished them from the usual Marxist textbooks was the fact that they were authored by an outstanding professional economist, familiar with frontier research not only in Marxist economics but in bourgeois economics as well, and with a rare mastery over mathematical and statistical techniques. They were therefore written with a panache and sureness of touch that one often finds lacking in standard textbooks. Our decision to republish them has very little to do with the worldwide revival of interest in Marxian economics that has come in the wake of the world capitalist crisis. While we are happy with this revival, we would have republished these essays even if there had been no such revival. This is because we believe the core of Marx’s analysis in Volume I of Capital to be true. No doubt it needs to be developed in numerous ways, extended in numerous directions, and brought up to date to understand our times. But all these emendations become possible only when the core of Marx’s analysis itself is understood. And the present volume is a simple introduction to that core. December 2012

PRABHAT PATNAIK

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FOREWORD

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Preface

The book in your hands provides a preliminary introduction to Marxian Political Economy, mainly by presenting a simple yet rigorous exposition of the first volume of Karl Marx’s monumental work, Das Kapital. The material contained in the book was written as a series of thirteen articles entitled ‘Marxian Political Economy’, published in Social Scientist during the years 1976 to 1978. The first article appeared in Issue no. 46 and the thirteenth and last in Issue no. 65 of the journal. Since the articles were published, there have been dramatic changes in the world capitalist system, which are of far-reaching economic, political and ideological significance. However, the articles are being presented in this book exactly as they were written when first published. The central reason for this is that the articles themselves did not deal with contemporary capitalism as it existed at the time they were written and published, except for passing references in the first and the last. Instead, the essential content of the series of articles was an exposition of Marx’s ideas as presented in the first volume of Capital, with the intention of reaching the lay reader, and especially students with an inclination to analytical thinking as well as interest in progressive thought. However, while an extensive revision of the original articles is not attempted here for the reason just stated, it was felt that an introduction explaining how the articles originated and a word on the changes in the context since they were written will be in order. The articles that form the material of this book were written for Social Scientist at the instance of Dr Jacob Eapen, who was then the editor of the journal. On completion of my doctoral studies in Economics, I had joined the Centre for Development Studies at Thiruvananthapuram as a Visiting Fellow in January 1976. The country was under Emergency rule, with severe abrogation of civil liberties, and intellectual activity too was under surveillance. It was at this time that Eapen requested me to write a series of articles explaining Marx’s approach to political economy in simple and

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accessible manner to the readers of Social Scientist. At his suggestion, I wrote the articles using the pseudonym of A.V. Balu, having been advised not to use my official name since the reaction of authorities under Emergency rule was unpredictable and might not always be benign! The mid-1970s was a period of great ferment. The first synchronized recession across the entire advanced capitalist world after the Second World War came in 1974–75, after nearly three decades of almost uninterrupted and unprecedented gross domestic product (GDP) growth in the world capitalist economy, at about 5 per cent per annum compound.1 It was already evident that what Sir John Hicks had called the long boom was petering out. The sharp rise in the prices of crude oil brought into force by the Organization of Petroleum Exporting Countries (OPEC) had hastened the process of slowing down of the world capitalist economy at the end of what some commentators called the ‘golden age’ of capitalism, and had also contributed to furthering already existing inflationary pressures.2 The other important element in the emerging crisis of capitalism then was the phenomenon of stagflation – stagnation and inflation occurring simultaneously – that was proving increasingly intractable, and could not be easily dealt with by ‘Keynesian demand management’. In due course, this situation was to weaken the hold of Keynesian economics in the Anglo-Saxon academia, and lead to the (wholly undeserved) popularity of first, monetarism, and then the so-called ‘new classical economics’, with its baggage of the utterly tautological ‘rational expectations’ thesis.3 But at the time the articles in this book were written, this had not yet taken place. While the recession of 1974–75 signalled the onset of a period of relative slow growth of the world capitalist economy, the more important development came soon thereafter. Thirty odd years of capitalist growth after 1945 had led to enormous liquidity and the accumulation of huge profits in the hands of transnational corporations. The working people of the advanced capitalist world had brought their post-retirement savings into the financial system. The huge increase in incomes of the ruling classes of OPEC nations and the oil majors which benefited from the oil price rise also entered the international banking system. Thus, the capitalist world was awash with liquidity at the end of the 1970s. Moreover, the breakdown of the Bretton Woods agreement consequent upon the US’s decision, in 1971, to unilaterally abandon gold–dollar convertibility, led to the breakdown of the system of fixed exchange rates among national currencies and provided an additional opportunity for speculative activities in currency markets. Meanwhile, momentous advances were occurring in information and communications technologies. These made possible the global integration of financial markets. The upshot of all this was the rise of international finance capital of a new kind, similar to and yet different from Lenin’s conception of finance

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capital elaborated in his tract, Imperialism. In Lenin’s time, the fusion of banking and industrial capital that finance capital represented was divided sharply by national boundaries, so that one spoke of ‘German’ or ‘French’ or ‘British’ finance capital, and so on. But the rise of finance capital in the late 1970s and early 1980s was accompanied by a determined assault on national barriers to cross-border movement of finance capital. It was also the case that, with ongoing financial liberalization and integration of markets for financial assets, wealth holders from different countries were coowners of giant financial and industrial entities. The rise of finance capital and its success in breaking down national barriers to cross-border movement of capital as finance – which is the essence of contemporary globalization – was facilitated by a ruthless assault on the rights of working people on both sides of the Atlantic, and a systematic effort to undermine the socialist countries of Eastern Europe and the USSR by imposing an arms race by both the Reagan Presidency in the US and the Thatcher regime in the UK. The enormous liquidity in the international financial system in the late 1970s also led to banks seeking willing borrowers in the third world. The ruling classes in these countries were generally only too happy to access loan finance on what seemed generous terms, since this enabled them to avoid the politically more difficult route of mobilizing resources from the domestic rich for investment and growth. With the rise in interest rates in the US under Reagan in the 1980s as part of neoliberal policies, the third world countries soon found themselves in a debt crisis. This, in turn, enabled international financial and ‘development’ institutions under the hegemony of Western powers, the International Monetary Fund and the World Bank, to impose severe deflationary structural adjustment programmes on third world countries caught in a debt crisis. The indebted poor countries were hit very hard by both currency devaluations and worsening terms of trade, in addition to having to pay back debt on near-usurious terms. Some idea of the enormous changes wrought by these developments from the mid-1970s to the mid-1980s can be had from the following. The thirtyseventh session of the United Nations General Assembly in 1974 passed a Resolution brought by developing countries and supported by socialist countries, which called for a new international economic order and democratization of the international economy. Hardly a decade later, at the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) negotiations, the developed countries brought a whole new intrusive agenda that was to bully the third world countries into opening up their economies for unfettered access to international capital and commerce. The change in the balance of forces, which had temporarily been in favour of the developing countries for a brief period after 1945, now went against them, with nego-

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tiations that led to the creation of the World Trade Organization (WTO) in 1995. The WTO was constituted with a number of agreements undermining the sovereignty and self-reliance of developing countries, and served mainly to strengthen the technological monopoly of the transnational corporations of the developed world. In the middle of this period from 1986 to 1995, the Soviet Union ceased to exist and the socialist regimes of Eastern Europe and the former USSR were demolished, paving the way for restoration of an exceptionally brutal capitalism in these lands. By the mid-1990s, the world looked very different from the world of the mid-1970s described in the first chapter of this book. It was a world in which, contrary to the confident expectation of progressives the world over, capitalism had not only survived the thirty years of crisis from 1914 to 1945, but had recaptured territory earlier ‘lost’ to socialist revolutions. On the other hand, socialism seemed to be in full-scale retreat across the world. Even the rapid growth of the Chinese economy was sought to be read as a result of the abandonment of socialist economic strategies, notwithstanding the obvious key role of the state and socialized means of production in China’s economic growth. Despite the fact that the rise to dominance of finance capital from the late 1970s was associated with a sharp decline in average annual growth rates of GDP across the developed capitalist world throughout the 1980s and the 1990s, the events of the early 1990s were widely read by capitalist ideologues the world over as signifying the ultimate triumph of capitalism over socialism.4 Not only had socialism been pushed on the back foot, possibly for ever, but these ideologues hoped that the formerly colonized countries had also been shown their place, as it were. Pax Capitalismus was at hand. Scarcely fifteen years sinec the formation of the WTO as a key triumph of the developed capitalist countries, the world has changed dramatically once again. The WTO is in doldrums, with the so-called Doha ‘Development’ Round not going anywhere. The global financial crisis of 2008 – preceded by the onset of recession in the US economy in the last quarter of 2007 – has since become a full-fledged global economic crisis that refuses to go away. Though the dreaded ‘D’-word is avoided in most discussions, the term ‘Great Recession’ has come to stay. Current assessments in leading international financial institutions such as the IMF do not rule out a so-called ‘lost decade’ from 2008 to 2018. A theoretical analysis of developments in global capitalism since the articles in this book were written is beyond the scope of this preface. Suffice it to say that the current global economic crisis has once again brought to the fore the salience of Marx’s analysis of the inherent contradictions of capitalism, especially his insights on the proneness of capitalism to periodic crises. All three aspects of Marx’s analysis of crises under capitalism – its anarchic

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nature leading to disproportionality, the tendency to under-consumption arising from the contradiction between the increasingly social character of production and the private character of appropriation, and the tendency for the rate of profit to fall – remain as relevant today as they were when Marx proposed them in the 1860s, more than a hundred and fifty years ago. That capitalism is a demand-constrained system will hardly be disputed today. Marx’s concept of the reserve army of labour has become even more relevant over the last three decades of practically jobless growth over most parts of the capitalist world. The ‘Occupy’ movement, with its catchy slogan of 99 per cent versus 1 per cent, captures in its own way Marx’s formulation of the general law of capitalist accumulation as accumulation of wealth at one pole and misery at the other. The enormous increase in inequality across the capitalist world testifies to the robustness of Marx’s views on the laws of motion of capitalism. The crisis of climate change reminds us of Marx’s insights about the nature of the relationship between capitalism and Nature. In a word, the dramatic changes in the world economy and polity over the decades since these articles were first written, far from contradicting Marx’s basic propositions on the laws of motion of capitalism, only serve to confirm his insights on the contradictions of capitalism. Notes and References 1

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There was a short recession in the US economy in 1958, but it did not spread to the rest of the developed capitalist world. It is important to emphasize that while the long period of uninterrupted growth may have been a ‘golden age’ for the ruling classes of the advanced capitalist world, it was by no means that for the majority of the developing countries, which were being increasingly enmeshed in and integrated into the world capitalist economy in extremely unequal ways. This was also the period when savage wars were unleashed on the people of Indo-China. Of course, as Joan Robinson put it picturesquely, Keynesian economics itself was a ‘bastardization of Keynes’! The classic declaration is to be found in Francis Fukuyama, The End of History and the Last Man, Free Press, 1992.

December 2012

VENKATESH ATHREYA

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Marx’s Method

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1 Marx’s Method

The thirty years since the Second World War have witnessed events of farreaching significance: achievement of political independence by colonial peoples; strengthening of anti-colonial and anti-imperialist forces; liberation of China from imperialism and feudalism and its emergence as a powerful socialist country; the great victories of the peoples of Indo-China against US aggression; setbacks to western imperialism all over the globe; and for the last six years, the grave economic and political crisis of world capitalism. These years have lent yet further support to the Leninist view that imperialism is the highest and last stage of capitalism, the epoch of its decline and fall. However, the advance of socialism has not been uniform. There have been serious setbacks: dispute between the Soviet Union and China, strengthening of revisionism in many socialist movements, and disturbing economic, ideological and political tendencies in many socialist countries. But the main trend has been one of advance of socialism and relative decline of imperialism and capitalism. It is in this broad historical context that Marxian political economy is discussed in this series of articles.1 This series has the limited objective of providing a simple exposition of Marx’s analysis of the capitalist mode of production. The focus of attention is turned mainly on Marxian political economy. Ideological and political spheres, which are very important especially in the epoch of imperialism, will not be dealt with except in passing reference. Because of the stress on theory, the discussion will tend to be somewhat ‘abstract’. Obviously, considerable care must be taken when it comes to applying the theoretical concepts and arguments to a concrete historical situation. It is not suggested that the exposition can proceed without even a cursory discussion of Marxism as a totality. At least a preliminary statement is required of historical materialism, and of Marx’s method of political economy. _________ First published in Social Scientist, Issue 46, Vol. 4, No. 10, May 1976, pp. 45–57.

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Historical Materialism Historical materialism views social and historical development in terms of the relationship of human beings with nature, and of the concomitant relationships among human beings. The basic premise is that man’s fundamental activity is production. To quote Marx and Engels, ‘men begin to distinguish themselves from animals as soon as they begin to produce their means of subsistence.’2 Thus members of human society necessarily engage in material, productive activity to reproduce themselves. In the act of production, we appropriate nature, and thus transform it. Equally important, we transform ourselves by the process of material production. Most crucially, we learn. Through productive activity we acquire some control over our environment. Human knowledge evolves through material practice. Marx and Engels put it in these terms: ‘life involves before everything else, eating and drinking, a habitation, clothing and many other things. The first historical act is thus of the production of the means to satisfy these needs, the production of material life itself.’3 Also, ‘as individuals express their life, so they are. What they are therefore, coincides with their production, both with what they produce and with how they produce. The nature of individuals thus depends on the material conditions determining their production.’4 Production of course is never carried out in isolation by an individual. It occurs in and through society; that is, production is necessarily social production. Thus production in society is to be seen ‘as a double relationship: on the one hand as a natural, on the other as a social relationship’.5 Since production is social, involving the cooperation of many individuals, such social production always involves social relationships among the members of society. In the process of production and reproduction of society, people enter into specific social relationships with one another. In the study of a human society, one must thus examine two aspects: first, the methods of production of material life, which are the results of all past and current material practice, the sum-total of theoretical and practical knowledge and control over our natural environment expressed through specific social forms, past and present; and secondly, specific social relationships into which members of the society enter in the course of their participation in social production. Marx calls the totality of the former ‘productive forces’, and the latter ‘relations of production’. To avoid possible misunderstanding, it needs to be emphasized that the concept of ‘productive forces’ is not the same as, or reducible to, the notion of ‘technology’. As Marx puts it, ‘an industrial stage is always combined with a certain mode of cooperation or social stage, and this mode of cooperation is itself a productive force’.6

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As human beings engage in material production, learn and transform themselves through practice, society acquires new productive forces. At any given point, there is a particular state of development of productive forces in society. This in turn implies specific forms of social cooperation, division of labour, and social relationships among the members of society. To a given state of development of ‘productive forces’ there corresponds a set of relations of production, also called social relations. Thus in feudal Europe the predominant role of land and agriculture in material production corresponded to the dominant relation of production, also based on land, between the feudal lord and the serf. To capitalist modern industry corresponds the dominant production relation of capitalism, between wage labour and the capitalist. These are of course just examples, and are not meant to suggest any simple or mechanical one-to-one correspondence between the forces of production and the relations of production-. While, at a given point, there may exist in society a correspondence between productive forces and relations of production, it is constantly undermined and upset through the very process of development of the society. This is bound to happen because productive forces are developing constantly, as society produces and reproduces itself materially and socially. Thus there emerges a contradiction between the forces and relations of production. With further social development this contradiction becomes increasingly acute, as the existing relations of production – which can be ‘summarized’ (but only summarized) in the property relations of the society6 – become less and less compatible with the developing productive forces. The quantitative accumulation of the contradiction between productive forces and relations of production gives rise, at a certain stage, to a qualitative ‘leap’, to a new set of production relations, more appropriate to the new stage of development of the productive forces. A social revolution results, giving rise to a new constellation of the forces and relations of production to a new mode of production.7 This is of course a highly schematic and very general account of the historical materialist view of the dynamic of social change. Some qualifications are in order. First, it needs to be recognized that the concept of the mode of production is theoretical and thus an abstraction, though a valid one at that. It is not meant to connote any historical society in its immediate actuality. The actual society as such, the concrete entity, can properly be called a ‘social formation’. In any such social formation a multiplicity of social relations coexist, some characteristic of a certain mode of production, others of a different one and so on. Thus in the Indian social formation, relations characteristic of the capitalist mode coexist with those of pre-capitalist modes, including feudal and pre-feudal elements. The caste system, for instance, has existed in India ever since the break-up

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of ancient tribal societies. It must also be recognized that the content of social relations, of which the caste system has been the form, has changed considerably over the long period of evolution of the Indian social formation. In general, a concrete social formation is best seen as a specific combination of two or more distinct modes of production. The distinction between concepts of ‘mode of production’ and ‘social formation’ is crucial. The specific manner in which the various modes of production are combined in a given social formation itself changes as the social formation evolves, and can be determined only with reference to the concrete historical conjuncture at which the social formation is examined. This ‘conjuncture’ is crucially determined by the state of the class struggle (explained later) in the social formation. Secondly, the fact that the historical materialist view emphasizes the objective basis of social and historical development does not at all imply that it subscribes to the notion that each and every human society must necessarily go through an identical historical evolution on account of ‘inexorable historical laws’. Thirdly, the motor of human history, from the Marxist viewpoint, is not an ‘abstractly’ (one-sidedly) conceived contradiction between forces and relations of production. Rather, it is the contradiction between forces and relations of production expressed concretely through the human agency: the struggle between social classes. Terms like ‘feudal’, ‘capitalist’ and ‘classes’ have been introduced, and the concepts involved need clarification. In the initial stages of development of human societies, man’s control over nature was rather meagre and the productive forces were very poorly developed. At this stage, the general level of productivity of labour in society must have been very low, and the entire labour time at the disposal of society – that of all its able-bodied members – must have been taken up in just making possible a bare subsistence level of living. With the further development of productive forces, a point arises at which the productivity of labour in society is high enough to render some of the available labour time ‘surplus’, or, equivalently, to allow the emergence of a surplus product over and above the social needs at the level of living then prevalent. The emergence of such a surplus brings with it a logical possibility: that some people in society now need not work but can live off the labour of others. The possibility thus arises of a class society: one in which a group of people, by occupying a specific place in the social organization of material production, can live off the labour of others. The possibility appears to have first become a historical reality through conquest by a relatively ‘advanced’ (in the sense of its productive powers) tribe of another less so. The precise historical origins of class society is a complex issue that cannot be gone into here. It may be merely noted that the most significant

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change is in property relations: from common ownership of land and other means of production to ownership, at first of some of these and progressively, as different kinds of class societies emerge, of all means of production. The above account simply suggests two things: (i) initially, there was a period of human history characterized by poor productive forces and a classless society; and (ii) with the emergence of a surplus, there arose class societies wherein a class of people could, on account of their specific place in the process of social production, live off the labour of others. The concept of ‘class’ can thus be seen as connoting (at a certain level of simplicity and abstraction) a specific position in the social organization of the process of production. A class society necessarily implies one with a developed social division of labour (at the basic level, between those who work and those who do not). The relation between the class that does not work and those that perform surplus labour for this class is termed by Marx as one of exploitation. Thus the term exploitation, in the Marxian framework, has a very specific analytical content, and is not, as some people seem to argue, a moral one.8 Using the broad framework of historical materialism, a fruitful periodization of West European history has been developed, the modes of production which acquire dominance successively in the social formations being ‘primitive communism’ (the stage of negligible or zero surplus, tribal organization of life and classless societies), ‘the slave mode’ (resulting from conquest, based on the labour of slaves with a limited amount of production for exchange), the ‘feudal mode’ (based on serfdom with, initially, labourrent extracted by the feudal lords, subsequently rent-in-kind and in the period of its decay, money-rent) and the ‘capitalist mode’ (rise of modern industry, the dominant relation being that of industrial – and later, finance – capital and ‘free’ wage-labour, ‘free’ in contrast to the serf of the feudal mode who was tied to the land and, as Marx points out, ‘free’ from his own means of subsistence, thus compelled to work for the capitalist). We do not intend to go into the complex issues concerning the transition from the dominance of one mode of production to that of another in concrete social formations. But it may be noted here that the crucial forces in the transitions are those of the struggle between social classes. Thus Maurice Dobb has argued convincingly that the most important factor leading to the disintegration of feudalism in Europe was the intensification of the conflict between the feudal lords and the serfs, while the development of long-distance trade and of money–commodity relations were also important. The transition from the decline of the feudal mode of production in the European social formations to the dominance of the capitalist mode in those formations was of course a long drawn out process involving both ‘advances’ and ‘retreats’. The decisive factor in this transi-

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tion, as for instance the history of Britain demonstrates, was the struggle between the emerging capitalist class and the ruling class of the feudal epoch, the feudal landed aristocracy. From the events leading to the ‘Glorious Revolution’ of 1688 to the repeal of the corn laws in the late 1840s, one can see this struggle fought out on the economic, ideological and political levels. The repeal of the corn laws was the final blow to the economic and political power of pre-capitalist landed property, and the culmination of the seizure and consolidation of state power by the British bourgeoisie. While the development of productive forces – the development of means of long distance transport (advances in navigation), machinery and large-scale modern industry, with their associated forms of division of labour and cooperation – played a decisive role in the origin and development of the capitalist mode in Britain, they did so not as ‘technical’ developments but as part and parcel of the process of dialectical interaction between productive forces and relations of production, that is, of the process of class struggle. The preconditions of the capitalist mode – the presence of a class of persons who possess nothing but their own ‘labour power’ (ability to work), on the one hand, and of a class of persons having a monopoly over the ownership of means of production, and employing the propertyless workers to produce things to sell and make profits therefrom, on the other hand – the proletariat and the capitalist class, are themselves the products of the class struggles that occurred during the decline and disintegration of the feudal order. Thus the contradiction between forces and relations of production, which is the basic dynamic of social change, concretely expresses itself in the struggle between classes through which the relations of production are transformed. Many Marxist writers describe the forces and relations of production together as the ‘structure’ or the ‘economic base’ of a society. By contrast, the ideological, political, legal and other spheres are said to belong to the ‘superstructure’. The viewpoint of historical materialism is then summed up by saying that the ‘economic base’ determines the political, juridical and other relations in society, or the ‘structure’ determines the ‘superstructure’. It is of course conceded that in some instances the superstructure may also react on the base, but that the dominant influence is from the base to the superstructure. While all this is quite valid if carefully stated, we have avoided these terms since they can be misleading – for the following reasons. First, the term ‘economic’ in popular parlance has a rather narrow meaning, while the term ‘economic base’ in Marxian usage represents nothing more nor less than the totality of the material conditions of social production. Thus, not being fully aware of the significance of the term ‘economic’ in Marx, people often mistakenly identify Marxism and historical materialism with economic determinism.9 Secondly, historical materialism does not at all argue that the

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ideological and political spheres are simply and mechanically determined by the ‘economic’. On the contrary, it explicitly recognizes that the ideological and political spheres have considerable relative independence (‘autonomy’), and only argues that the ‘economy’ (understood in the broad sense stated above) is ultimately determining.10 Finally, the historical experience of transitional periods in societies (for example, the Chinese transition to socialism) suggests that in these periods the political and ideological factors become crucial. In any event, the essential points of historical materialism – its emphasis on social production, production relations and the class struggle as the motor of history – must by now be fairly clear. Armed with this admittedly sketchy understanding, we can now turn our attention to the method of Marxian political economy.

Method of Marxian Political Economy The object of investigation for Marxian political economy is ‘material production’, by which is meant not merely the production of things but social relations as well. This is so since production is always necessarily social, hence ‘material production’ is production in and through society and thus production of society (in its specificity) as well. Thus by production ‘is meant always production at a definite stage of social development’.11 It is of course true that all epochs of production (societies at various stages of development) have certain common elements or features. The method of Marx stresses, however, that what is crucial to the study of a particular society are those features of its social production that distinguish it from other societies at different levels of social development. That is to say, the theoretical categories that one utilizes to study any particular epoch must be historically specific. To give an example: through most of human history, people have fashioned and used instruments of production to produce things. It was Benjamin Franklin who said that man is a tool-making animal. Thus the use of instruments of production is common to all epochs of production. The sharp stone fashioned by the savage is as much an instrument of production as the lathe owned by a modern manufacturer. Both are essentially stored-up labour. But while bourgeois economics equates ‘the instrument of labour’ with capital, and regards the savage’s stone and the modern lathe in the same manner, Marx points out that what makes the lathe ‘capital’ is not its character as an instrument of production, but the specific social relation that it is the private property of the manufacturer who hires wage labourers to work with it. The first point, then, is that the Marxist method recognizes the historical specificity of social relations of production. To analyse a particular social epoch, it develops theoretical categories specific to that epoch.

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Thus categories relevant for the analysis of a society dominated by the capitalist mode of production – such as capital, wage labour, surplus value and so forth – are not to be used in dealing with a society dominated by feudal or slave relations of production. Recognizing that production is always both social and historically specific, one must consider in political economy the relationships between production, consumption, distribution and exchange.

Production, Consumption and Distribution Conventional economics today views production in society as being determined by what the so-called ‘consumers’ want, or, production is assumed to be determined by consumption. The real relation between the two is quite different, however. Production influences and determines consumption in many ways. First, it provides the material for consumption. It also thus determines the manner of consumption. Secondly, ‘production’ itself, from a social viewpoint, is ‘consumption’ – of the means of production and the energy of workers. Thirdly, through its historical development, and the changes thereof, production itself generates new needs and thus determines new patterns of consumption. A very simple example would be the automobile. Similarly, it can be seen that ‘consumption’ is also ‘production’ – for instance, of the worker (reproduction of his labour power occurs through his consumption of food). Further, consumption provides the motive for production. The point of all this is not that consumption and production are the same things, but rather that ‘they appear . . . as moments of one process, in which production is the real point of departure, and hence also the predominant moment’.12 This follows from the viewpoint of historical materialism which accords primacy to the mode of production of material life. With social production, the link between production and consumption is not immediate for the individual. Distribution intervenes production and consumption. Among conventional economists, there are two views on the determinants of distribution. A longstanding view is that while production is determined by general natural laws, distribution is determined by manmade laws. The other, more recent view is that technical conditions of production determine distribution. Thus, in a capitalist economy, land, labour and capital are said to be the factors of production, and each is alleged to receive an income from production to the extent of its contribution to output. Wages, profit and rent are all treated on an equal plane, as ‘factor incomes’ determined by the productivities of the respective ‘factors’. Both these views are fundamentally erroneous. The errors of the second, more recent standpoint will be dealt with in a later article. As for the former view, it only needs to be noted that social production in a specific historical epoch

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is governed not by ‘general, natural laws’, but by historically specific social laws. The Marxian view of the relations between production and distribution may now be briefly stated. As Marx points out, distribution, before it can become the distribution of final products, is ‘the distribution of the instruments of production, and . . . the distribution of the members of the society among the different kinds of production’.13 He also adds: ‘The distribution of products is evidently only a result of this distribution which is comprised within the process of production itself and determines the structure of production.’14 If one considers capitalist society, for instance, the distribution of income into wages and profits presupposes the existence of wage labour and the capitalist, and of the specific relations of production implied therein. The Marxian view may be summed up in Marx’s own words: The structure of distribution is completely determined by the structure of production. Distribution is itself a product of production, not only in its object, in that only the results of production can be distributed, but also in its form in that the specific kind of participation in production determines the specific forms of distribution, that is, the pattern of participation in distribution.15

Production and Exchange The sphere of exchange or circulation is quite clearly dependent on production, in that (i) the very fact of exchange presupposes a certain development of social division of labour and thus of a certain development of social production; (ii) the specific features of exchange presuppose specific features of production (for example, private exchange presupposes private production); and (iii) the intensity and the extent of exchange are themselves determined by the structure of production (for example, limited and local exchange in a self-sufficient village community, as opposed to the well developed and global exchange characteristic of developed capitalism). Having gone through the relations between production, consumption, distribution and exchange, it is easy to see that these together constitute an organic whole or totality – ‘the mode of production in its totality’ – within which production plays a dominant role. What is important is to see that production, consumption, distribution and exchange are not independent things, but are related in an organized way to each other. Marx sums this up: ‘A definite production thus determines a definite consumption, distribution and exchange as well as definite relations between these different moments.’16 To avoid a possible misunderstanding, production here must not be understood in a narrow, one-sided manner. Marx notes, for example, that

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an extension of markets, or a change in the sphere of exchange, deepens and further develops the division of labour between different branches of production. Similarly, a change in the distribution of wealth affects production in the narrow sense of the word.17 A really deep discussion on the question of theory and abstraction is not possible here, but a few observations can be made. When analysing a particular society, it may seem natural to start with a few of its concrete (immediately apparent) features like, say, population. This is however misleading. The concept of population is not helpful when one is trying to characterize the relations of production, for instance. Thus one needs to identify the various social classes. Pursuing this idea further, it follows that one analytically and repeatedly sub-divides a seemingly concrete whole into a number of basic analytical units conceptually, and arrives at what Marx calls ‘simple determinations’. Thus the early political economists arrived by means of such analysis at such concepts as division of labour and exchange. Armed with the simple analytical determinations, one can then reconstruct the concrete whole conceptually in a systematic and scientific way. One arrives at the concrete by starting from seemingly ‘abstract’ theoretical categories. Marx puts it thus: ‘the method of rising from the abstract to the concrete is the only way in which thought appropriates the concrete, reproduces it as the concrete in the mind’.18 Needless to say, reality is not the product of the human mind. Again, Marx’s formulation is helpful: ‘The real subject retains its autonomous existence outside the head just as before; namely as long as the head’s conduct is merely speculative, merely theoretical.’19 The significance of this position is as follows. In performing an analysis of a given social reality, one must necessarily ‘appropriate’ that reality through theoretical concepts. This is the only way the mind can grasp concrete reality, by building it up mentally from a number of basic ‘blocks’ (the so-called simple or abstract categories or ‘determinations’). However, this theoretical process of comprehending the reality does not by any means change the reality. The latter exists as before the process of ‘theorizing’ it occurred. Only by acting practically on the basis of the comprehension achieved through theory can the reality itself be changed. This is the fundamental meaning of the unity of theory and practice that defines Marxism. The above points, especially the need to analyse a concrete reality with abstract, theoretical categories, need to be borne in mind when it comes to Marx’s analysis of the capitalist mode of production. At the moment, the consequences of the methodological position described above for Marx’s analysis can be best brought out by the following extract of Marx’s own plan of work:

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The order [of study] obviously has to be (1) the general abstract determinations which obtain more or less in all forms of society . . . (2) the categories which make up the inner structure of bourgeois society, and on which the fundamental classes rest, capital, wage labour and landed property. Their interrelation. Town and country. The three great social classes. Exchange between them. Circulation, credit system (private). (3) Concentration of bourgeois society in the form of the state – viewed in relation to itself. The ‘unproductive’ classes. Taxes, state debt, public credit. The population. The colonies. Emigration. (4) The international relations of production. International division of labour. International exchange. Export and import. Rate of exchange. (5) The world market and crises.20

While the plan is clearly sketchy and while Marx did not live to complete it, it shows the implications of Marx’s method. Thus he begins his analysis of the capitalist mode of production with the simple and fundamental analytical categories of the capitalist mode of production. He proceeds to reproduce the complex, concrete reality in thought by deriving the more concrete categories – state, public credit, the international aspects of capitalist relations, world market – from the ‘unity’ of the simpler categories. Marx’s procedure has sometimes been characterized as ‘successive concretizations’. If it is understood by this that Marx reproduces in thought the independently existing concrete reality through a process of ‘building up’ complete categories from simpler ones, it is accurate. However, often the term is taken to mean that Marx makes a number of simplifying assumptions and then gradually ‘relaxes’ them. For instance, it is argued that in Volume I of Capital, Marx makes the assumption of ‘equal organic composition of capital in all branches of production’, or that of there being only two classes in society. It will be seen later that these conceptions are quite erroneous.

Summary In providing a general statement of the Marxist approach to the study of society, the abstract character of this presentation has been, to some extent, inevitable. Nevertheless some ‘results’ have emerged, which may be briefly restated. 1. In the Marxist approach to the study of society, the emphasis is on social production. The two important analytical concepts here are: ‘forces of production’, by which is meant not simply technology but the social division of labour and forms of cooperation associated with a given industrial stage embodying a stock of theoretical and practical knowledge of, and mastery over, the forces of nature; and ‘relations of production’, which refer to the social relations between the members of society in the

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process of social production (the relationships between different classes), which are juridically expressed in the property relations of the society. 2. The dynamic of social change is the immanent contradiction between forces and relations of production, concretely expressed in terms of the struggle between social classes which occupy different places in the scheme of social production. The contradiction is periodically resolved through social revolution resulting in the dominance in society of a new mode of production: a new constellation of forces and relations of production. 3. Each society is characterized by the dominance in it of a specific mode of production. Thus, in analysing a society, one must utilize categories specific to it. At the same time, given the immanent contradiction between the forces and relations of production, every society is transitory. Thus the Marxist approach emphasizes the historico-relative character of socioeconomic systems, and insists on the use of historically specific analytical categories in the study of societies. 4. While, in some Marxist expositions, the ‘economic base’ (referring to the set of production relations and forces of production) is said to determine the ‘superstructure’ (referring to politics or ideology), it needs to be emphasized that there is no mechanical, one-to-one correspondence between the ‘economic’, and the ‘political’ and ‘ideological’ spheres. The latter two have a certain relative autonomy, and the uneven development of these three spheres itself generates social contradictions. Thus the Marxian view of society is not as a simple totality but as a complex unity, within which there exists not a single, simple universal contradiction, but a complex of contradictions of which the ‘economic’ is ultimately determining. It may also be noted here that the Marxian notion of ‘ideology’ is not simply that of a system of ideas (as is often misunderstood, like conceptions of fascism as an ‘ideology’), but rather that ‘ideology’ is always a set of material practices in which certain ideas play a dominant role. 5. All this methodological elucidation does not by any means enable us to answer immediately specific questions concerning a historical conjuncture. To do that requires careful empirical study. The method is only a guide to the proper manner in which the data can be appropriated by the thinking mind, that is, how the ‘concrete’ can be understood as a ‘concentration’ of many simple analytical categories. By thus reconstructing the real concrete in thought, one can eliminate the chaotic mass that the immediate perception of concrete reality provides. To change that reality, however, such theoretical comprehension is only a necessary condition, not a sufficient one. It is through practical action based on theory that reality can be purposefully changed. The unity of theory and practice, the necessary and sufficient condition for purposive social change, is the in-

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dispensable definition of Marxism, and is the only way of avoiding the twin errors of theoreticism (scholasticim) and pragmatism. 6. Finally, it may be noted that as we go further into the specifics of Marx’s political economy of capitalism, the exposition will get less abstract and less difficult. Notes and References 1

2

3 4 5 6 7

8

9

10

11 12 13 14 15 16 17 18 19 20

The dominant trends in contemporary bourgeois economics make a sharp distinction between the sphere of ‘economics’, and those of ‘politics’ and ‘society’. There are, however, other trends which follow the tradition of the so-called British classical economists like Smith and Ricardo in recognizing that the study of economics must necessarily involve politics and society, and these trends may be said to work in ‘political economy’ rather than economics. However, in Marx’s case, it will be more accurate to talk of the Marxian critique of bourgeois political economy. K. Marx and F. Engels, ‘German Ideology’, reprinted in R.C. Tucker (ed.), The Marx–Engels Reader, W.W. Norton, 1972, p. 114. Ibid., p. 120. Ibid., p. 114. Ibid., p. 121. Ibid. The notion of a quantitative change turning into a qualitative change at a certain stage is essential to dialectics. Marxist philosophy is often described as ‘dialectical materialism’. Among many that use this term, the conception prevails that Marx borrowed the ‘dialectical method’ from Hegel, but embedded it in the philosophy of materialism as opposed to Hegel’s idealism. It should be pointed out, however, that there are sharp differences between Hegel’s dialectic and Marx’s. The very notion of ‘dialectical materialism’ is highly controversial, and we have preferred not to use it. See, for instance, J. Robinson, An Essay on Marxian Economics (1942); also her Economic Philosophy (1962). Particularly harmful in this context is the equating of production relations with the juridical form of property relations. F. Engels: ‘According to the materialist conception of history, the ultimately determining element in history is the production and reproduction of real life. More than this neither Marx nor I have ever asserted. . . . The economic situation is the basis, but the various elements of the superstructure: political forms of the class struggle and its results . . . juridical form . . . also exercise their influence upon the course of the historical struggles and in many cases preponderate in determining their form.’ Letter to J. Bloch, 21–22 September 1890, reprinted in Tucker, Marx–Engels Reader, p. 640. K. Marx, Grundrisse, translated by M. Nicolaus, Pelican, 1973, p. 85. Ibid., p. 94. Ibid., p. 96. Ibid., p. 96. Ibid., p. 95. Ibid,. p. 99. Ibid., pp. 99–100. Ibid., p. 101. Ibid., pp. 101–02. Ibid., p. 108.

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2 The Commodity

In modern society, each of us, or each family for that matter, does not individually produce everything needed for daily use. Clearly, the extent of division of labour in modern society is immense. Earlier societies also shared the characteristic of social division of labour, but not to the same extent. What distinguishes modern capitalist societies is the enormous development of markets and production for the market. The development of the world market, a relatively recent phenomenon in human history, is very much a product of capitalist development, first in Western Europe, and subsequently all over the globe. The fact that in modern societies people produce things systematically with a view to selling them in the market and buying other things to satisfy their needs is denoted by saying that today’s economies are commodity-producing. A commodity is not simply anything that is produced with a view to exchange. As Marx put it, ‘only such products can become commodities with regard to each other, as result from different kinds of labour, each kind being carried on independently and for the account of private individuals’.1 It follows from this definition that: (i) division of labour in society is a necessary condition for commodity production, but not a sufficient one – for instance, in the ancient Indian village community, there is a social division of labour (agriculture and the artisan crafts), but with common ownership of land and other means of production, there is no market and no commodity production; (ii) private property in the means of production and labour are required so that products made by people become commodities. Historically, commodity production as such has been a feature of different types of social systems, ranging from ancient European slave societies to early modern feudal regimes. Only in the modern era, however, does commo_________ First published in Social Scientist, Issue 47, Vol. 4, No. 11, June 1976, pp. 47–57.

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dity production become a dominant aspect of the mode of social production. In particular, commodity production acquires its full development in capitalism. In the words of the opening lines of Marx’s Capital: ‘The wealth of those societies in which the capitalist mode of production prevails, presents itself as “an immense accumulation of commodities”.’2 Marx adds, ‘Our investigation must therefore begin with the analysis of a commodity.’3 Marx starts off with the commodity-form that products made by human beings acquire in modern society. This form at once marks the historical specificity of the mode of production that it prevails in. By analysing the commodity-form, Marx is able to bring out some of the basic contradictions that characterize well-developed commodity production in the capitalist mode. At the same time, the analysis of the commodity-form leads to the development of Marx’s theory of value, which is fundamental to his subsequent analysis of the political economy of capitalism. It must be noted, however, that the analysis of the commodity is the most abstract and difficult part of Capital. Once this analysis is understood, subsequent parts of Capital are much less difficult. The present article is an attempt to present Marx’s analysis of the commodity. First comes the two-fold character of a commodity, then the concept of value so widely misunderstood by economists, and finally an exposition of what Marx terms ‘commodity fetishism’.

Use Value and Exchange Value Every commodity has two aspects. On the one hand, as an object it has certain natural properties that make it useful. Thus a pen has the useful property that one can write with it. Viewed from this aspect – a collection of physical and chemical properties that render it useful – the commodity has a use value. On the other hand, to the person who has produced the commodity, it is not its aspect of use value that is of interest but, rather, its value-inexchange in relation to some other commodity. Thus, in relation to another commodity, a pen has an exchange value. One may say that a commodity is both a use value and an exchange value. A question arises: what determines the exchange value of a pen in relation, for instance, to a pair of slippers? We shall not answer it straightaway. Supposing that five pens exchange for a pair of slippers, we get the equation: 5 pens = 1 pair of slippers. If the quantitative aspect (5 against 1) is left out for the moment, it equates pens to slippers. That is to say, this is a qualitative as well as a quantitative equation. There must be something common to the pen and the slippers that makes them commensurable. The qualitative problem is: what is this common element in the dissimilar commodities that makes them exchangeable for one another?

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It cannot be the physical, chemical or other natural properties, since what distinguishes the commodities from one another is that they are different use values. To say that it is ‘money’ that equates the commodities to each other explains nothing, since money, a social arrangement par excellence, is itself a product of the development of commodity production and thus must have its own origin explained by the prior explanation of the basis of exchange value. If we examine the most diverse commodities carefully, leaving out their character of being use values (since exchange is characterized precisely by abstraction from use on the part of the seller), we find that they have one common property: being products of human labour, they are the results, so to speak, of the expenditure of various portions of the total labour expended in society. It is important to note that a ‘leap’ in thought has occurred here. In abstracting from the specific characteristics of use values associated with the various commodities, we are also necessarily abstracting from the specific characteristics of the different kinds of labour that go into these commodities (such as spinning in yarn, weaving in cloth). Thus we can say from a theoretical standpoint that the common element making for qualitative equality (a precondition for commensurability) of different commodities is that they are all products of ‘human labour in general’, without regard to the specific kinds of labour involved. It is this property shared by all commodities that makes them values. Marx put it thus: ‘When looked at as crystals of this social substance [crystals of “human labour in general”, or abstract labour] common to them all, they [commodities] are – values.’4 A commodity may be seen, in light of the above, as both a value and a use value, exchange value being merely the phenomenal form of value. What Marx means by the term value, qualitatively, is the specific social property shared by a commodity with all other commodities, namely, being the product of ‘abstract human labour’. The significance of the terms value and abstract labour needs to be gone into. Before so doing, let us briefly revert to the quantitative aspect of the exchange value problem. If the value of a commodity, qualitatively speaking, is its property of being an embodiment or congelation of human labour in the abstract, the quantitative measure of value that suggests itself is the quantity of labour time involved in the production of the commodity, or the magnitude of labour time required to produce it. This needs to be qualified further, as otherwise one could conclude, for instance, that the more time one takes to produce a pen the higher is its value, and thus that the less efficient producer creates greater value. To avoid such misconceptions, and to emphasize that value is a social property and socially determined, Marx stated: ‘that which determines the magnitude of the value of any article is the amount of labour socially necessary, or the labour time socially necessary for its production’.6

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Two points are to be noted here. As far as value is concerned, all different kinds of labour are viewed merely as portions of general social labour of a homogeneous character – that is, portions of abstract social labour. It follows that the magnitude of value must be expressed in terms of average social labour, and that socially necessary labour time is ‘that required to produce an article under the normal conditions of production, and with the average degree of skill and intensity prevalent at the time’.7 What determines the proportions in which two commodities exchange for each other still remains unanswered. From this question of exchange value we moved on to the implied concept of value, and finally provided the quantitative measure of value. The initial question posed is not precise enough to bring out a simple answer. If one understands by exchange ratios, prices in the market at any point of time (as bourgeois economists do), one would arrive at one answer. If, as with Marx, one perceives the problem of exchange value as the phenomenal form of value at a level of theoretical abstraction different from the problem of market prices, one would take an altogether different view. Apart from the following observations, an extensive discussion of this problem is rather premature at this point. The classical economists David Ricardo and Adam Smith advanced the view that the underlying determinant of the exchange values of commodities was the amount of labour contained in them. They did not by any means ignore the influence of supply and demand in the determination of market prices of commodities at any particular point of time in any particular market. Their position was rather that the market price of a commodity deviated from its natural price due to the influence of supply and demand, and it is this deviation that the forces of supply and demand can help to explain. But the natural price, determined objectively by the quantity of labour embodied, was the anchor around which the market price would fluctuate. Marx, who took over elements of the classical theory and developed his own theory by way of a critique of the classical position, provides an excellent discussion on the ‘law of value’ (understood here in its quantitative aspect of socially necessary labour required to produce value), and the role of supply and demand, in Capital III.8 Marx’s position can be summed up thus: the argument that commodities are sold at their value ‘merely implies, of course, that their value is the centre of gravity around which their prices fluctuate, and their continual rises and drops tend to equalize’.9 In a further development of the argument, Marx’s law of value does not state that commodities are sold at their value but, rather, that commodities tend to exchange at their prices of production. The latter, which we shall discuss extensively much later on, can be understood as values modified to take into account the tendency under capitalist competition towards a uniform rate of profit on capital.

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Ricardo had developed his theory of value in the period of British history when the bourgeoisie was a rising class, and his theory of value was a weapon against the landlord class. Subsequently, however, after the consolidation of bourgeois power in Britain, revolutionary use was made of the labour theory of value by the so-called Ricardian socialists. They claimed, in effect, that since labour produces all value, the product must all go to labour. Wages alone were ‘legitimate’ claim, and profits were not. This was of course both dangerous for the ruling class, and embarrassing for the ruling ideology. The reaction was not long in coming, and it took the form of a rejection by bourgeois economics of objective determination of value on the basis of labour time. A new school called the neo-classical economists arose in the late nineteenth century, both in Britain and continental Europe. Neo-classical was a misnomer, since they had little in common with the classical economists. The neo-classicals argued that prices were determined by the subjective satisfaction that individual consumers derived from the consumption of the commodities. The objective basis of value determination (labour time) was replaced by the subjective feelings of individual consumers. Thus the theory came to be known as the subjective theory of value. It is this theory, with some modifications (most importantly, the dropping of the concept of value altogether) that dominates modern price theory. The tautological nature of the so-called theory and the utterly ahistoric viewpoint implied by it have been adequately demonstrated by Nikolai Bukharin, Dobb and others.10 From a methodological standpoint it may be recalled that, for Marx, ‘concrete is concrete because it is the concentration of many determinations, hence unity of the diverse’.11 Accordingly, the market price is the result of a number of determinations, the basic among them being ‘value’. By determinations is meant a set of determining elements or determinants. Thus ‘value’ can be regarded as a basic determinant of market price, but there are also other elements entering into the determination of market price, these being of different, secondary orders of importance. That is why, to even approach the quantitative problem of exchange ratios, one must start with the magnitude of value. The three volumes of Capital show quite concretely the manner in which Marx arrives at the market price as a complex of determinations, themselves of varying complexity and levels of abstraction, such as value, price of production, organic composition of capital, rate of surplus value and so forth. It only needs to be emphasized before returning to a discussion of value and abstract labour, that the term ‘value’ in its quantitative and qualitative aspects is not to be confused with price. Theoretically, these two categories are at entirely different levels. We stated above that a commodity is both a use value and a value. The term ‘value’ signified a social property of the commodity, namely, that a

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portion of the total labour of society was expended in its production. But in speaking of the labour of society, we are necessarily ignoring the specificity of the various kinds of labour performed in society – like weaving, working with a lathe, filing a piece of metal – and treating them all as homogeneous labour, labour of one kind, ‘human labour in general’. That is to say, we abstract from their differences. It is thus that we arrive at the proposition that a commodity is a ‘value’ in that it is the embodiment of ‘abstract labour’.

Value and Abstract Labour To understand the import of these two categories, let us examine the concept of abstract labour. The first thing to note is the historical specificity of this conception. No invention of Marx’s imagination, it connotes a specific social reality that, in a society of well-developed commodity production, the products of different kinds of lahour are constantly equated to one another, thus also implicitly equating (and thereby rendering qualitatively homo-geneous) different kinds of labour.12 Today, such a phenomenon – the social process by which products of different kinds of labour are equated and exchanged through the market – is taken for granted, but prior to the widespread development of commodity production, this was not the case. The immediate precursors of classical political economy, the Physiocrats, had themselves advanced economic theory by regarding human labour as wealth-creating activity, but confined this property to agricultural labour. As Marx remarks: ‘It was an immense step forward for Adam Smith to throw out every limiting specification of wealth-creating activity – not only manufacturing or commercial or agricultural labour but one as well as the others, labour in general.’13 Such a conception as abstract labour can only develop in a society where people can move with some ease from one kind of labour to another: only in modern bourgeois society. To quote Marx again: ‘Indifference towards specific labours corresponds to a form of society in which individuals can with ease transfer to another, and where the specific kind is a matter of chance for them, hence of indifference.’14 This is clearly the case when one’s own ability to labour, that is, labour power itself becomes a commodity, something that is alienable, can be bought and sold, and is the private property of an individual. It is in bourgeois society that the full development of commodity production and abstract labour as the accurate representation of social reality takes place. By the same token, value must also be seen as a historically specific category denoting a specific social reality. The term is often misunderstood. When Marx says that a commodity possesses value because it is a congelation of abstract labour, the economist objects that instruments of labour

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and raw materials are also needed to create the commodity. To be sure, this is so, and it does not in any way contradict Marx’s statement. Marx is most certainly not saying that labour alone is the source of wealth. About commodities as use value, he says: ‘If we take away the useful labour expended upon them, a material substratum is always left, which is furnished by nature without the help of man.’ Labour is not the only source of material wealth of use values produced by labour. As William Petty observed, ‘Labour is its father and the earth its mother.’15 (Clearly, instruments of labour themselves are reducible to labour and materials furnished by nature.) The economist’s confusion lies in his failure to understand what value means here. Either it is understood in some moral sense and hence the eagerness to show that instruments of labour, mistakenly identified with capital, are also valuable; or it is seen as purely metaphysical and prices in the market as the sole reality. To the latter view, Marx’s comment on the ‘modern hawkers of free trade’ is most appropriate: ‘For them there consequently exists neither value, nor magnitude of value, anywhere except in its expression by means of the exchange relation of commodities, that is, in the daily list of prices current.’16 In the Marxian view, value is a social property of commodities, a social relation: ‘The value of commodities has a purely social reality’, and ‘is the very opposite of the coarse materiality of their substance; not an atom of matter enters into its composition.’17 The points made above can be summarized as follows. In all societies, every product of human labour is a use value. But it is only at a definite stage of social development, a specific historical epoch, that these products become commodities, and the labour expended in the production of a use value is expressed as an objective characteristic of it, that is, as its value. To the use value aspect of the commodity corresponds the specific, concrete labour that went into its production (spinning for yarn from cotton and weaving for cloth from yarn, for instance). To the value aspect corresponds the fact of expenditure of human labour in general, that is, abstract labour involved in production. The connection between value (which can now be seen to denote a definite social relation belonging to the epoch of commodity production) and abstract labour or labour in general is as following: The secret of the expression of value, namely, that all kinds of labour are equal and equivalent, because and so far as they are human labour in general, cannot be deciphered, until the notion of human equality has already acquired the fixity of a popular prejudice. This however, is possible only in a society in which the great mass of the produce of labour takes the form of commodities, in which consequently the dominant relation between man and man is that of owners of commodities.18

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Commodity Fetishism The foregoing analysis of the commodity has helped to bring out the system of social relations that characterize commodity production. The products of human labour become commodities only when they are produced systematically with a view to exchange, and on account of private individuals. If we had only confined ourselves to the purely quantitative aspect of the problem of exchange ratios of commodities – that is, to the level of appearances or phenomena on the surface of society – we could not have arrived at an understanding of the underlying social relations of production. In a society dominated by commodity production, the relations into which people enter in the course of social production are not expressed directly on the surface of society. Rather, these relations (between producers in society) take on the form of relations (of exchange) between commodities, the products of their labours.19 The commodity-form thus mystifies reality by expressing social relations between producers as a relation between things (produced by them). Marx put the matter this way: A commodity is therefore a mysterious thing, simply because in it . . . the relation of the producers to the sum total of their own labour is presented to them as a social relation not between themselves but between the products of their labour, . . . a definite social relation between men that assumes in their eyes, the fantastic form of a relation between things. . . . This I call the Fetishism which attaches itself to the products of labour, so soon as they are produced as commodities, and which is therefore inseparable from the production of commodities.20

The point concerning the fetish character of commodities can be best understood by considering a society without significant commodity production. In the self-sufficient village community of ancient India, for instance, there is a social division of labour, but the products of the labour of various artisans like the carpenter or the blacksmith do not become commodities. Instead, their labour is directly seen as social labour and does not have to be established as such by their products being placed in relation of exchange value with one another. Because of the fact that the producers here are working directly for the village community as a whole, their labour is not being performed ‘independently and on account of private individuals’. Hence the commodity-form does not have to mediate and render their specific labours into social labour. The relation of production among the producers is direct and obvious, not expressed as a relation between their products. Another example to illustrate the point would be the feudal formation of Europe in the middle ages. Here personal dependence characterizes the social relations of production, those between lord and serf, or vassal and

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suzerain. The serf directly performs labour services for the lord. The relations between lord and serf are not mediated by the product of their labours, but are direct and obvious. Thus in this society, again, ‘the social relations between individuals in the performance of their labour . . . are not disguised under the shape of social relations; between the products of labour’.21 The phenomenon of commodity fetishism has important implications for an understanding of social reality and modern bourgeois ideology. We shall not attempt an extensive, let alone exhaustive, treatment of the implications, but refer the readers instead to the excellent article by N. Geras.22 Commodity fetishism expresses its effects in two ways: as mystification and as domination. Mystification arises from the representation of social relations between persons as between things (their products as commodities), and essentially consists in regarding historically specific social relations as ‘natural’ or ‘eternal’ relations. A classic example is the notion of capital in bourgeois economics. With the separation under capitalism of the means of production from the immediate producer (the worker) and the monopoly of ownership of the means of production by the capitalist class, these means now become capital. In this Marxian conception, capital is clearly seen as a specific social relation. But the bourgeois economist, who regards (though not necessarily consciously) the capitalist society as eternal and natural, comes to identify means of production as such with capital, regardless of the society being analysed. Thus the bow and arrow of the early hunter or the net of the ancient fisherman or the lathe owned by the modern capitalist are equally capital for the economist. In this way a specific social relation, capital, is rendered into a natural property of means of production. A similar view comes to be held concerning commodities. In the early stages of commodity production, the non-commodity character of the economy predominates and the historically specific character of commodities can still be clearly perceived. With the further development and eventual dominance of commodity production, however, the characters that stamp products as commodities, and whose establishment is a necessary preliminary to the circulation of commodities, have already acquired the stability of natural, self-understood forms of social life, before man seeks to decipher, not their historical character, for in his eyes they are immutable, but their meaning.23

This quotation makes an important point: the roots of mystification are to be found not in the subjective inadequacies of the economist, but in the social reality itself. After all, commodities are an objective reality for commodity producers, means of production do confront workers as capital in bourgeois society, and these levels of objective reality, continuously and repeatedly experienced, acquire ‘the stability of natural, self-understood forms of

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social life’. It follows, from the mystificatory aspect of commodity fetishism, that a scientific analysis of bourgeois society must go beyond the surface (phenomenal) level of social reality, appearance level being represented by such categories as exchange value at the deeper, underlying levels, of which the surface level is only a manifestation. Marx does not stop at exchange value but sees it as a phenomenal form of value, and goes on to analyse value relations. It is through this process that he is able to discover the existence of commodity fetishism and provide a determination of the level of social reality represented by exchange value, this determination residing in value relations. The ideological implications of the mystificatory aspect of commodity fetishism can be illustrated also by an examination of the relation between the capitalist and the wage labourer. If confined to appearances alone, one would perceive the relation as one of equality. For, after all, both the capitalist and the worker are independent individuals meeting in the labour market as buyer and seller. The worker is selling a commodity, his own labour power, and the capitalist is buying it with the money-commodity. Thus, in the eyes of bourgeois law, they are both equal and independent commodity owners entering, freely of their own volition, into a contract with each other. And yet this appearance of equality is deceptive. The worker, if he is to live, has no choice but to sell his labour power for a wage. For he owns only his labour power, not the means of production. The latter, in capitalist society, are monopolized by the capitalist class. Behind the appearance of equality (in the sphere of exchange and circulation) lies the reality (in the sphere of production relations). The wage labourer and the capitalist belong to different social classes: the latter to the class that holds the monopoly of ownership and control of the means of production, and the former to the class that has only labour power to sell. The aspect of mystification is closely related to that of domination. After all, a social phenomenon that is not understood does constitute an alien power. Commodity production requires independent, private producers. Yet this independence is only the mystifying form of appearance of a more basic reality, that of the utmost interdependence between producers. The interdependence is something that is realized ‘after the fact’. The individual commodity producer works independently of others, but the price that his product will fetch him is crucially dependent on what the other producers have done, especially those producing the same product. In this ‘anarchy’ of independent private production, the exchange ratios between commodities ‘vary continually, independently of the will, foresight, and action of the producers. To them, their own social action takes the form of the action of their objects which rule the producers instead of being ruled by them’.24 More generally, objective social phenomena, which are the products of the specific social

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relations of commodity (and in its further development, capitalist) production, come to exercise an alien or external power and domination over the very bearers of these social relations (the commodity producers, and later, the working class). In Capital, Marx speaks of free competition which ‘brings out the inherent laws of capitalist production, in the shape of an external coercive power, over every individual capitalist’.25 Enough has been said to indicate the importance of Marx’s analysis of commodity fetishism. It only needs to be emphasized that, in view of the existence of such fetishism, a scientific analysis of capitalist society must necessarily proceed beyond the level of appearance and manifestation to that of the essence, the underlying level of reality that determines the appearance. This way, both essence and manifestation, and the contradiction between them that constitutes fetishism, come to be understood. Marx’s concept of value and his analysis of value relations (which we shall go into in detail later on) are to be seen as ‘scientific instruments’ (that are the theoretical representations of a specific social reality) which facilitate such a process of study. Notes and References 1 2 3 4 5

6 7 8 9 10

11 12

13 14 15 16 17 18 19

20

K. Marx, Capital, Vol. I, International Publishers, 1967, p. 42. Ibid., p. 35. Ibid. Ibid., p. 38. Ibid.: ‘the common substance that manifests itself in the exchange value of commodities . . . is value’ (emphasis added). Ibid., p. 39. Ibid. K. Marx, Capital, Vol. III, International Publishers, 1967, p. 178. Ibid., pp. 178–99. See N.I. Bukharin, The Economic Theory of the Leisure Class, Monthly Review Press, 1973; and M.H. Dobb, Political Economy and Capitalism, Routledge and Kegan Paul, 1940. Also Dobb, in E.K. Hint and Jesse Schwartz (eds.), Critique of Economic Theory, Penguin, 1974. K. Marx, Grundrisse, Pelican, 1973, p. 101. ‘In our capitalist society, a given portion of human labour is, in accordance with the varying demand, at one time supplied in the form of tailoring, at another in the form of weaving.’ Capital, Vol. I, p. 43. Grundrisse, p. 105. Ibid. Capital, Vol. I, p. 43; emphasis added. Ibid., p. 61. Ibid., p. 47. Ibid., p. 60. Thus, when one goes to the market, one is concerned with the question of how much of various things one can buy with a certain sum of money. One does not at the level of surface phenomena reflect on the underlying system of property relations and social division of labour that makes these things into commodities. Capital, Vol. I, p. 72.

The Commodity 21 22

23 24 25

25

Ibid., p. 77. N. Geras, ‘Marx and the Critique of Political Economy’, in R. Blackburn (ed.), Ideology in Social Science, Vintage Books, 1973. Capital, Vol. I, p. 75. Ibid. Ibid., p. 270. The concept of domination discussed here is closely related to another concept in Marx, that of ‘alienation’. We shall deal with the concept of alienation in some detail later on.

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3 The Emergence of the Capitalist Mode of Production

Marx’s analysis of the capitalist mode of production (CMP) begins with the commodity. Commodity production itself, however, is a more general category than capitalist production. The latter is in fact the result of the historical development of commodity production. One can clearly bring out this point by distinguishing between simple commodity production and capitalist (commodity) production. By simple commodity production is meant a system of social production wherein, (i) individual producers own their means of production, (ii) they bring their products for exchange into the market, and (iii) ‘the ability to labour’ or labour power of the individual is not bought or sold. Thus, under simple commodity production, we do not have the full and generalized development of commodity production in so far as labour power itself has not become a commodity. The crucial feature that distinguishes the capitalist mode of production from simple commodity production is precisely the purchase and sale of labour power. This feature is conspicuously absent in simple commodity production. Historically, the rise to dominance of the CMP followed the development of simple commodity production in the womb of feudal society. The main economic activity of simple commodity production consists of the production and exchange of things as commodities. Thus simple commodity production implies constant purchase and sale of products, excepting of course labour power. The intervention of a common medium of circulation is clearly needed to effect continuous exchange of commodities. Thus simple commodity production gives rise to, and in turn requires, considerable development of money and money relations. If one considers the typical transaction of producers in simple commodity production, one observes _________ First published in Social Scientist, Issue 48, Vol. 4, No. 12, December 1976, pp. 51–61.

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(i) the sale of commodity by the producer, and (ii) the purchase, using the proceeds of (i), of another commodity. The first step can be represented as C–M, C for the commodity sold and M for the money thus obtained. The second step can be represented as M–C’, C’ being the new commodity bought with the money M obtained in the first step. Thus a farmer might sell paddy, and use the money to buy clothes. The typical transaction of simple commodity production can thus be represented as C–M–C’.

Simple Commodity Production and Capitalist Production This circuit of commodities, C–M–C’, has some definite characteristics of interest to us. The object of the circuit is clearly to exchange one kind of use value, that of commodity C, for another use value, that of C’. Money performs here a purely intermediary function. The aim of the circuit C–M–C’, then, is a change of use values. The object is thus consumption, and the end result is a change in the qualitative change in the use value. The ‘life’ of an individual C–M–C’ circuit is thus limited by the purpose of the activity itself, namely, to obtain a use value or a set of use values for consumption different from the one with which we began. Capitalist production is most sharply differentiated from simple commodity production in its characteristic circuit. The typical circuit of simple commodity production is C–M–C’, while that of CMP is M–C–M’. The capitalist begins with money M and converts it into commodities C, only to reconvert these again into money M’. This operation starts with money and ends with money. Thus there is no qualitative change in the nature of the use values as a result of this circuit. The object of this circuit cannot therefore be consumption. In fact, the circuit cannot make any sense unless the money M’ received at the end by the initial buyer is greater than the money M that the buyer starts with. In the absence of qualitative change, the motive force for the circuit M–C–M’ can only come from the possibility of a quantitative increase of M’ over M. It is the expectation of monetary gain that provides the underlying dynamic for M–C–M’. M’ must be expected to exceed M. The basic difference between C–M–C’ and M–C–M’ is that the object of the former is consumption or use value, while that of the latter is increase of the initial value M to M’. While the former circuit C–M–C’ is limited by the objective of consumption, the latter circuit, being based solely on quantitative increase, knows of no logical limits. After all, if one can make a gain of Rs 10 on an initial sum of Rs 100, why should one not use the new sum, Rs 110, in the same manner to make Rs 121, and so on? Thus the circuit M–C–M’, based on self-expansion of the initial value, is ‘logically limitless’. To put it in another way, while simple commodity production is limited in

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dynamic terms by the fact that use values (consumption) are here the aim of social production, the CMP, based on the self-expansion of value, is inherently a dynamic and self-expanding mode. Under the CMP, while M–C–M’ becomes the determining circuit, the circuit C–M–C’ does not by any means vanish. In particular, the vast majority of the population that needs to sell its labour power in order to live engages precisely in the circuit C–M–C’. They sell their labour power C, and with the money M thus obtained, they buy the necessities of life C’. For the capitalist class, and for the dynamic of the CMP, the relevant circuit is of course M–C–M’. We may call C–M–C’ the circuit of commodities, and M–C–M’ the circuit of capital.

Circuits of Capital M–C–M’, or the expansion of initial value advanced, constitutes the essence of the circuit of capital. The logical and historical mechanisms for affecting this essence are many. Logically, for example, the gain from M to M’ can be achieved by buying a commodity cheap and selling it dear. Historically, this would correspond to trading or merchant capital. This, along with usury (moneylending), in fact is the form in which capital first presents itself historically. In usurious capital, even the burden of purchase and sale is dispensed with, and we have M–M’ instead of M–C–M’. While usurious and merchant capital are the earliest forms of appearance of capital in history, they are by no means the most significant in the capitalist mode of production. Far more important for CMP is the circuit of productive (industrial) capital. This circuit involves the following stages: (i) The capitalist buys commodities with money. This can be denoted by M–C. (ii) The capitalist carries out a production process with the commodities purchased in step (i) and the end result is a different commodity C’. This step may be denoted C–P–C’, P standing for the production process. (iii) Finally, the capitalist sells C’ on the market to recover money of value equal to M’. To carry out step (ii) the capitalist does not simply buy just any set of commodities in step (i). In fact, he buys means of production MP and labour power LP. He sets the labourers he has hired to work with the means of production he has bought and produce the new commodity C’. Thus we may write the circuit of productive capital as: LP M—C——P——C’—M’ MP

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It can be seen that in the course of its circuit, productive capital at one time appears as money, at another as commodities. The point is a general one, applicable to the circuit of capital, M-C-M’. As Marx puts it, ‘in the circulation M–C–M’, both the money and the commodity represent only different modes of existence of value itself, the money its general mode, and the commodity its particular or so to say, disguised mode’.1 Or again: ‘Capital is money: Capital is commodities. In truth value is here the active factor . . . the original value . . . expands spontaneously.’2

Contradictions in Circuit M–C–M’ The circuit M–C–M’ is, formally speaking, obtained by reversing the sequence of C–M–C’. While the latter begins with a sale C–M and ends with a purchase M–C’, the former begins with a purchase M–C and ends with a sale C–M’. The question that now arises is: how can a purely formal change of this sort result in a sharp qualitative difference, namely that M–C–M’ is a movement resulting in surplus value that is an increase of M’ over M? Let us begin with the case of a simple exchange of commodities. A farmer goes to town and trades his paddy in exchange for some clothing from a tailor. From the point of view of use value, certainly both the farmer and the tailor ‘gain’, in the sense that, for both of them, the commodity obtained is more useful than the one relinquished. There is even an additional ‘gain’ in so far as the farmer is better at growing paddy and the tailor at making clothes. But from the standpoint of exchange value, the situation is different. Let us recall our analysis of commodities. There we had argued that exchange values of commodities are basically determined by their values. We may go a step further and assume, for now, that commodities exchange at their values. (At a later stage in the analysis, it will be seen that the exchange values of commodities are not simply equal to their values.) We are making this assumption not because it is thought to be an accurate representation of the immediate reality. The point is quite different. It is to show that even under the conditions of ‘equivalent exchange’, that is, commodities exchanging at their values, surplus value is possible, and also that it arises in production, and finally, that it is the product of certain historically specific production relations. Marx never loses sight of the point that, while value provides the basic determination for exchange value (and price), exchange value (or price) is not directly equal to value. Further, what is relevant here is that taking the economy as a whole, there is a certain sum of values (a certain amount of expended labour time) which cannot be augmented merely through exchange. The determination of exchange values of commodities occurs within this ‘overall constraint’, so to speak. To

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assume that commodities exchange at their values is merely to get at the essence of the problem of surplus value. Given the above reasoning, attempts to ascribe the origin of surplus value to the circulation of commodities – to the act of exchange itself – can be seen to arise from a confusion between use value and exchange value. A variant of such an approach – explaining surplus value through the gains in use value – is the argument that surplus value (a component of which is profit) arises through commerce, the latter being thus considered ‘productive’. Referring to the argument that commerce adds value to products since the same products in the hands of consumers are worth more than in the hands of producers, Marx says very aptly: ‘We might therefore just as well say that the buyer performs “strictly an act of production”, by converting stockings, for example, into money.’3 For, after all, money is ‘more useful’ to the seller than his commodity, say, stockings. Another argument that is advanced to explain surplus value (and thus profit) is that of selling above value or buying below value. Here we have two possibilities. The phenomenon may be general, that is, all commodities are sold above their values. In this case, one loses as a buyer whatever one gains as a seller. Thus, if all the transactions are taken together, one does not make any net gain or loss of value. And this is true of all commodity owners as well, who also buy and sell. Clearly, there is no explanation of surplus value here at either the individual or the social level. The second possibility is that a seller A is clever enough to sell his ware to a buyer B at a price exceeding its value, but B sells his ware to A at its value. In this case, to be sure, A gains value and B loses. But taking A and B together, there is no net gain or loss. Thus, while this case could be used to explain surplus value accruing to an individual commodity owner, it fails to explain surplus value at the level of society as a whole. All that has occurred here is a change in the distribution of the total values in circulation (more to A, correspondingly less to B), and, as Marx puts it, ‘The sum of values in circulation can clearly not be augmented by any change in their distribution. . . . Circulation, or the exchange of commodities begets no value.’4 The basic point that emerges from our discussion so far is that, regardless of whether or not commodities are exchanged at their values, surplus value (and thus profit), considered as a social reality does not arise in circulation. The contrary impression, that ‘profit’ results from buying cheap and selling dear, arises from certain forms of existence of capital, namely, merchant capital and moneylending capital. In the case of both these forms, ‘profit’ does appear to stem from circulation. In merchant capital, the intermediate phase of production that we find in the circuit of productive capital is eliminated, and we have simply and directly M–C–M’, or buying cheap and selling dear. In the case of moneylending capital, even the intermediate steps of

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purchase and sale are ‘short-circuited’, and we have M–M’. While merchant capital fosters the illusion that ‘profit’ in general arises from circulation, moneylending capital mystifies the origin of surplus value even further. Surplus value, in this case, appears to be a creation of money itself, that is, money seems to be vested with the magical power to procreate! It is precisely in order to avoid the mystifications and illusions generated by merchant and moneylending capital that Marx concerns himself with the general formula of capital, and seeks a general and fundamental explanation of surplus value, going beyond phenomenal forms such as non-equivalent exchange and deviation of day-to-day prices from values. Thus far we have tried to demonstrate that surplus value in general does not originate in circulation. But a problem arises. Circulation includes in it ‘the sum total of all the mutual relations of commodity owners’5 as commodity owners. When this is the case, where else can surplus value come from? As Marx puts it, ‘It is . . . impossible that outside the sphere of circulation a producer of commodities can, without coming into contact with other commodity owners, expand value, and consequently convert commodities into capital.’6 The ‘contradictions’ in the general formula of capital thus resolve themselves into a ‘paradoxical’ problem. The origin of surplus value must be discovered on the basis of the exchange of commodities at their values. Surplus value ‘must have its origin both in circulation and yet not in circulation’.7

Source of Surplus Value To examine this paradox, let us go back to the circuit of productive capital. The circuit of productive (industrial) capital, which is the dominant form of capital in the CMP, is, as earlier stated, as follows: LP M—C——P——C’—M’ MP The steps M–C and C’–M’ are purely steps of exchange. Hence, under the conditions of our problem, there can be no change in value arising from either of these operations. It is thus in the part LP C——P——C’ MP of the circuit of productive capital, that the source of surplus value must be sought. The step M–C can be broken down into M–LP and M–MP, money exchanged for labour power and for means of production respectively. Since

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each of these transactions is, from the point of view of value, an ‘equivalent’ one, the source of the change in value (M’–M) must be sought in the use value of the commodities being bought. The ‘trick’ of expanding the initial value M consists in finding a commodity by the use of which an amount of value can be produced that is greater than the value of that commodity itself. In this case one can have ‘equivalent’ exchange (exchange of equal values) and yet, by appropriate use of this ‘special’ commodity, more value can be obtained, embodied of course in the new commodity C’. It is Marx’s contention that labour power is the commodity that possesses this special property. The use of labour power for a given period of time yields a greater quantity of value than is required to reproduce itself. Let us pursue this point. Most important here is the distinction between ‘labour’ and ‘labour power’. What the wage worker sells to the capitalist is not directly labour itself but ‘the capacity to labour’. The labourer, by a wage contract, places at the disposal of the capitalist, for a specified length of time, his capacity to labour. In the course of actual work or labour, this ‘capacity to labour’ gets used up and it needs to be reproduced afresh every day. It is reproduced by appropriately providing the worker with food and other basic needs. It is this capacity to labour that Marx calls labour power. Labour power, in other words, is nothing but the aggregate of mental and physical energies possessed by the labourer. When the capitalist hires the labourer for a specified period (for example, ten hours on a given day, for a day labourer), he acquires the right to use the energies of the worker as he sees fit. This labour power is a commodity. The wage worker under CMP possesses this labour power as his private property and is free to dispose of it. He ‘produces’ this commodity (by eating, by clothing himself, by sheltering himself from the elements and so on) on his own private account, with a view to selling it to the capitalist. Thus, by definition, labour power is a commodity. As such, it must have a value and a use value. The use value or ‘useful property’ of labour power, like the value of any other commodity, is the amount of socially necessary labour time required to produce it. But what does this mean: that the value of labour power is purely biologically or physiologically determined? Marx’s answer to the above question is an emphatic ‘No’. At a very minimum, of course, the reproduction of labour power requires the production of the necessary means of subsistence. But the wants that must be satisfied in the reproduction of labour power are ‘social’ as much as they are ‘natural’. To put it in Marx’s own words: the number and extent of his so-called necessary wants, as also the modes of satisfying them, are themselves the product of historical development, and depend therefore to a great extent on the degree of civilization of a country,

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more particularly on the conditions under which . . . the class of free labourers has been formed.8

It follows, then, that ‘there enters into the determination of the value of labour power a historical and moral element’.9 At any rate, in a specific society at a specific point in time, the basket of goods and services of various kinds needed to reproduce the average worker is practically known.10 The secret of surplus value – of capital as self-expanding value – lies in the fact that the value (labour time) expended in the daily reproduction of labour power is less than the length of time for which the labourer works. Let the working day be ten hours. Let us suppose that the average daily needs of the worker in terms of various goods and services are known. Given the techniques of production in use, one can calculate the total amount of labour time socially necessary to produce the quantities of goods and services required to meet the average daily needs of the worker. This is the daily value of labour power, and let us suppose it is six hours. Since the capitalist buys the commodity, labour power, from the worker at its value, that is six hours, and yet the worker works for ten hours, there accrues to the capitalist a surplus of four hours of labour, materialized of course in a concrete product. The important point to note is that the capitalist has not ‘cheated’ the labourer in the sense of buying labour power below its value. Even with the assumption of perfectly ‘equal’ exchange, that is, the capitalist paying the worker the full value of labour power, surplus value is possible, so long as the capitalist has the use of the labour power for a time-period exceeding in magnitude the value of labour power. As long as the length of the working day exceeds the value of labour power, and capitalist and wage labourer exist as such, surplus value accrues to the capitalist in production even under conditions of equivalent exchange.

Historical Premises of Capitalist Mode of Production The last sentence above highlights sharply the historically specific (and thus transitory) nature of the CMP. Under a regime of commodity production, for surplus value to arise, specific historical conditions are required. We have already noted that commodity production itself is not common to all epochs of human history. But a certain extent of commodity production is common to many social formations which in other respects are very different from one another, and in fact belong to different historical epochs. However, the historical conditions for the existence of capital (and thus the CMP) ‘are by no means given with the mere circulation of money and commodities’.11 What then are the historical premises for the CMP? We have seen that the

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conversion of money into capital – the self-expansion of value that M–C– M’ represents – is possible on a social scale only when labour power is available as a commodity that is freely sold by the labourer and bought by the capitalist. This implies two conditions with respect to the labourer. Firstly, the labourer ‘must be the untrammelled owner of his capacity for labour’.12 He must possess his labour power as his own private property in order that he may dispose of it as he wishes. This means the absence of feudal and other pre-capitalist restraints such as serfdom or bonded labour. This implies as well that the labourer must sell his labour power only for a definite period of time, otherwise he becomes a slave or serf. Secondly, the labourer must not be in a position whereby he can independently produce some commodity with his own means of production and labour power. In other words, he must be obliged to sell his labour power in order to be able to make a living. As Marx puts it: For the conversion of his money into capital, therefore, the owner of money must meet in the market with the free labourer, free in the double sense, that as a free man, he can dispose of his labour power as his own commodity, and that on the other hand he has no other commodity for sale, is short of everything necessary for the realization of his labour power.13

Thus for the CMP we must have, on one side, owners of money and means of production, and on the other, a propertyless mass of people possessing nothing but their labour power. We can see at once that this is by no means a state of affairs ‘ordained’ by Nature, but a specific social and historical state. As Marx puts it: ‘Nature does not produce on the one side owners of money or commodities, and on the other men possessing nothing but their own labour power. This relation has no natural basis, neither is its social basis one that is common to all historical periods.’14 We have emphasized the historical specificity and the transitory nature of the capitalist mode of production, and thus of its relations of production such as wage labour–capital, because, with our consciousness being moulded by the experience of everyday life, it is easy to lose sight of this fact. Marx’s great discovery of commodity fetishism – of how the appearance level of social reality under commodity production is false and misleading, and of how this falsification itself has an objective basis in the mode of production – is directed precisely to this point. When some non-Marxist economists criticize bourgeois economics for its ahistoric nature and wish to ‘bring in history’, what they often have in mind is a very narrow conception of ‘history’ – such as, for instance, ‘unfulfilled expectations’ of capitalist entrepreneurs. The conception of historical specificity in Marxist thought, however, has a fundamentally revolutionary content. It signifies that the

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existing social formation and the presently dominant mode of production are as transitory as their predecessors, and ‘will pass’.

Summary In this article, we began by formulating the distinction between simple commodity production and the capitalist mode of production. The distinction lies in the fact that unlike in simple commodity production, in the capitalist mode of production, labour power or the capacity for labour of individuals itself becomes a commodity. The distinction is an important one, especially in the context of economies that may be commercialized (for instance, by integration into international markets) and yet, in their internal relations of production, labour power as a commodity freely bought and sold, that is, wage labour, may not exist. We went on to examine the characteristic circuits of simple mode of production and capitalist mode of production, namely, C–M–C’ and M–C–M’ respectively. We found that unlike C–M–C’ where the objective is use value (consumption), in M–C–M’ the objective is a quantitative increase of the same form of value, money. The M–C–M’ circuit, accordingly, is ‘logically limitless’, and the capitalist mode of production inherently dynamic and self-expanding. We found also that while capital first presents itself historically as merchant and moneylending capital, these forms would not suffice for the self-expansion of value (denoted by the increase of M’ over M) to occur on a social scale. The dominant form of the circuit of capital for the capitalist mode of production is productive capital: LP M—C——P——C’—M’ MP Here, the capitalist buys labour power and means of production, and obtains a new commodity of greater value, by the selling of which the selfexpansion of value (M’ over M) is effected. To investigate the process of self-expansion of value at a theoretical level, we set aside the disturbing influences of supply and demand, as well as the possibilities of non-equivalent exchange through ‘buying cheap and selling dear’, for the time being. We also pointed out that these secondary phenomena only redistribute the total value, and do not add or create new value. Thus, assuming commodities to be exchanged at their values, we examined the source of surplus value (M’–M). We came to the conclusion that it was to be found in the commodity labour power ‘whose use value possesses the peculiar property of being a source of value, whose actual consumption, therefore, is itself an embodiment of labour, and consequently, a creation of

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value’.15 We illustrated the argument with the example of a ten-hour working day, the value of labour power being six hours. The value of labour power, it was noted, includes a ‘historical and moral element’, unlike in the case of other commodities. As a very minimum, however, it has to be sufficient for the physiological reproduction of the worker. It must be stated clearly that the value of labour power, like all other concepts in Marx, refers to a social average. It must be interpreted so as to include the reproduction of the working class, that is, the workers and their families. We then went on to examine the historical preconditions for the existence of capital. The capital–wage labour relation was seen as the historical product of a long series of economic forms, each of which is transitory and thus superseded. The development of a class of people owning nothing but their labour power, on the one hand, and of a class of people owning (monopolizing) the means of production and money (liquid wealth), on the other, were seen to be the preconditions. In conclusion, we must point out that the process of production of surplus value has not yet been examined. We shall do this next. Here we have only pointed, by means of a logical argument, to the origin of surplus value. When we examine the process of production of surplus value, the nature of capital as a social relation will become explicit. Notes and References 1 2 3 4 5 6 7

8 9 10

11 12 13 14 15

K. Marx, Capital, Vol. I, International Publishers, 1967, p. 153. Ibid. Ibid., p. 160. Ibid., p. 163. Ibid., p. 165. Ibid. It needs to be clearly understood that the assumption that commodities exchange at their values is made not because this is the case (even approximately) in the market of the ‘real world’ every day, but because value is considered the basic determinant of the exchange values of commodities and because of the other arguments given at the beginning of this section. The forces of ‘supply and demand’, so dear to bourgeois economics, do play an important role in the determination of actual exchange ratios, that is, prices, but one that is secondary and itself determined by the value relations between commodities. The role of supply and demand will be clarified subsequently. See especially Marx, Capital, Vol. I, p. 160 footnote, and Vol. III, pp. 177–200. Marx, Capital, Vol. I, p. 171. Ibid. In the US, for instance, the Bureau of Labour Statistics publishes the annual incomes needed for a ‘moderate’ level of living for a family of four, as also poverty line income levels. Marx, Capital, Vol. I, p. 170. Ibid., p. 168. Ibid., p. 169. Ibid. Ibid., p. 167.

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4 The Source of Surplus Value

Capitalist production is generalized, fully developed commodity production. In it, labour power itself becomes a commodity. Almost all things are produced as commodities. Thus social production acquires the character of being ‘production of values’. It may be recalled that the term ‘value’ in relation to a commodity has two aspects. Qualitatively, it connotes that the commodity is the result of expending a certain portion of the total labour time of society, that is, it incorporates some amount of abstract labour or ‘human labour-in-general’. Quantitatively, the magnitude of value is the amount of socially necessary labour time expended in the production of the commodity. As is characteristic of the approach of historical materialism, Marx’s analysis emphasizes the historically specific character of the capitalist mode of production. This historical specificity consists not only in that production here is commodity (value) production (and in that labour power itself becomes a commodity), but also in that it is surplus value production. The essence of capital is self-expansion of value, and in this lies both the fundamentally ‘revolutionary’ character of the capitalist mode of production (in relation to earlier modes) and its historically transitory character. This article outlines Marx’s analysis of the process of production – the labour process – under the capitalist mode of production. First, the labour process ‘in general’, that is, as production of use values, is discussed. This is followed by an analysis of the labour process under the capitalist mode of production. The analysis provides the answer to the origin of surplus value and thus the essence of the mechanism by means of which capital expands. When the capitalist buys labour power by hiring workers, he sets them to work, providing them also with instruments of production and necessary raw materials. While this labour process under the control of the capitalist has certain specific social characteristics, the process of production as such _________ First published in Social Scientist, Issue 49, Vol. 5, No. 1, August 1976, pp. 61–73.

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has characteristics common to all epochs of production. Marx’s comment that ‘Production in general is . . . a rational abstraction in so far as it really brings out and fixes the common element’ may be recalled here.1 We shall therefore first consider the labour process as such independently of the specific social conditions under which it is being carried out.

Labour Process as Use Value Production The first thing about the labour process as such is that it is a process in which man interacts with Nature. Through such interaction man changes the world around him and, in the process, changes himself as well. As Marx puts it, man ‘develops his slumbering powers and compels them to act in obedience to his sway’.2 It follows from the first point that in the labour process, man engages in conscious and purposive activity. Marx emphasizes this point in the following passage: What distinguishes the worst architect from the best of bees is this, that the architect raises his structure in imagination before he erects it in reality. At the end of every labour process, we get a result that already existed in the imagination of the labourer at its commencement. He not only effects a change of form in the material on which he works, but he also realizes a purpose of his own that gives the law to his modus operandi, and to which he must subordinate his will.3

Thirdly, in the labouring process we have, in addition to the personal activity of the labouring person, the instruments of labour and the subject of labour. The subject of labour may be either directly provided by Nature or may itself be the product of a prior labour process. An example of the former would be fish in a natural stream, and of the latter, already mined ore that is to be refined. All subjects of labour that have already gone through previous labour processes are called raw materials by Marx. The instruments of labour are clearly the results of past expenditure of human labour once a certain stage of human civilization has been reached, although for the first members of our species, stones found in Nature might have served as instruments of labour. In fact, one could say with Marx that: ‘The use and fabrication of instruments of labour . . . is specifically characteristic of the human labour process.’4 The question naturally arises as to the relative roles played by the three ‘elementary factors’ of the labour process: man, subject of labour and instrument of labour. Bourgeois ideology and bourgeois economics treat the three factors identically, that is, they make no distinction between living human labour and the other two elements, which together constitute the means of

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production in the labour process. Marx’s position, arising from the historical materialist standpoint, is directly opposed to the bourgeois position. In the Marxian view, man’s activity is the dynamic element in the labour process. And this activity or ‘flow’ is ‘frozen’ in the product of the labour process. To quote Marx: In the labour process . . . man’s activity, with the help of the instruments of labour, effects an alteration, designed from the commencement, in the material worked upon. The process disappears in the product. . . . That which in the labourer appeared as movement, now appears in the product as a fixed quality without motion. . . . If we examine the whole process from the point of view of the result, it is plain that both the instruments and the subject of labour are means of production and that the labour itself is productive labour.5

The conscious and purposive activity of the worker is, for Marx, the active factor in the labour process. Such a standpoint is a logical outcome of the historical materialist position that the development of human societies occurs through man working with Nature, transforming Nature and himself in the process, thus learning and developing productive forces. It must of course be pointed out that in speaking of ‘man’ as such, we are abstracting from relations among human beings themselves in the process of production. This aspect of production relations – and its concomitant of class struggle – is absolutely central to the Marxian view, and cannot be left out nor considered in isolation from the aspect of productive forces. The only justification for our (momentary) abstraction is that which Marx gives: The labour process resolved as above into its simple elementary factors, i.e. human action with a view to the production of use values . . . is the everlasting Nature-imposed condition of human existence, and therefore is independent of every social phase of that existence, or rather, is common to every such phase. It was therefore, not necessary to represent our labourer in connection with other labourers; man and his labour on one side, Nature and its materials on the other, sufficed.6

Thus the term ‘man’ used by Marx in his analysis of the labour process as such does not connote some anthropological essence definable as ‘human nature’. The term is used, rather, in the context of bringing out ‘the everlasting Nature-imposed condition of human existence’. It is obvious that without the purposive intervention of human labour, instruments of labour will rust and rot, while the products of Nature often decay. As Marx puts it: ‘Iron rusts and wood rots. Yarn with which we neither weave nor knit is cotton wasted. Living labour must seize upon these things and rouse them from their death-sleep, change them from mere possible use values into real and effective ones.’7

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The capitalist is not interested in the production of use values for his own consumption. He buys labour power and means of production in order to produce commodities (values) and to obtain surplus values. This gives the capitalist labour process its specific social characteristics.

Capitalist Labour Process The first and foremost specifically capitalist aspect of the labour process is that the labourer now works under the control of the capitalist to whom he has sold his labour power. Whether the capitalist exercises this control directly or through a stratum of supervisors does not alter the fact that the labour is performed effectively under the control of the capitalist. The labour performed is still purposive activity, but the purpose is determined and the activity controlled by the capitalist and not by the labouring person. Second, and equally important, is the fact that the product resulting from the labour performed by the worker is ‘the property of the capitalist, and not that of the labourer, its immediate producer’.8 Under bourgeois property relations, since the capitalist has bought the commodity – labour power – for a specified period of time (a day, for example), he is free to make use of it as he pleases, and the resulting product belongs to him. Under the capitalist labour process, the labourer may be said to be ‘alienated’ in a double sense: he is alienated from the control of the labour process, the purpose and control of his own activity being determined by the capitalist. And he is alienated also from the product of his own labour, for the product becomes the property of the capitalist. The phenomenon of ‘alienation’ under capitalism is of course not confined to the labour process alone, but is rooted in this mode of production at all levels – economic, ideological and political – and is in fact an aspect of the phenomenon of commodity fetishism discussed earlier. In the broadest sense, ‘alienation’ results from the absence of conscious social control over social production which characterizes generalized commodity production. It thus denotes a historically specific phenomenon, and can in no way be seen either as ‘a consequence of modern technology’ or as the separation of ‘Man’ from his ‘true’ anthropological essence.9 The capitalist labour process aims at producing ‘not only a use value but value; not only value, but at the same time surplus value’.10 Let us therefore examine the labour process of creation of value. Let us suppose that the capitalist wants his workers to produce steel hammers. He buys sheets of the metal and also the equipment using which the workers can make steel hammers out of the metal. Under the conditions of our problem, we assume that the capitalist buys the raw material (sheets of steel) and the equipment at their values from other capitalists. Let us consi-

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der one worker turning out four steel hammers a day, one from each sheet of standard dimensions (length, width and thickness). The working day is assumed to be eight hours. At the beginning of the labour process of conversion of sheets of steel hammers, we have the raw material, namely, steel sheets. Each sheet (of standard size) is the product of prior labour processes carried out elsewhere and, as such, has a certain amount of labour time embodied in it. This is the value of the sheet, and let us assume it to be equal to four hours of socially necessary labour time. In the course of producing hammers from the raw material, the worker uses the machinery, which thereby ‘depreciates’ to some extent. A certain portion of the total value of the machine is ‘used up’ in the course of producing four hammers during a working day. To concretize matters a little, let us assume that the machine will last for 300 working days at a rate of production of four hammers a day. Let us also assume that the machine does not become ‘obsolete’ (is not replaced in the market by a superior machine) during its life of 300 working days. Thus we may say that during a single working day, on an average, 1/300 of the value of the machine gets used up. Let us suppose that, on an average, it takes 1,200 hours of socially necessary labour time to make the machine. Then, during a working day, it ‘loses’ four hours of value.

Creation of Value The Marxian view of the labour process as one of creation of value is as follows. The raw material comes into the labour process with a certain amount of embodied labour, that is, a certain value. The labourer expends some more labour time ‘directly’ in converting this material into a different product – the sheet is here converted into a hammer. In doing this the worker uses the machine, which ‘gives up’ a certain amount of value to the product. The machine, like the raw material, comes into the labour process with a given amount of value, as determined by the labour time socially necessary to produce it. Thus the determination of the values of both the raw material and the machine takes place not in the labour process under consideration (conversion of sheets into hammers), but in the labour processes where they are produced. In the present labour process, the machine and the raw material do not contribute to the creation of fresh value. Rather, the active element in the labour process, namely, the living labour of the worker, does three things: (i) it preserves the value of the raw material in the product; (ii) it transfers a portion of the value of the machine to the product; and (iii) it adds fresh value to the product by direct labour. In our example above, the value of raw material preserved in a day’s product of four hammers is equal to sixteen hours (four hours per sheet), and the portion of the

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value of the machine ‘used up’ or transferred to the product by the worker is equal to four hours (1,200 divided by 300). What then is the value of the four hammers we are left with at the end of the day? The answer is that it is equal to the value transferred from the machine plus the value of the raw material used up plus the value freshly added (the ‘direct’ labour of the day). In our example, this is 4 + 16 + 8 = 28 hours for four hammers. That is to say, each hammer has incorporated into it seven hours of labour, of which one hour is the value transferred from the machine, four hours the value already present in the sheet of metal used up in producing the hammer, and the remaining two hours the direct labour time expended in turning the sheet into a hammer. The manner in which the role of the means of production in the process of value creation is viewed in our account above can be best summarized by Marx’s statement in relation to the process of spinning cotton into yarn: ‘Therefore the labour contained in the raw material and the instruments of labour can be treated just as if it were labour expended in an earlier stage of the spinning process, before the labour of actual spinning commenced.’11

Surplus Value Our analysis shows that the value of a commodity (steel hammer) must be seen as the sum of the ‘direct’ and ‘indirect’ labour times expended in its production. But the capitalist labour process is not only a process of production of value but of surplus value as well. So the question still remains: how is the surplus value created? To answer this, we must move from the ‘passive’ elements of the labour process – the means of production – to the ‘active’ element: living labour. The labourer, as we have seen, adds fresh value to the extent of eight hours in the course of the day’s work. But what was the value of the commodity that the capitalist bought from the worker? In other words, what was the the initial value (value at the start of the day) of this element of the labour process? Here we must recall that the capitalist has bought labour power from the worker and, by assumption, at its value. The value of labour power, in turn, is the amount of socially necessary labour time required to produce it, including in this a so-called ‘historical and moral element’. Under specific historical conditions, this is the amount of labour time required on an average to reproduce a worker (taking into consideration the family needs which socially correspond to the reproduction of current and future labour power, that is, to the reproduction of the working class as a whole). Let us say that this amounts to about four hours on an average. What this implies is that by working for four hours, the labourer creates

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fresh value (which is incorporated in the product) equal to the value of his labour power, that is, equal to what the capitalist has paid him. But he does not stop there. He goes on to work the whole day, that is eight hours, as per his contract with the capitalist. Thus he creates four more hours of fresh value which is incorporated in the product and therefore belongs to the capitalist. On the one hand, the total value laid out by the capitalist per working day equals sixteen hours (sheet metal) plus four hours (depreciation of the machine) plus four hours (the value of labour power). On the other hand, the value of the commodity (four hammers) at the end of the day equals sixteen plus four plus eight hours. Here is the secret origin of surplus value. Diagramatically, if AB represents the length of the working day (eight hours), AC represents the value of labour power (four hours) and CB the extra value the capitalist receives gratis from the worker. Marx calls the former (AC) necessary labour in that the worker would need to expend this much labour (on an average) to sustain himself under the prevalent historical conditions and level of development of productive forces. In the remaining portion of the working day, the worker performs surplus labour for the capitalist. It is this surplus labour that reappears in the product, and constitutes the surplus value that accrues to the capitalist.

A

C

B

Have we pulled a rabbit out of a hat? The point is really quite simple. The crux of the matter is this: ‘the past labour that is embodied in the labour power, and the living labour that it can call into action; the daily cost of maintaining it, and its daily expenditure in work, are two totally different things. The former determines the exchange value of the labour power, and the latter its use value.’13 It needs to be emphasized that surplus value creation has been explained without violating the conditions of equivalent exchange. The capitalist bought the sheets and the machinery at their values, and labour power also at its value. Surplus value arose not through ‘unequal’ exchange, but through the special property of the commodity: labour power. To sum up the whole matter in Marx’s words: This metamorphosis, this conversion of money into capital, takes place both within the sphere of circulation and also outside it; within the circulation, because conditioned by the purchase of labour power in the market; outside the circulation because what is done within it is only a stepping stone to the production of surplus value, a process which is entirely confined to the sphere of production.14

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Rate of Surplus Value Let us analyse the process of production of value and surplus value closely. We have stated above that the living labour preserves the value of the means of production ‘used up’ in the process, and transfers the value into the product. The questions that arise are: (i) How does the living labour do this? (ii) What roles do the distinct elements of the means of production – raw material or the subject of labour, ‘auxiliary’ material such as coal burned in boiler, and the instruments of labour – play in the process? The living labour functions in a two-fold manner. In creating fresh value by its direct labour, it counts only as ‘value-creating labour’, that is, human labour-in-general or abstract labour. Here the particular kind of labour (for example, spinning of cotton into yarn) does not matter. But living labour cannot perform its other function – that of preserving and transferring the value of the means of production – unless it is labour of a specific kind. For instance, the concrete labour of welding will not turn cotton into yarn. Only by spinning can cotton be converted to yarn. And it is only in this way that the ‘used-up’ value of the means of production is embodied in a new use value, and thus preserved. So, in its function of preserving and transferring the value of the means of production, living labour counts as concrete labour. Among the means of production, the raw materials reappear in the product but in an altered form (cotton reappears as yarn and the sheet of metal as a hammer), while auxiliary substances like coal used as fuel physically vanish, leaving only their value in the product. The instruments of labour (tools, machines and so on), however, do not lose their physical form. Only a portion of their value is transferred into the product. And since they last through many cycles of production, that is, through weeks, months or years, while the products are being turned out daily, they give up their value only gradually to the products. But all the means of production have one thing in common: their values are determined in the processes where they are produced. As far as the labour process where they serve as means of production is concerned, their values are given at the beginning and do not undergo any change. To emphasize this point, Marx calls the means of production the constant part of capital, or simply constant capital. The other part of the capital laid out is labour power. This element, as we have seen, both reproduces its own value and produces, in addition, a surplus value. It is this element that effects a change in the value of capital. It is responsible for the variation in the value of capital. Labour power at the start of the process becomes that plus surplus value at the end. It thus varies, and Marx therefore calls this part of capital variable capital. If we denote the value of constant capital embodied in the product by C

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and that of variable capital by V, we can write the value of the product at the end of the working day as being equal to C + V + S, where S = surplus value or the extra labour time the labourer works for the capitalist after he has worked for a length of time equal to the value of labour power.15 In our steel hammer example, the value of the four hammers together was equal to twenty-eight hours, of which we can now see that: C = (16 + 4) = 20 hours V = 4 hours, and S = (8 – 4) = 4 hours. Let us now examine the relationship between the value of labour power and surplus value. In a specific social and historical setting with its given level of development of productive forces, we may regard the value of labour power as given. We have seen that the portion of the working day taken up in producing a value equal to this is called necessary labour, and the rest of the working day is called surplus labour. Thus necessary labour time equals the value of labour power (expended in its daily reproduction), and surplus labour time equals surplus value. Marx calls the ratio of surplus labour to necessary labour the rate of surplus value (RSV). It is clear that RSV =

Surplus labour Surplus value = Value of labour power Necessary labour

The rate of surplus value provides a measure of the exploitation of the worker by the capitalist, exploitation being understood as a strictly analytical concept denoting the surplus labour extracted from the worker, and the ‘surplus’ being in relation to the length of time during which the worker could have independently reproduced himself. Thus the rate of surplus value is also called by Marx the rate of exploitation. In our example of the production of steel hammers, RSV = 4/4 = 100%. Half the working day was spent by the worker in producing surplus value for the capitalist. The ratio of surplus to variable capital is not something that immediately interests the individual capitalist. Indeed the capitalist does not consciously view the labour process in terms of value and surplus value. He is interested in the relation of the surplus that he can obtain to the total outlay he has to make, that is (somewhat loosely speaking), in the rate of profit and not the rate of surplus value. We are however now analysing the relationship between the capitalist class as a whole and the working class. At this level, it is value relations that concern us. Subsequently, we will see how Marx develops the complex category of profit, and what are the relationships between surplus value and its rate, on the one hand, and profit and its rate, on the other.

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Absolute Surplus Value In the early phase of the development of the capitalist mode of production in Britain , capital ‘conquered’ various branches of production only gradually, and in an uneven manner. At this stage, capitalist forms of economic organization and capitalist production relations introduced in a given branch of production would often mean only what Marx calls a ‘formal’ subjection of labour to capital. Examples of this can be found in our country today, for instance, in some cottage industries like match manufacture. The subjection is ‘formal’ in that the labour process is not directly controlled by the capitalist. The capitalist instead might ‘put out’ the work, giving the raw materials to the workers and collecting the product from them later, after paying them their wages. The workers might do the work in their households, assisted by their family members. Gradually, the capitalists begin to organize production in common workplaces where workers are brought together under one roof and made to work under supervision. Simple forms of cooperation in work then develop, leading in turn to division of labour within the workplace. Subsequently this leads to the development of manufacture and, finally, modern industry. Until the development of advanced forms of manufacture and of modern industry, however, capitalist production is characterized by inherited, pre-capitalist and relatively primitive techniques of production, improved somewhat in the factories by cooperation and division of labour. Capitalist production is surplus value production. In the historical phase that we have briefly described above, how is surplus value to be expanded? Given the techniques of production (and these are relatively stagnant and unchanging in this phase), the value of labour power is known. Since necessary labour is given, surplus labour and thus surplus value per worker can only be increased by lengthening the working day. For, surplus value per worker simply equals the length of the working day minus the value of labour power. For a given outlay of capital, the existing technical conditions determine the portions to be laid out on constant and variable capital respectively. So the increase in surplus value can be obtained only by prolonging the working day, by exploiting the workers for an absolutely longer period. Marx calls such production of increased surplus value by the lengthening of the working day absolute surplus value production. Subsequently the revolutionary character of the capitalist mode of production comes to dominate and there are rapid improvements in techniques of production. Then the division of a working day of given length between necessary labour and surplus labour gets altered in favour of surplus labour. This is relative surplus value production, and we will deal with it extensively later on.

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A Clash of Interests The thirst of the capitalist class for more surplus value thus initially expresses itself in the arbitrary and horrendous lengthening of the working day. The initial balance of class forces also makes this feasible, for the working class is barely in the process of formation – its ranks being mainly composed, in the British case, of uprooted artisans and serfs, and expropriated small peasants. Trade unions, the defensive organizations of the working class, are still in their infancy. The chapter on the working day in Capital I documents the capitalist offensive extensively.16 This very offensive and the internal logic of the capitalist mode give rise, in turn, to the emergence of a working class movement. And this development intensifies and strengthens the struggle of the working class against the lengthening of the working day. The historical development of class struggle renders it increasingly difficult for the British bourgeoisie to utilize this method of expansion of surplus value. Other specific historical factors play a role as well, and again the chapter on the working day in Capital I provides an excellent description and analysis. Needless to say, the brutal methods of lengthening the working day and extracting absolute surplus value are still going on in many parts of the world, including here at home in such industries as match manufacture, coir and cashew. As capitalist development proceeds, the strength of the workers’ movement also grows, and it soon makes very difficult the expansion of absolute surplus value through the overt lengthening of the working day. Capital then turns to other means: to intensification of labour (also present in the earlier phase), to relative surplus value production, and to the use of various wage forms (time versus piece rates and so forth). The important point to note here is that the changes in techniques of production that have historically occurred in the course of capitalist development are not ‘inexplicable’, ‘autonomous’ or ‘heaven-determined’! Rather, they are very much the product of class struggles between the working class and the bourgeoisie, and of competitive struggles among the bourgeoisie, occurring in specific, historically determined conditions.17

Summary We began this article by examining the labour process. While we were really interested in the labour process under the capitalist mode of production, we recognized that there are aspects of the labour process common to all social epochs. This essential ‘commonness’ is that any labour process is one of interaction between human beings, or ‘Man’, and Nature. In this process,

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human labour was seen to be purposive, conscious activity. In the labour process, living labour utilizes ‘means of production’ – both materials directly furnished by Nature, and raw materials, tools and so on, in which human labour is embodied to produce use values. The living labour is the active element in the labour process. We next examined the specifically capitalist labour process, and found it to be a process of production of value and, further, of surplus value. The labourer is doubly alienated from the process in that: (i) the capitalist controls the labour process, determining the purpose of the activity and the mode of its execution; and (b) the capitalist appropriates the product of the worker’s labour. Thus the labourer is alienated from both process and product. Alienation itself was thus seen to be not a vague anthropological notion born of ahistoric conceptions of human essence, nor a result of ‘industrialism’ and ‘technology’, but a historically specific concept. It is objectively the consequence of a society of: (i) commodity production without any conscious social control over social production and life (‘the anarchy of the market,’ a very inadequate term); and, further, (ii) capitalist production in which the working class is alienated from the labour process and its product, and is dominated by the capitalist class. We saw further that surplus value was created in production. It was the result of the difference between the value of labour power and the length of time for which the capitalist had the use of the labour power (that is, the working day). Thus, out of a working day of eight hours, by the first (say) four hours of his work, the worker produces commodities equal in value to the bundle of commodities needed to support and reproduce him daily. During the remaining time he performs unpaid labour for the capitalist. The means of production play a ‘passive’ role. By performing the appropriate, specific kind of labour (like spinning for conversion of cotton into yarn), the worker preserves the value of the means of production ‘used up’ and transfers it into the product. The value of the means of production is determined in the labour processes where they are produced, and not in the one where they serve as means of production. They thus do not change in value (for example, the value given up by the tool, that is, its depreciation, is transferred into the product by concrete labour, thus no loss of value nor gain occurs), and are called by Marx constant capital. By analogous reasoning, the portion of capital expended in purchasing labour power is called variable capital. We might say that constant capital is ‘dead labour’ and variable capital is ‘living labour’. The working day was seen to be composed of two parts: necessary labour (equal to daily value of labour power) and surplus labour. A measure of capitalist exploitation of labour is provided by the ratio of surplus labour to necessary labour. Marx calls this the rate of surplus value or the rate of

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exploitation. In the initial phase of capitalist development, expansion of surplus value takes place through lengthening of the working day rather than through higher productivity. Marx calls this absolute surplus value production. The subsequent developments in the class struggles waged by the working class against the capitalist class render this mode of expansion of surplus value very difficult. This leads in turn to relative surplus value production, which we shall next examine. Notes and References 1 2 3 4 5 6 7 8 9

10 11 12 13 14 15

16 17

K. Marx, Grundrisse, translated by M. Nicolaus, Pelican, 1973, p. 35, emphasis in original. K. Marx, Capital, Vol. I, International Publishers, 1967, p. 197. Ibid., p. 178. Ibid., p. 179. Ibid., pp. 180–81, emphasis added. Ibid., pp. 183–84, emphasis added. Ibid., p. 183. Ibid., p. 185. Bourgeois sociologists (e.g. Blauner) and the Humanist School (e.g. Erich Fromm) respectively commit the two errors mentioned in the text. See, for a good discussion, E. Mandel, The Formation of Karl Marx’s Economic Thought, Monthly Review, 1972, and N. Geras in R. Blackburn (ed.), Ideology in Social Science, Vintage Books, 1973. Marx, Capital, Vol. I, p. 186. Ibid., p. 188. Ibid., p. 193. Ibid. Ibid., pp. 194–95. A portion of the capital laid out by the capitalist in any manufacturing venture consists of course of durable machinery, called in economics ‘fixed capital’. Only a fraction of the value of fixed capital enters as an element of constant capital into a single day’s product. Both ‘fixed’ capital and raw materials form part of constant capital as far as the total capital laid out is concerned. For, the designations ‘constant’ and ‘variable’ denote ‘dead’ (or past) and ‘living’ labour respectively. To simplify matters, we shall assume for now that all the constant capital is used up in a single period of production, say, a day. In economic jargon, we are for now using a ‘circulating capital model’, but this does not affect our results in any fundamental way. Marx, Capital, Vol. I, chapter X, pp. 231–302. Marxism is often misrepresented by non-Marxists as the theory that history is the product of ‘technology’ and ‘institutions’. The central focus of the relationship between productive form and relations of production, the basic determinant of history, is class struggle. Productive forces cannot be reduced to ‘technology’, and production relations cannot be reduced to ‘institutions’.

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5 Absolute and Relative Surplus Value

In its unquenchable thirst for surplus value, the capitalist class first seeks to lengthen the working day as much as possible. It may be recalled here that Marx terms it ‘absolute surplus value production’. Historically, production of absolute surplus value characterizes the early phase of development of the capitalist mode of production, when techniques are relatively unchanging and the capitalist mode has not yet ‘seized the labour process by its roots’. In this phase, the value of labour power, and thus necessary labour, is given and relatively constant, so that surplus labour or surplus value can be enhanced only by lengthening the working day. The development of the class struggle between labour and capital places severe limits on this mode of enhancing surplus value. The working class carries on a struggle against the lengthening of the working day, a struggle that is sooner or later victorious.1 Given the length of one working day, surplus value can only be increased by reducing necessary labour time, that is, by a reduction in the value of labour power. We leave aside here the possibility of wages being pushed below the value of labour power, although this plays an important role in capitalist practice. If we represent the working day by the line AB, and if the length AC represents necessary labour, then CB is surplus labour. To begin with, let AB = 10 hours, AC = 6 hours, and thus CB = 4 hours.

A

E

C 4

B

D

2

The initial rate of surplus value is /6 = 66 /3 per cent. Now absolute surplus value production occurs through increasing the length of the working day, _________ First published in Social Scientist, Issue 50, Vol. 5, No. 2, September 1976, pp. 45–56.

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for instance to 11 hours (represented by line AD). But if the length of the working day is fixed at AB = 10 hours, the only way to increase surplus value per worker is through reducing necessary labour. Point E provides an example. If, through increases in the productivity of labour, the time required (directly and indirectly) to produce the basket of goods and services needed for the daily reproduction of labour power is reduced from AC = 6 hours to AE = 5 hours, the rate of surplus value increases from 4/6 to 5/5, that is, from 662/3 per cent to 100 per cent. Marx calls this process relative surplus value production: The surplus value produced by the prolongation of the working day I call absolute surplus value. On the other hand, the surplus value arising from the curtailment of the necessary labour time, and from the corresponding alteration in the respective lengths of the two components of the working day, I call relative surplus value.2

Production of Relative Surplus Value It is clear from above that relative surplus value can only result from an increase in the productivity of labour as long as labour power is paid for at its value. But an increase in the productivity of labour in general is not sufficient. The increase must take place in those branches of production that supply goods and services directly consumed by the workers, or the means of production necessary to produce such goods and services. The reason is that, what is relevant to production of relative surplus value is a decline in the portion of a working day of given length expended in the reproduction of labour power. So, if an increase in the productivity of labour occurs in a branch of production that is involved neither directly nor indirectly in the reproduction of labour power, the division of the working day between necessary and surplus labour remains unaltered, and so does the rate of surplus value. To analyse relative surplus value production, one must go into the mechanism by which it is produced. We have seen that an increase in the productivity of labour, leading directly or indirectly to a reduction in the value of labour power, is the necessary and sufficient condition for production of relative surplus value. But the individual capitalist certainly does not think in terms of ‘absolute surplus value’, ‘relative surplus value’, ‘cheapening of labour power’ and so on. He perceives only the manifestations in the sphere of competition of the underlying forces of value and surplus value. The competitive struggle, which alone interests the capitalist, forces him to try and improve the methods of producing whatever commodity he happens to be producing. His aim is to cut his cost of production in relation to that of

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his competitors. Assuming (for now) that he must pay the worker the full value of labour power, he can cut costs only by increasing productivity. This may be done through a changed division of labour, an entirely new technique and so on. The net effect is to produce more units of the commodity during a working day of given length than before. Competition compels the other capitalists producing the same commodity to adopt the cheaper, improved method of production. When this process has more or less worked itself out, the value of the commodity – the socially necessary labour time required to produce it – declines. To the extent that this commodity enters into the consumption basket of the workers or into the means of production required to produce those consumption goods, the value of labour power also declines. It is thus that necessary labour declines and the ratio of surplus labour to necessary labour increases, while the length of the working day remains the same, that is, relative surplus value is produced.

New Techniques Relative surplus value production occurs through an increase in productiveness in any branch of production directly or indirectly involved in producing commodities consumed by the working class. It needs to be noted, however, that even a capitalist not producing such commodities directly or indirectly has an incentive to cut costs. As Marx puts it, the argumentation of surplus value owing to an increase in productivity in his own factory is pocketed by him [the capitalist] whether his commodities belong or not to the class of necessary means of subsistence that participate in determining the general value of labour power. Hence, independently of this latter circumstance, there is a motive for each individual capitalist to cheapen his commodities, by increasing the productiveness of labour.3

Some examples may make this point clear. A new technique of production that reduces by a fourth the time taken to produce an ordinary cotton shirt worn by the worker will, when it is widely adopted as a result of competition in the textile industry, lead to a reduction in the value of labour power and thus to relative surplus value production. On the other hand, a cheaper method of producing television sets will not have any impact on the value of labour power in the Indian context. It will nonetheless fetch the television manufacturer an extra profit over his rivals in the industry. Marx puts the relation between these two phenomena neatly: ‘The capitalist who applies the improved method of production appropriates to surplus labour a greater portion of the working day than the other capitalists in the same trade. He does individually what the whole body of capitalists engaged in producing relative surplus value do collectively.’4 However:

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The general rate of surplus value is, therefore, ultimately affected . . . only when the increase in productiveness of labour has seized upon those branches of production that are connected with, and has cheapened, those commodities that form part of the necessary means of subsistence, and are therefore elements of the value of labour power.5

We have seen that an increase in the productivity of labour leads to a cheapening of commodities, a lowering of their values. Capitalist production, however, has as its basic driving force, production of value and surplus value. The apparent contradiction here is solved by the concept of relative surplus value. Relative surplus value is based upon increased productivity of labour, and the imperative of relative surplus value production – dictated by the development of class struggle and capitalist competition – leads to lowering the values of commodities. The capitalist is ultimately interested in surplus value, not value as such. Having developed the concept of surplus value above, we now move on to an examination of the various means of its production identified by Marx. These are cooperation, division of labour and manufacture, and, finally, machinery and modern industry. We consider each of these in turn.

Cooperation The initial phase of the conquest by the capitalist mode of various branches of production is characterized by what Marx calls the formal subjection of labour to capital. An example is provided by the ‘putting out’ system referred to in the previous chapter. With the further development of the capitalist mode, the capitalist begins to assemble a number of workers under one roof, and directly supervises or controls the labour process. ‘Real’ capitalist production – real rather than former subjection of labour to capital – begins thus with simple cooperation, wherein a number of workers are brought together to work under one roof under the watchful eye of the capitalist. The simplest form of cooperation itself has some immediate effects. Since means of production such as a factory building are built to accommodate the whole group of workers (and tools), there are economies of scale. Marx gives the example that a workshop to accommodate twenty weavers working with twenty looms costs less than ten workshops to accommodate two weavers each. This economy in the means of production cheapens commodities and thus increases the ratio of surplus to necessary labour.6 Cooperation – a number of workers working together side by side, performing identical or mutually related operations – helps to average out individual differences among workmen. The resulting collective labour thus bears the character of average social labour.

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A number of workers working together produce an effect that is not simply the sum of the effects that each working in isolation would produce. The point made about scale economies brings this out. It must also be noted that the difference is not purely quantitative, for cooperation creates a new social power: ‘Not only have we here an increase in the productive power of the individual, by means of cooperation, but the creation of a new power, namely, the collective power of the masses.’ Cooperation as a feature of the labour process allows work to be carried on over a large space, as in road-building, irrigation and flood control, while it also affords economies of scale in space, the factory building, for instance. To summarize the productive effects of cooperation: it heightens the mechanical force of labour, or extends its sphere of action over a greater space, or contracts the field of production relatively to the scale of production, or at the critical moment sets large masses of labour to work, or excites emulation between individuals and raises their animal spirits . . . or performs simultaneously different operations, or lends to individual labour the character of average social labour.8

Production Relations What we have discussed so far are only the effects of cooperation on the productivity of labour. Equally important is the ‘production relations’ aspect, that is, the class character of cooperation. On the one hand, cooperation plays a historically progressive role. It develops the productive powers of social labour. As Marx puts it, ‘When the labourer cooperates systematically with others, he strips off the fetters of his individuality, and develops the capabilities of his species.’9 On the other hand, there is the specifically capitalist character of cooperation. It is to this that we now turn. For the capitalist, a labour process involving the cooperation of a number of workmen necessarily involves a significant outlay of capital, both for constant capital (such as buildings, instruments of labour and raw materials) and variable capital (the hiring of many labourers). Cooperation thus presupposes a certain concentration of capital in the hands of the individual capitalist. The development of cooperation also marks a transition from labour’s ‘formal’ subjection to capital to its real subjection: By the cooperation of numerous wage labourers, the sway of capital develops into a requisite for carrying on the labour process itself, into a real requisite of production. That a capitalist should command on the field of production, is now as indispensable as that a general should command on the field of battle.10

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Further, a cooperative labour process necessarily involves the tasks of coordination and superintendence. Under capitalist relations of production, these tasks become the functions and prerogatives of capital. In the process, they acquire a specific class character. The coordination, direction and supervision carried out by the capitalist (or the management appointed by him) are not simply those dictated by the cooperative character of the labour process as such. They are also those dictated by the need to squeeze the maximum surplus labour out of the workers: The control exercised by the capitalist is not only a special function, due to the nature of the social labour process, and peculiar to that process, but it is, at the same time, a function of the exploitation of a social labour process, and is consequently rooted in the unavoidable antagonism between the exploiter and the living and labouring raw material he exploits.11

Hierarchy and Antagonism Thus, while the cooperative character of the labour process requires only a coordinating agency, its capitalist character demands a hierarchy and a despotic control. Just as the army has a hierarchic and bureaucratic set-up involving officers, sergeants and plain soldiers, the industrial army commanded by the capitalist has its managers, foremen and the exploited workers. The pretensions of bourgeois democracy become thoroughly exposed in the military organization of the capitalist labour process, a form of organization certainly not intrinsic to the cooperative labour process as such. The bourgeois economist completely fails to see this. Instead, ‘he . . . treats the work of control made necessary by the cooperative character of the labour process as identical with the different work of control necessitated by the capitalist character of that process and the antagonism of interests between capitalist and labourer.’12 The manner in which cooperation in work among a number of labourers is brought about also serves to mystify the relation between labour and capital. It is the capitalist who brings the workers together. Prior to this, the workers are simply isolated individuals who have their labour power to sell. Thus, when the productivity of labour increases as a result of cooperation, the increased productive power appears to be the work of capital: The productive power developed by the labourer when working in cooperation is the productive power of capital. . . . Because this power costs capital nothing . . . and the labourer himself does not develop it before his labour belongs to capital, it appears as a power with which capital is endowed by Nature – a productive power that is immanent in capital.13

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It remains now to sum up our discussion of cooperation and to put it in a historical perspective. Cooperation is the first change effected by capital when it takes over the actual process. It serves to increase the productivity of labour, and is thus a mode of producing relative surplus value. In its specifically capitalist form, cooperation implies an organization of the labour process that reflects the fundamental antagonism between labour and capital. Cooperation, however, is not peculiar to capitalist production. It existed at the very beginnings of human civilization, but its class character then was quite different. In primitive communities, it was based on common ownership of the means of production, and on the ‘identity’ of the individual with the tribe or the community. In contrast, capitalistic cooperation requires the independent wage labourer and private property in the means of production. As Marx points out: ‘Historically . . . this form is developed in opposition to peasant agriculture and to the carrying on of independent handicrafts whether in guilds or not.’14 Finally, while cooperation is basic to all forms of capitalist production, in its elementary form it plays a subordinate role along with the more developed forms of capitalist production such as manufacture and modern industry.

Division of Labour in Manufacture Cooperation can be of two types: elementary or simple cooperation wherein each worker produces the entire product from beginning to end; and a more developed form wherein there is a division of labour among the workers, each one performing one or a set of operations, and forwarding the material-in-process to the next worker. With the gradual development of division of labour, cooperation evolves from its elementary form to the more complex, and, eventually, manufacture develops from cooperation through further division of labour. Manufacture may evolve in either of two ways. On the one hand, a number of independent handicraftsmen processing the same initial raw material through successively different stages may be combined under one roof in a factory by a capitalist. Alternatively, the simple cooperation prevailing in a factory, say, a number of needle makers each making the whole needle side by side, can evolve into manufacture through a splitting up of needle-making into a number of different operations, each of which is assigned to one of the artisans. No matter the path of its evolution, the establishment of manufacture implies at once the loss of independence for the artisans of the precapitalist society. From independent artisans carrying on different trades, they become detail labourers. At the same time, the social character of the labour embodied in the products becomes increasingly obvious.

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The development of manufacture from cooperation results in a further heightening of the productivity of labour. Each worker now repeatedly performs only a single, specific operation, and thus becomes very good at it. This process of ‘learning by doing’ contributes to increased productivity. Manufacture leads to increased labour productivity also through improvements in the instruments of labour, the tools of the worker: ‘The manufacturing period simplifies, improves and multiplies the instruments of labour by adapting them to the exclusively special functions of each detail labourer.’15 It needs to be noted here that in manufacture, the detail processes are still manual operations possessing the character of handicrafts, and therefore depend ‘on the strength, skill, quickness and sureness of the individual workman in handling his tools’.16 This also explains the fact that in manufacture it is the tools that are adapted to the functions of the detail labourer rather than the other way round. In both these respects modern industry is directly opposed to manufacture, as we shall see later on. Manufacture can be of the ‘assembly’ type – finished parts assembled together to provide a finished product, or of the ‘processing’ type – the product resulting from a series of connected processes performed on the basic raw material or ‘job’. The latter may be regarded as the more advanced or ‘perfected’ form of manufacture. Both forms, and especially the latter, develop in the workman and the work a certain continuity and regularity. This results from the fact that the product of each detail labourer is the ‘raw material’ for the next. The resulting dependence of the labourers on one another ‘compels each one of them to spend on his work no more than the necessary time’, and an ‘intensity of labour, of quite a different kind, is begotten than is to be found in an independent handicraft or even in simple cooperation’.17 The implications for relative surplus value production are obvious. Itself a combination of handicrafts, manufacture in turn gives rise to combinations of different manufactures. A primitive sort of ‘vertical integration’ emerges, whereby a large manufacturer begins to make in his own factory some of the instruments required. Marx cites the example of English glass manufacturers who made their own earthenware melting pots required in glass-blowing. Here again, the development is limited by the narrow handicraft basis of manufacture.

Social Division of Labour To sum up the effects of manufacture on productivity of labour as such and thus on relative surplus value production, we may note that through a division of labour which turned artisans into highly dexterous detail workers, and through some improvements in tools, manufacture led to higher pro-

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ductivity. We shall analyse its limitations in this regard later on. We turn now to an examination of the relationship that exists between the division of labour in manufacture and the division of labour in society. Like the division of labour in manufacture, that in society also has a two-fold origin. On the one hand, the natural or physiological divisions within the tribe based on age, sex and the like might develop into a systematic social division of labour. On the other, a social division of labour may arise on the basis of the gradual development of product-exchange relations between communities. Both the division of labour in society and that within the workshop in manufacture presuppose a certain degree of development of productive forces. Marx makes the interesting historical point that while the manufacturing period develops the division of labour in the workshop, the colonial system and the development of the world market (both of which spur the growth of manufacture) hasten the development of division of labour in society. There are, however, important differences between the two. Firstly, the division of labour in society is based on the fact that the products, for example, of the tanner and the shoe manufacturer, are commodities. But the division of labour in manufacture arises precisely from the fact that ‘the detail labourer produces no commodities’.18 Further, the social division of labour is made possible by the buying and selling of the products of different branches of production, whereas that in manufacture takes place when a number of different labourers sell their labour power to one and the same capitalist. Thus, while the former presupposes distribution or dispersion of the means of production among the different commodity producers, the latter requires concentration of the means of production in the hands of the individual capitalist. Thirdly, there is the contradiction between the a priori planning involved in the division of labour in the workshop, and the anarchy that prevails in the distribution of labour into the different branches of production. As Marx puts it: ‘The a priori system on which the division of labour, within the workshop, is regularly carried out, becomes in the division of labour within the society, an a posteriori, nature-imposed necessity, controlling the lawless caprice of the producers, and perceptible in the barometric fluctuations of the market prices.’19 The contradictory and absurd character of bourgeois ideology is best brought out in relation to this point: The same bourgeois mind which praises division of labour in the workshop, lifelong annexation of the labourer to a partial operation, and his complete subjection to capital, as being an organization of labour that increases its productiveness – that same bourgeois mind denounces with equal vigour every conscious attempt to socially control and regulate the process of pro-

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duction, as an inroad upon such sacred things as the rights of property, freedom and unrestricted play for the bent of the individual capitalist.20

The point that emerges from a historical study of many different social formations is that while the division of labour within society is common to many of these, the division of labour within the workshop, peculiar to manufacture, is a specific product of the capitalist mode of production. Manufacture, by developing the division of labour and splitting up handicraft-based labour processes into a number of detail operations, destroys the pre-capitalist artisan strata. These artisans now become mere detail labourers, one-sided and deficient in their overall development, even as the ‘collective labourer’, that is, all the workers in the workshop taken together, becomes more efficient and productive. In the course of its evolution, manufacture, with its needs for both simple and complex labour, creates the need for workers having different levels of education and training. As Marx puts it: ‘Manufacture, therefore, develops a hierarchy of labour powers, to which there corresponds a scale of wages.’21 Manufacture also involves some simple operations requiring no training at all, and common to almost all manufacturing processes. This leads to the development of a class of unskilled workers with no education at all, a class which handicraft industry did not possess and which is the specific creation of capitalist manufacture.

Class Character of Manufacture The political and ideological implications of these two developments – that of hierarchy of labour powers, and that of the sharp separation between skilled and unskilled – are indeed very important, and help one to understand the basis of opportunist and reformist trends in the working-class movement. The development of a class of unskilled labourers in addition directly contributes to relative surplus value by lowering the costs of reproduction of labour power (saving the expenses of apprenticeship). Manufacture makes production on a large scale both possible and necessary. It thus requires the capitalist to lay out a greater sum of money both for hiring an increased number of labourers (on account of the division of labour), and for purchasing raw materials and auxiliary materials (a greater quantity of which is consumed per unit of time now on account of the higher productivity of labour). Thus manufacture implies a larger and growing concentration of capital in the hands of each capitalist. The significance of such a tendency – a continuous increase in the minimum outlay of capital needed to engage in

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business – is that it extends ‘the transformation into capital of the social means of production and subsistence’. With the development of manufacture, the nature of production is at once increasingly social and increasingly capitalist. The evolution of manufacture and the increasing division of labour that accompany it lead progressively to a complete loss of the worker’s independence. Not only does manufacture develop a hierarchy of labour and turn the skilled artisan into a detail labourer, it also leads to a situation where the worker’s labour power is useless unless it can be sold to the capitalist: ‘By nature unfitted to make anything independently, the manufacturing labourer develops productive activity as a mere appendage of the capitalist’s workshop.’22 A most important consequence of capitalist manufacture is that it develops further the antagonism between mental and manual labour. The development of division of labour and the rationalization of the work process require, and in turn promote, the application of intellectual skills in production, while as a result of this very process, the work of the detail labourer is rendered dull, monotonous and purely reflexive. The capitalist relations of production create and heighten the antagonism between intellectual labour, the application of science and so on, on the one hand, and the simple manual labourer, on the other: It is a result of the division of labour in manufacture that the labourer is brought face to face with the intellectual potencies of the material process of production, as the property of another, and as a ruling power. This separation begins in simple cooperation, where the capitalist represents to the single workman the oneness and will of the associated labour. It is developed in manufacture which cuts down the labourer into a detail labourer. It is completed in modern industry, which makes science a productive force distinct from labour and presses it into the service of capital.23

To sum up, the historic role of the manufacture is two-fold. On the one hand, by developing the division of labour, improving the instruments of labour through specialization, and by reorganizing and regrouping the operations of the detail labourers, manufacture develops productive forces. It creates new productive forces by altering the social organization and division of labour, that is, by developing new production relations. But while it plays this historically progressive role, as capitalist manufacture it exhibits specific class characteristics: ‘It increases the social productive power of labour, not only for the benefit of the capitalist, instead of for that of the labourer, but it does this by crippling the individual labourers. It creates new conditions for the lordship of capital over labour.’24

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Limitations of Manufacture As a mode of producing relative surplus value, manufacture no doubt plays an important role. However, it emerges from Marx’s analysis of the British case that certain of its characteristic features place definite limits on its efficacy in this regard. First, while manufacture did create a separation of labourers into ‘skilled’ and ‘unskilled’, as well as a hierarchy of skills, it did not go very far in this direction. The class of unskilled labourers remained numerically small relative to that of the skilled ones. While the simple detail operations could certainly be performed by women and children, thus lowering wages, the possibilities here could not be adequately exploited on account of the fierce resistance offered by the male workers. Most important, since handicraft skill continued to be the basis of manufacture, the working class could still resist attempts to intensify exploitation and increase surplus value, compelling capitalists to ‘constantly wrestle with the insubordination of the workmen’.25 The narrow technical basis, implied by the continued importance of handicraft, is made impossible through a scientific analysis of the labour process because ‘each detail process gone through by the product must be capable of being done by hand, and of forming, in its way, a separate handicraft’.26 It is from these limitations of manufacture and from the objective conditions created by its very development that a far more powerful mode of producing relative surplus value historically emerged. The next chapter analyses this development which Marx calls ‘machinery and modern industry’. Notes and References 1

2 3 4 5 6

7 8 9 10 11 12 13 14 15 16 17

We are speaking here in somewhat general terms, for, clearly, there are many countries in the world today where the working class has not yet successfully completed this struggle. K. Marx, Capital, Vol. I, International Publishers, 1967, p. 315. Ibid., p. 317. Ibid., pp. 318–19. Ibid., p. 319. It also affects the ratio of surplus value to the total capital advanced by the capitalist, an aspect that will be taken up later. Marx, Capital, Vol. I, p. 326. Ibid., p. 329. Ibid. Ibid., p. 330. Ibid., p. 331. Ibid., p. 332. Ibid., p. 333. Ibid., p. 334. Ibid., p. 341. Ibid., p. 338. Ibid., p. 345.

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Ibid., p. 355. Ibid., p. 356. Ibid. Ibid., p. 349. Ibid., pp. 360–61. Ibid., p. 361. See also, in this connection, Harry Braverman, Labour and Monopoly Capital, Monthly Review Press, 1974. Marx, Capital, Vol. I, p. 364. Ibid., p. 367. Ibid., pp. 338–39.

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6 Machinery and Modern Industry

The transition from the dominance of absolute surplus value production to relative surplus value production begins with simple cooperation in the factory. It progresses further and more rapidly with the development of manufacture, and the extensive and intensive division of labour that accompanies it. However, despite its contribution to increased productivity, manufacture as such suffers from certain shortcomings which make them a constraint on the further and expanded production of relative surplus value. As we saw in the last chapter, the most important shortcoming is the continued and critical dependence of manufacture on handicraft skill. This implies a narrow technical basis, and severely limits the possibility of a systematic and scientific analysis of the individual labour process. The obstacles thus presented to the further development of the productivity of labour, and to relative surplus value production, were historically overcome in the most advanced capitalist country of Marx’s time, Britain, by the emergence of what he calls ‘machinery and modern industry’. The essence of this transformation consists in freeing the productive process from the restraints of human strength and scarce handicraft skills. With Marx, we may analyse the machine in general as consisting of three parts: the motor mechanism (the ‘drive’), the transmitting mechanism (for example, gears and crankshafts) and the tool (the cutter in a milling machine, for example). With the evolution of machinery and modern industry (of which the machine as such is only the starting point), two major consequences in the technique of production follow. A machine can bring into play a number of tools simultaneously using a single motor power, thus escaping ‘the organic limits that hedge in the tools of a handicraftsman’.1 Further, with the conversion of the tool from an implement manually handled by the _________ First published in Social Scientist, Issue 51, Vol. 5, No. 3, October 1976, pp. 47–59.

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skilled handicraft worker into an implement of a machine, ‘the motive mechanism also acquired an independent form, entirely emancipated from the restraints of human strength’.2 With this development, it becomes possible to have a single motive mechanism driving a number of machines simultaneously. With a single power source one can run a number of machines, each with its own transmitting mechanism and tool. These may be called ‘complex machinery systems’.

Machine-making Technology The phase of machinery and modern industry rests, to begin with, on its manufacturing foundations. The manufacture of its crucial component (the machine) was, at this stage, handicraft-based. To quote Marx, modern industry was crippled in its complete development, so long as . . . the machine owed its existence to personal strength and personal skill, and depended on the muscular development, the keenness of sight, and the cunning of hand, with which the detail workmen in manufactures, and the natural labourers in handicrafts, wielded their dwarfish implements.3

This led both to high cost and a necessarily low rate of expansion of production by machinery, in so far as the output of machines was constrained by the availability of highly skilled labour. Further development of modern industry required larger and larger prime movers, gears and shafting and tools, which the prevailing technical basis of manufacture and handicraft was incapable of producing. Similarly, the means of communication and transport handed down from the manufacturing period soon became unbearable trammels on modern industry, with its feverish haste of production, its enormous extent, its constant flinging of capital and labour from one sphere of production into another and its newlycreated connections with the markets of the whole world.4

Eventually, through a series of technical innovations – most crucially the slide rest and the steam engine, ‘a prime mover capable of exerting any amount of force, and yet under perfect control’ – machines came to be made by other machines and (relatively) unskilled labour.5 With this development, modern industry gradually came to conquer most branches of production in England, even as England was conquering much of the world and becoming the most advanced capitalist country. With this very brief and summary introduction to the relevant technical aspects of production by machinery we now turn to its various implications. The introduction of machinery and the development of modern industry greatly heighten the productivity of labour. At the same time, however, a

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great deal of labour goes into the making of machines and other instruments of labour used in modern industry. On the one hand, the increase in labour productivity would imply cheapening of commodities. On the other hand, the use of machines and modern tools would imply a much greater importance of constant capital (dead labour) in relation to variable capital (living labour) than before the advent of modern industry. The question arises as to what the implications of these two factors are for the values, and the composition of values, of commodities.

Impact on Value Composition The introduction of machines in the production of a commodity would only take place if the result is cheapening of the commodity. Thus, with the use of modern industrial methods in its production, the value of a commodity (the direct and indirect labour time socially necessary to produce it) will necessarily decline. The change in the value composition of the commodity, that is, the relative proportions of dead and living labour expended in its production, needs careful examination. Let us use a numerical example. A handwoven sheet of cloth of given dimensions and quality may have fifteen hours of labour time embodied in it, five hours of this labour time being directly expended in the weaving process, five hours contributed by the subject of the labour process (raw materials) and the remaining five hours by the instruments of labour used up in the weaving process. With the introduction of a modern weaving machine, the total labour time required to produce the cloth may be reduced to ten hours, of which two hours are the direct labour of weaving and three hours correspond to the used-up value of the new instrument of labour (the machine). The value contributed by the subject of the labour process, the raw material (yarn), remains the same as before, namely five hours, since no change has taken place in the method of producing it. Now let us compare the two situations. Before the introduction of the weaving machine, the ratio of indirect labour to direct labour was 2:1. After the machine is introduced this ratio becomes (5+3):3 or 4:1. At the same time, the total absolute value of indirect labour in the cloth has declined from 10 hours (5+5) to 8 hours (5+3). Thus we have the result that production by machinery leads not only to (i) a decrease in the value of the commodity and (ii) an absolute decrease in the constant capital component of this value, but also (iii) a relative increase of the constant capital component (in relation to the direct labour component). Since the value of the raw material entering the process is unchanged, we can agree with Marx when he puts the point thus: ‘An analysis and comparison of the prices of commodities produced by handicrafts or manufacturers, and of the prices of the same commodities produced by machinery, shows generally

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that, in the product of machinery, the value due to the instruments of labour increases relatively arid decreases absulutely.’6 We have argued above that a machine would come to be used in a production process only if its use reduces the total (direct and indirect) labour time required to produce the commodity under consideration. This means that ‘less labour must be expended in producing the machinery than is displaced by the employment of that machinery’.7 Within the capitalist mode of production, there is further constraint on the use of machinery. The capitalist pays the worker only the value of labour power. Let us once again use a numerical example to clarify the point. Let a machine take 100 labour hours to build. Let us assume that the rate of surplus value is 100 per cent. So, for every hour of labour expended by the worker, he receives half-hour of value. To buy the machine would cost the capitalist 100 hours of value since, by assumption, commodities are sold at their values. On the other hand, with the same amount of value expended in directly hiring workers, the capitalist can get the workers to expend 200 hours of direct labour in production. Therefore, the capitalist will find it worthwhile to buy the machine only if it will save more than 200 hours of direct labour over its useful life. As Marx puts it, for the capitalist, ‘the limit to his using a machine is fixed by the difference between the value of the machine and the value of the labour power replaced by it’.8

Effect on Working Conditions We now turn to some aspects of the impact of machinery and modern industry on the working class. The development of machinery makes possible the employment of women and children by lightening the work load, and by lowering or eliminating skill requirements. This vastly increases the supply of labour power and leads to a lowering of wages per worker. Prior to the introduction of machinery the value of labour power, an equivalent of which was paid to the worker as wages by the capitalist, had to suffice to reproduce the worker and his family. With the use of machinery, the whole family now works for the capitalist. But women and children are paid very little, and eventually, as a result of both the increase in the supply of labour power and the decline in the demand for it due to mechanization, the wages of men also decline. Thus, while the wage income of the worker’s family as a whole might increase since they all work, this increase is very little when compared with the total amount of labour now performed by the worker’s family for the capitalist. With the advent of machinery, the working class performs considerably more surplus labour for the capitalist class. Machinery thus serves to raise the degree of exploitation both through increased productivity of labour and through the increased supply of wage labour.

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Historically, machinery also leads to demands (often successful) for the lengthening of the working day. The capitalists are concerned that ‘valuable machinery’ should not be ‘wasted’ even for a minute, for with each passing minute, it depreciates through ageing and through the increased likelihood of being rendered obsolete. Further, while the use of machinery increases productivity, it also increases the ratio of constant to variable capital in the total capital outlay. This involves a basic contradiction in that while the mass of the surplus value is increased by the increase in productivity, the higher ratio of constant to variable capital works in the opposite direction. A sum of Rs 1,000 earlier laid out as Rs 600 constant and Rs 400 variable capital may have enabled the exploitation of 50 workers. With the machine this ratio may change to Rs 800 of constant and Rs 200 of variable capital, leading to only 25 workers being exploited with the same outlay of capital. Marx argues that this contradiction drives the capitalist, albeit unconsciously, ‘to excessive lengthening of the working day in order that he may compensate the decrease in the relative number of labourers exploited, by an increase not only of the relative, but of the absolute surplus labour’.9

Intensification of Labour The use of machinery and modern industry as means for production of relative surplus value thus brings with it the pressure for expanding absolute surplus value as well, through lengthening of the working day. However, for the reasons mentioned earlier – the developing organization of the working class in the class struggle, and the need for the reproduction of the working class to ensure the expanded reproduction of the capitalist mode itself – there arise inherent limits to lengthening of the working day. An alternative that has historically been pursued vigorously is the intensification of labour. This adds a new dimension to the measure of labour. Generally speaking, relative surplus value production takes place through increased productivity, with more being produced from a given expenditure of labour. Here we have a ‘hybrid’ case: an increase in productivity accompanied by an intensification of labour, that is, a greater actual expenditure of labour in a given period of time. The increased intensity is itself physically made possible only by the shortening of the working day. As the capitalist class once again attempts to increase this intensity beyond the new average, the pressure builds up for a shorter work day. Marx put the matter succinctly: There cannot be the slightest doubt that the tendency that urges capital, so soon as a prolongation of the hours of labour is once for all forbidden, to compensate itself, by a systematic heightening of the intensity of labour, and to convert every improvement in machinery into a more perfect means of

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exhausting the workman, must soon lead to a state of things in which a reduction of the hours of labour will again be inevitable.10

The factory becomes the dominant form of the unit of production in the phase of modern industry. The organization of production in the factory is, on the one hand, a marvel of cooperative and social labour. On the other hand, given its capitalist character, it is a monstrous instrument of efficient exploitation of labour. The relation between living labour and dead labour is one of complete domination of the former by the latter. Unlike in the ‘manufactory’, it is now the movement of machinery that dictates and regulates the motions of living labour. As Marx puts it, while in all capitalist production ‘it is not the workman that employs the instruments of labour, but the instruments of labour that employ the workman . . . it is only in the factory system that this inversion for the first time acquires technical and palpable reality’.11

Machinery and the Division of Labour Machinery replaces artisan skills and dexterity, and thus destroys the division of labour that characterized manufacture. As a result, the hierarchy of specially skilled workers is replaced by a new tendency to make all factory work uniform and of equally little skill. The distinction of skilled and unskilled workers, absent in handicrafts and introduced by manufacture, is here carried further where almost all manual workers are rendered relatively unskilled. While certain kinds of skills – the manual, handicraft ones – are being eliminated, there is an opposite tendency to create new kinds of ‘skilled’ labour. This has to do with the further separation of intellectual and manual labour, and the development of engineering and technological skills that require a period of formal education and practical training. The systematic application of science and technology to production, hastened and required by modern capitalist industry, implies the imparting of scientific education to a section of the working population. The requirements of capitalist industry for a mobile and elastic supply of labour to accommodate rapidly changing techniques of production lead to a spread of general education, a goal that is also fought for by the working class in the ongoing class struggle. Thus, while rendering large segments of the emergent working class unskilled by making their skills obsolete, capitalist modern industry also creates new divisions and antagonisms both within the working class, and between the working class and the strata of the petty bourgeoisie engaged in industrial employment. The conditions of the labour process in the modern factory – the uniform and regulating motion of the machinery to which the workers’ movements are subordinated, the continuity of the process and so

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on – require ‘the strictest discipline of labour’. This task is accomplished by the division of workers into a small minority of foremen and overseers, and a vast majority of exploited operatives, ‘private soldiers and sergeants of an industrial army’ as Marx puts it.12 Machinery becomes a powerful weapon of the bourgeoisie against the strike, that important defensive weapon of the working class. The capitalist repeatedly demonstrates to the workers that if they were to resort to strike to press demands, then, in the next round of battle, machinery will render them superfluous. By frequently rendering workers obsolete or superfluous, and by the vast and rapid changes it creates in the techniques of production and the relations between various branches of production, machinery heightens the alienation inherent in the capitalist mode of production: ‘the character of independence and estrangement which the capitalist mode of production as a whole gives to the instruments of labour and to the product, as against the workman, is developed by means of machinery into a thorough antagonism’.13

Problem of Unemployment Bourgeois political economists in Marx’s time had argued that machinery does not really displace labour. Even when machinery displaces labour in one branch of production, they argued, it simultaneously sets free an amount of capital adequate to employ the labour so displaced. Marx was quick to point out that this argument was erroneous. The value of the means of subsistence that would have been consumed by the now-displaced workers is what the bourgeois economists regarded as being ‘set free’. There is no reason at all why this sum should be invested elsewhere to provide employment for the same displaced workers. In fact, to provide employment, some part of this sum of value would have to be put into elements of constant capital, namely raw materials and instruments of labour. So, even if this sum is reinvested, it will necessarily fail to employ all the displaced labour. The correct analysis of the problem by Marx recognizes that machinery directly displaces labour. This may in fact lead to further unemployment through a decline in purchasing power and thus consumer demand, if the initial labour displacement takes place at more or less the same time to significant extents in a number of branches of production. At the same time, Marx points out, an alternative possibility must also be recognized. If the machinery that displaces labour reduces costs sharply enough to lead to a significant expansion of output, then, the impact on unemployment is mitigated somewhat. There is also the phenomenon of linkage effects. The use of machinery vastly increases production in two ways: (i) it increases production in the branch that supplies the machinery and thus provides

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some employment there; and (ii) the increase in productivity due to production of a commodity by machinery makes a much larger quantity of it available to the industry that uses this commodity as a raw material, thus providing some additional employment in that industry. An example of (i) is that the use of machinery in the production of textiles gives rise to the demand for textile machinery and provides some employment in the industry that builds textile machinery. An example of (ii) is that mechanized spinning greatly expands and cheapens the supply of yarn so that employment in the weaving industry increases. In any event, while the introduction of machinery may in some cases subsequently create sufficient ‘indirect’ employment to compensate for the direct labour displacement, Marx’s basic point remains: while the displaced labourers may find employment elsewhere, this ‘takes place only by the intermediary of a new and additional capital that is seeking investment, not at all by the intermediary of the capital that formerly employed them and was afterwards converted into machinely’.14

Market Competition and the Industrial Cycle Production by machinery leads to an enormous increase in surplus product, making possible increased production of luxury and non-essential goods. Expanded capitalist production on the basis of machinery gives rise to an increase in the number of capitalists and their ‘dependents’, the latter being various unproductive strata among the petty bourgeoisie who provide the market for these goods. The increase in the quantity and variety of the luxury products is ‘also due to new relations with the markets of the world, relations that are created by modern industry’.15 The increased productiveness of machine production makes possible, through these and other developments, an expansion in unproductive employment such as domestic services of certain kinds. Initially, modern industry, typified by the ‘factory system’, extends its sway by eliminating manufacturing and handicraft competition. Once the machine-building industry is itself mechanized and the general conditions for a modern industrial production system established, ‘this mode of production acquires an elasticity, a capacity for sudden expansion by leaps and bounds that finds no hindrance except in the supply of raw material and in the disposal of the produce.’16 This leads in turn to a new international division of labour, ‘a division suited to the requirements of the chief centres of modern industry . . . [which] . . . converts one part of the globe into a chiefly agricultural field of production, for supplying the other part which remains a chiefly industrial field’.17 Capitalist modern industry’s very elasticity, capability of rapid expansion

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and global sweep (dependence on world markets) make it highly susceptible to violent fluctuations. In other words, the crisis-prone and antagonistic character of the capitalist mode becomes increasingly obvious: The life of modern industry becomes a series of periods of moderate activity, prosperity, overproduction crisis and stagnation. The uncertainty and instability to which machinery subjects employment become normal, owing to these periodic changes of the industrial cycle. Except in periods of prosperity, there rages between the capitalists the most furious combat for the share of each in the markets.18

We have seen that modern industry, based on machine production, radically transforms the division of labour inherited from the manufacturing period. In place of the subjective principle of manufacture of the tools and process being adapted to the skills and dexterity of the workman, in modern industry, ‘the process as a whole is examined objectively in itself, that is to say, without regard to the question of its execution by human hands, it is analysed into its constituent phases; and the problem how to execute each detail process, and bind them all into a whole, is solved by the aid of machines, chemistry etc.’19 It thus constitutes a great potential advance in human history. Yet, precisely because of its capitalist character, it operates not as a means for lightening labour and making it more interesting, but quite the opposite. Even as it undermines the manufacturing division of labour which tied the worker to a monotonous detail function, it makes him now a mere ‘appendage of the machine’, although potentially it makes it possible for the worker to perform a variety of functions with equal ease. The capitalist factory economizes on the means of production, by neglecting safety conditions and intensifying labour. The capitalist employment of machinery leads initially to a lengthening of the working day, not (as would be ‘rational’ in some sense) to its shortening. It leads to unemployment and to a feeling of powerlessness over one’s environment, especially as it leads to sharper and more frequent crises.

Modern Industry in Perspective One could go on to list the other contradictions of capitalist modern industry, but it suffices here to reproduce an extract of Marx’s caustic comments on bourgeois apologists for the factory system: Since therefore machinery, considered alone, shortens the hours of labour, but, when in the service of capital, lengthens them; since in itself it lightens labour, but when employed by capital, heightens the intensity of labour; since in itself it is a victory of man over the forces of Nature, but in the hands of

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capital, makes man the slave of those forces; since in itself it increases the wealth of the producers, but in the hands of capital, makes them paupers for all these reasons and others, says the bourgeois economist . . . all these contradictions have neither an actual nor a theoretical existence. . . . Any employment of machinery, except by capital, is to him an impossibility. Exploitation of the workman by the machine is therefore, with him identical with exploitation of the machine by the workman.20

Marx’s merciless exposure of the antagonistic and contradictory nature of capitalist employment of machinery by no means leads him to a denial of its progressive aspects, or to a romanticization (uncritical praise and approval) of handicraft methods, as well as other non- and pre-scientific methods of production. In fact he makes the important point that exploitation of workers ‘is more shameless in the so-called domestic industry than in manufactures, and that because the power of resistance in the labourers decreases with their dissemination; because a whole series of plundering parasites insinuate themselves between the employer and the workman’.21 Manufacture cripples the worker by making him a detail labourer for life. Secondly, with its rapid technical changes and frequent crises that change the structure of production (the relative importance of different branches of production), modern capitalist industry compels society . . . to replace the detail worker of today, crippled by lifelong repetition of one and the same trivial operation, and thus reduced to the mere fragment of a man, by the fully developed individual, fit for a variety of labours, ready to face any change of production, and to whom the deferent social functions he performs are but so many modes of giving free scope to his own powers.23

The beginnings of this process, says Marx, is the establishment of technical and agricultural schools which attempt to combine manual labour with some training in science and technology. The revolutionary aspect of this process is of course directly opposed to capitalist relations, but this only emphasizes Marx’s methodological injunction that ‘the historical development of antagonisms, immanent in a given form of production, is the only way in which that form of production can be dissolved, and a new form established’.24 Thirdly, while capitalist modern industry exploits women and children with its customary brutality in the factory, by assigning an important part in the process of production, outside the domestic sphere, to women, to young persons, and to children of both sexes [it] creates a new economic foundation for a higher form of the family and of the relations between the sexes . . . the fact of the collective working group being

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composed of individuals of both sexes and all ages must necessarily, under suitable conditions, become a source of humane development.25

Similarly, the impact of modern industry on agriculture is two-fold, at once destructive and potentially progressive. By its rapid and anarchic urbanization, ‘it disturbs the circulation of matter between man and the soil, that is, prevents the return to the soil of its elements consumed by man in the form of food and clothing, it therefore violates the conditions necessary to lasting fertility of the soil.’26 Further, progress in capitalistic agriculture, like that in industry, occurs through the intense and destructive exploitation of labour. Thus it contributes to ‘sapping the original sources of all wealth – the soil and the labourer’.27 At the same time, by concentrating the population in great centres, it enables the organization of the working class, creating the potential for restoring the health of both man and soil through a social revolution and the consequent birth of a new society that is ‘appropriate to the full development of the human race’.28

A Recapitulation In the last chapter we introduced the concept of relative surplus value (RSV), and the need for RSV production that arises in the course of capitalist development due to both the intense competitive struggle among capitalists and the limits imposed on the length of the working day by working-class struggles. We have now examined the major means of RSV production: simple cooperation, division of labour and manufacture, and machinery and modern industry. Some qualifications are essential. While, analytically, we treated absolute and relative surplus value successively, we do not by any means intend to suggest a strict chronological sequence here. Certainly, in the case of the first modern capitalist country, Britain, this sequence has both logical and historical validity. But as soon as capitalist forces become international, one must recognize that there need not be any automatic transition from the dominance of absolute surplus value production to that of RSV. This question is intimately tied up with questions concerning the character of capitalist development in dominated countries in the era of imperialism: whether or not, through RSV production, capitalist forces develop productive forces in dominated countries in a fashion at all similar to the now-advanced capitalist countries. Similarly, in following Marx’s classification of means of RSV production, we neither intend to suggest a strict chronology of these from handicraft methods to modern methods of production. Marx himself recognized ‘a medley of transition forms’, but pointed out that in the case of Britain, this variety ‘does not conceal the tendency to conversion into the factory

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system proper’.29 There has been enormous progress in science and technology, including the harnessing of electric, hydel and nuclear power, not to speak of oil and petrochemical industries, electronics, automation, and so on. But the basic points made by Marx still remain: the thirst of capital for more and more (relative and absolute) surplus value; the use of machinery and technological progress not for lightening the labour of working people but for intensifying labour (‘runaway’ electronic plants and sweatshops set up by transnational corporations in various ‘third world’ countries such as Mexico, Taiwan and South Korea); the systematic neglect of safety measures, and heavier tolls each year in terms of lives and injuries of workers all over the world; the wholesale plundering and ecological destruction of the world, led by capitalist US, a process so brilliantly predicted by Marx;30 and, at the same time, the spread of general education, albeit unevenly; the advancement of material and cultural standards of living, although again unevenly; and, most important, the development of powerful working class and socialist movements that contain the potential for restoring the harmonious relationship between Man and Nature, and ensuring the humane development of which Marx wrote. It hardly needs stressing that the specific dynamics of relative surplus value production traced out from Marx’s analysis is not meant to be either an ‘automatic’ phenomenon or a universally valid ‘scheme’. On the contrary, our discussion has shown clearly how intimately particular modes of development of labour productivity, and advances in science and technology, are tied to the concrete conjuncture, namely the state and dynamics of class struggle in a particular historical situation, the connection of the social formation with the international economy, and so on.31 Notes and References 1 2 3 4 5 6 7 8 9 10 11 12

K. Marx, Capital, Vol. I, International Publishers, 1967, p. 374. Ibid., p. 378. Ibid., p. 382. Ibid., p. 384. Ibid., p. 385. Ibid., p. 390. Ibid., p. 392. Ibid. Ibid., p. 407. Ibid., p. 417. Ibid., p. 423. The relations of authority, hierarchy and domination that prevail in the capitalist factory is a particularly glaring example of the hypocrisy of bourgeois ideology. To quote Marx: ‘The factory code in which capital formulates . . . autocracy over . . . workpeople, unaccompanied by that division of responsibility, in other matters so much approved by the bourgeoisie, and unaccompanied by the still more approved representative system, this code is but the capital-

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13 14 15 16 17 18

19 20 21 22 23 24 25 26 27 28 29 30

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istic caricature of that social regulation of the labour process which becomes requisite in cooperation on a great scale, and in the employment in common, of instruments of labour and especially of machinery.’ Ibid., p. 424. Ibid., p. 432. Ibid., p. 440. Ibid., p. 445. Ibid., pp. 450–51. Ibid., p. 451. In the specific case of British capitalist development, Marx shows how the severe competition between capitalists, the development of colonial and other external markets, the factory legislation (fought for by the working class), and other factors led to the decline of manufacture, handicrafts and the so-called domestic industry in their confrontation with production by machinery. Marx, Capital, Vol. I, p. 380. Ibid., p. 441. Ibid., p. 462. Ibid., p. 486. Ibid., p. 488. Ibid. Ibid., pp. 488–90, emphasis added. Ibid., p. 505. Ibid., p. 507. Ibid., p. 506. Ibid., p. 473. ‘The more a country starts its development on the foundation of modern industry, like the United States, for example, the more rapid is this process of destruction.’ Ibid., p. 506. The point made here highlights also the distinction between the concept of a ‘mode of production’ and that of the ‘social formation’. At the level of the mode of production, one can theoretically specify its tendencies (for instance, in relation to division of labour), but the historical working out of these tendencies and their counter-tendencies takes place within the concrete social formation, and thus the conjuncture enters as one of the determining elements. For an analysis of developments in the capitalist division of labour since Marx’s time, see H. Braverman, Labour and Monopoly Capital, Monthly Review Press, 1974.

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7 Wages, Value of Labour Power and Rate of Surplus Value

In the preceding three chapters we saw how surplus value arises in production. We also developed the concepts of absolute and relative surplus value, and of the means by which the production of absolute and relative surplus value takes place. It may be recalled that absolute surplus value is produced by elongation of the working day beyond the point at which the labourer has produced an amount of value equivalent to the value of his labour power. It thus ‘forms the general groundwork of the capitalist system, and the starting point for the production of relative surplus value’.1 For, production of relative surplus value presupposes a division of the working day between necessary and surplus labour, and thus a lengthening of the working day beyond necessary labour; that is, it presupposes production of absolute surplus value. Relative surplus value is produced by shortening necessary labour time, that is, by decreasing the portion of a working day of given length that is expended in reproducing labour power. This occurs primarily through technical changes that increase the productivity of labour. So, for relative surplus value production to be at all significant, techniques must be constantly ‘revolutionized’. This requires as its basis the capitalist mode of production. Viewing the matter in terms of the organization of the labour process, for production of absolute surplus value it is sufficient that the producers organized as wage labourers be brought under the direct control of the capitalist who supervises the labour process but does not change it, to begin with. Marx calls this ‘formal subjection of labour to capital’. For instance, a merchant might provide the raw material to workers from peasant families who would make the product, say, baskets, at their homes, and then sell the product back to the merchant. Now, if the merchant turns into a capitalist and brings the basket producers under one roof, and they produce baskets _________ First published in Social Scientist, Issue 52, Vol. 5, No. 4, November 1976, pp. 46–57.

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just as before although the techniques of production as such have not changed, there has been a change in the relations of production. We now have the formal subjection of the basket weavers as wage labourers to a capitalist. Relative surplus value production, however, is the product of, and in turn reinforces, the real subjection of labour to capital, since it involves changes in the methods of production, and thus in the labour process. While their analytical differences are no doubt important, absolute and relative surplus values are nonetheless species of the same genre, namely surplus value. In this chapter, we shall investigate the laws governing the rate of surplus values under conditions of both absolute and relative surplus value production. We shall then examine the relationship between the value of labour power and wages, and briefly discuss various wage forms and national differences in wages. Finally, we shall offer some remarks by way of introduction to the crucial subject of the accumulation of capital.

Rate of Surplus Value Let us recall that the rate of surplus value is the ratio of surplus labour to necessary labour. A change in the rate of surplus value can thus take place through a change in either surplus labour or necessary labour, or both. Such changes depend in turn on changes in the length of the working day, the productiveness of labour and the intensity of labour. We may identify three ‘pure’ cases. (i) Intensity of labour and length of the working day are given and constant. In this case, a change in the rate of surplus value can occur only through a change in the productivity of labour. When the productivity of labour increases, the value of labour power and thus necessary labour goes down. So surplus labour, which is the length of the working day minus necessary labour, goes up, and so does the rate of surplus value. Here surplus value and value of labour power move in opposite directions. It is important to note, however, that even as the rate of surplus value increases due to increased productivity (and the consequent decline in the value of labour power) it is still perfectly possible for the mass of articles consumed by the worker, that is, his ‘standard of living’, to go up. This can happen to the extent that the price of labour power (wages reckoned in terms of the money commodity) stays above the now reduced value of labour power. To give a numerical example, let the working day be ten hours, equal in money terms to Rs 40. Let the value of labour power be five hours, equal to Rs 15. To begin with, let the wage (the money price of labour power) be equal to the value of labour power, that is, Rs 15. Now let an improvement in productivity take place that reduces necessary labour to three hours, equal

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to Rs 9. If the price of labour power does not decline to its new value but only to Rs 12, equal to four hours, we have the result that (a) the rate of surplus value has gone up (7/3 as against 5/5), but yet (b) the goods and services that can be consumed by the worker also go up. As Marx puts it: ‘In this way, it is possible with an increasing productiveness of labour, for the price of labour power to keep on falling, and yet this fall to be accompanied by a constant growth in the mass of the labourer’s means of subsistence.’2 One can see from this quote how absurd it is to ascribe to Marx any theory of declining real wages.3 One aspect of what Marx means by ‘immiserization of the working class’, an expression misinterpreted by many to mean declining wages, becomes clear in the sentence immediately following the above quote: ‘But even in such case, the fall in the value of labour power would cause a corresponding rise of surplus value, and thus the abyss between the labourer’s position and that of the capitalist would keep widening.’ Marx’s analysis in this context also makes clear that the price of labour power (wages), as distinct from the value of labour power, is influenced to some extent by immediate and particular circumstances, especially ‘the pressure of capital on one side, and the resistance of the labourer on the other’.4 (ii) The productivity of labour and the length of the working day are kept constant. In this case, an increase in the rate of surplus value is brought about by an increase in the intensity of labour. A working day of higher intensity contains more value than a working day of some length but normal intensity. The greater intensity of labour leads to more rapid consumption of labour power, that is, a greater expenditure of energy by the worker, and hence to a higher value of labour power. Thus, often, an increase in the wage to compensate for speed-ups conceals a decline of it relative to the new, higher value of labour power. If the new level of intensity becomes general, that is, comes to prevail in all or most branches of production, it ceases to be a source of additional surplus value. One must keep in mind, however, that international differences in labour intensity may still persist, even though within a given national economy there exists a tendency toward uniform intensity. (iii) Let the intensity of labour and its productivity be held constant. Here, an increase in surplus value (and its rate) necessarily takes place only through a lengthening of the working day. This of course implies, as in case (ii), an increased wear and tear of labour power, and thus an increase in its daily value. Thus, here as in case (ii), surplus value and value of labour power move in the same direction. To some extent, increased wages (overtime allowance and so on) can compensate for the increased wear and tear of labour power that occurs during a longer working day. But it must be clearly recognized that, beyond a certain point, wage increases will not suffice to compensate for the increased exhaustion of labour power, with the

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result that: ‘The price of labour power and the degree of its exploitation cease to be commensurable quantities.’5 It is obvious that case (i) represents ‘pure’ relative surplus value production, while case (iii) represents ‘pure’ absolute surplus value production, as does case (ii). In practice, however, changes often occur not just in one of the three determinants – productivity of labour, intensity of labour and length of the working day – of the rate of exploitation, but in all of them simultaneously. The historically dominant trend in the presently advanced capitalist countries has been one of ‘increasing intensity and productiveness of labour with simultaneous shortening of the working day’.6 That ‘advanced capitalism’, far from giving up pursuit of surplus value and profit and ‘converging’ towards socialism, as alleged by the pretentious Galbraiths of bourgeois wisdom, attempts in fact to increase intensity of labour as much as possible through speed-ups and the like was demonstrated in the strike at the General Motors’ plant in Lordstown, Ohio, US (in the mid1970s). The whole question of speed-up, Taylorism and so on has been brilliantly analysed by Harry Braverman.7

Capitalist ‘Efficiency’ We have seen that capital everywhere economizes on labour (and means of production) in its attempt to produce relative surplus value. This fact is presented as the ‘efficiency’ and ‘rationality’ of capitalist production by bourgeois apologists. But such claims ignore the total inefficiency and wastefulness of the system at the social level. As Marx puts it: The capitalist mode of production, while on the one hand, is enforcing economy in each individual business, on the other hand, begets, by its anarchical system of competition, the most outrageous squandering of labour power and of the social means of production, not to mention the creation of vast number of employments, at present indispensable, but in themselves superfluous.8

The point needs to be emphasized that the technical revolutions that heighten productivity of labour can potentially liberate humanity from hard and wasteful toil. Scientific and technological progress constantly reduces necessary labour time, but it is only by abolishing the capitalist mode of production that the working day can be reduced to necessary labour time. However, as Marx points out, this ‘necessary labour’ would be greater in a socialist society for two reasons: On the one hand, because the notion of ‘means of subsistence’ would considerably expand, and the labourer would lay claim to an altogether different standard of life. On the other hand, because a part of what is now surplus

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labour, would then count as necessary labour; I mean the labour of forming a fund for reserve and accumulation.9

Quite apart from the question of higher productivity, a society offers individuals more time for intellectual and social development, ‘in proportion as the work is more and evenly divided among all the able-bodied members of society, and as a particular class is more and more deprived of the power to shift the natural burden of labour from its shoulders to those of another layer of society’. This is indeed the most crucial point, for in capitalist society ‘spare time is acquired for one class by converting the whole lifetime of the masses into labour time’.10 This is the real content of capitalist ‘efficiency’.

Value of Labour Power and Wages In our discussion of the rate of surplus value earlier we saw that wages, or the price of labour power, could be different from the value of labour power, due to immediate and particular circumstances – for example, temporary fluctuations in demand and supply of labour power, and so on. Far more important than the quantitative difference between wages and the value of labour power (which is merely a particular example of the general principle that the price of a commodity often deviates from its value) is the qualitative change involved in the transition from the concept of ‘value of labour power’ to that of wages as ‘the price of labour’. In everyday use, ‘wages’ are conceived of as the ‘price of labour’. But if wages are the ‘price of labour’, then presumably ‘labour’ is the commodity of which wages are the price. But what is this commodity ‘labour’? If ‘labour’ is a commodity, surely it must have value. Value is itself abstract labour and is measured as the labour time socially necessary to reproduce the commodity. So the ‘value of labour’ is the labour time required to reproduce ‘labour’! But clearly, this is an absurd and tautological statement. How does one ‘produce’ labour? Once this question is raised, the problem with the notion of ‘value of labour’ becomes clear. What the labourer sells to the capitalist is not ‘labour’ but the commodity, labour power. Marx explains the matter as follows: That which comes directly face to face with the possessor of money on the market, is in fact not labour, but the labourer. What the latter sells is his labour power. As soon as his labour actually begins, it has already ceased to belong to him it can therefore no longer be sold by him. Labour is the substance and the immanent measure of value, but has itself no value.11

Thus the concept of ‘value of labour’ is utterly irrational and imaginary.

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Nonetheless, this is an important illustration of the concept of fetishism (the contradiction between ‘appearances’ or ‘phenomena’, on the one hand, and their ‘essences’ or underlying reality, on the other): ‘These imaginary expressions arise . . . from the relations of production themselves. They are categories for the phenomenal forms of essential relations.’12

Limits of Classical Economy The formulation of the concept of ‘labour power’ as the commodity that the worker sells to the capitalist is a major step taken by Marx on the way to his discovery of the theory of surplus value. Surplus value follows quite logically once the value of labour power is identified and deducted from the length of the working day. Classical political economists (Smith, Ricardo et al.) could not develop a consistent and systematic doctrine of surplus value precisely because of their failure to distinguish between labour and labour power. This was so despite the fact that Ricardo very nearly gets to ‘the true relation of things’. The methodological point here is well worth emphasizing. The classical economists started with the question, ‘What is the price of labour?’, taking over uncritically the category ‘price of labour’ from everyday popular use. In the course of answering this question, they realized that ‘the natural price of labour’ (its price abstracting from transient fluctuations of demand and supply) was determined by the cost of reproducing the labourer. Thus, as Marx puts it, the question ‘“What is the cost of production of the labourer?” unconsciously substituted itself in political economy for the original one; for the search after the cost of production of labour as such turned in a circle and never left the spot.’13 The point of method is simply this: classical political economy, because of its analytical framework, was unable to pose the question that Marx was able to pose, and which led Marx to the theory of surplus value. The concept of labour power could not be developed within the problematic (loosely speaking, the theoretical) framework of classical political economy. We see, then, that wages are nothing but the price of labour power. But the transformation of the value and price of labour power into the form of wages gives rise to important ideological consequences. Take, for instance, the typical form of wages, the daily (or weekly or hourly) wage. Let us consider a worker being paid Rs 8 for a day’s work in the factory. The wageform falsely suggests that the worker is being paid for the whole day’s work, for every hour that he works. If he works eight hours, the wage may be reckoned as Re 1 per hour. The fact that at the end of a part of the working day (say, four hours) he has already repaid the capitalist for the wage, and for the rest he performs unpaid labour, is completely obliterated:

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The wage form thus extinguishes every trace of the division of the working day into necessary labour and surplus labour into paid and unpaid labour. All labour appears as paid labour. . . . Hence . . . the decisive importance of the transformation of value and price of labour power into the form of wages, or into the value and price of labour itself. This phenomenal form, which makes the actual relation invisible, and, indeed, shows the direct opposite of that relation, forms the basis of all the juridical notions of both labourer and capitalist, of all the mystifications of the capitalist mode of production, of all its illusions as to liberty, of all the apologetic shifts of the vulgar economist.14

Let us turn now to a brief discussion of various forms of wages and of national differences in wages.

Wage Forms There are two major forms of wage payment that are of interest to us, timewages and piece-wages. Time-wages, as the term suggests, are paid on a time basis, for instance, hourly or daily wages. Piece-wages are paid in terms of a given amount of money for each article produced. Each form has its own economic and ideological effects. The time-wage, as we have already seen, gives the false impression that all labour is paid labour. Secondly, by increasing the intensity of labour, the capitalist can lower the price of labour power even in relation to its value, even though the hourly money wage remains the same (for we now have a greater expenditure of labour power in a given time), and extract a higher rate of surplus value. Hourly wages bring with them the possibility of parttime employment. This has important consequences. The capitalist can now extract surplus value from the worker without having to pay him the daily value of labour power by employing him just for a part of the working day. To quote Marx: The capitalist can now wring from the labourer a certain quantity of surplus labour without allowing him the labour time necessary for his own subsistence. He can annihilate all regularity of employment, and according to his own convenience, caprice, and the interest of the moment, make the most enormous overwork alternate with relative or absolute cessation of work.15

However, the attempt to increase the rate of surplus value through increased intensity, part-time employment, lengthening of the working day and so on, creates in turn intense competition among the capitalists. Marx illustrates one consequence of this competition among capitalists by citing the complaint of some bread manufacturers that their competitors are undercutting them by paying very poor wages to their workers.

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Piece-wages also mystify the distinction between paid and unpaid labour. Further, they intensify competition among workers. Since each worker’s remuneration depends on the number of pieces turned out by him, he tries to produce as many pieces as he can in a given time. This leads to great intensification of labour and also to competition among workers. This greater exertion by the worker subsequently leads to a revision of the norms which provide the basis for fixing the piece-wage, effectively reducing the worker’s remuneration. Further, since the form of the wage itself compels the worker to intensify his labour, the need for overseeing and controlling the process is reduced. Thus the capitalist is enabled to save on costs of superintendence. Piece-wages also lead to modern forms of ‘domestic labour’, analogous to the ‘putting out’ system that was referred to earlier. This has two possible consequences, both of which have been historically observed: On the one hand piece-wages facilitate the interposition of parasites between the capitalist and the wage labourer, the ‘subletting of labour’. . . . On the other hand piece-wage allows the capitalist to make a contract for so much per piece with the head labourer . . . at a price for which the head labourer himself undertakes the enlisting and payment of his assistant workpeople. The exploitation of the labourer by capital is here effected through the exploitation of the labourer by the labourer.16

Both piece- and time-wages are predicated on the same relation between the capitalist and wage labourer – the relation of exploitation. At the same time, relations between labourers differ somewhat, piece-wages accentuating individual differences between them and enhancing competitiveness among them. Even as it plays this negative role, ‘the wider scope that piecewage gives to individuality tends to develop that individuality, and with it the sense of liberty, independence, and self-control of the labourers’.17

Wage Differences Finally, we turn to the question of national differences in wage to round out our discussion of wages. It will be recalled that included in the value of labour power is a so-called ‘moral and historical’ element. This moral and historical element refers especially to the specific conditions of existence of the class from which the working class is formed. What holds for the value of labour power holds also for the national differences of wages: In the comparison of the wages in different nations, we must therefore take into account all the factors that determine changes in the amount of the value of labour power: the price and the extent of the prime necessaries of life as naturally and historically developed, the cost of training the labourers, the

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part played by the labour of women and children, the productiveness of labour, its extensive and intensive magnitude.18

Quite apart from the differences in the value of labour power and wages among different countries, the differences in labour productivity imply modifications in the law of value applied to international exchanges of commodities. An hour of the more productive labour of, say, an advanced capitalist economy counts for more than an hour of the less productive labour of, say, an underdeveloped economy. As capitalist production develops in a country, the productivity of labour in that country rises in international comparison. An important consequence of the higher productivity of labour that characterizes a developed one is that the wage rate can be much higher in the advanced economy, and yet the rate of surplus value can also be higher in that economy in relation to the less developed one. For instance, the standard of living (and thus also the real wage) of the average worker in the US is much higher than that of the average worker in the Indian industry. At the same time, however, the productivity of labour is also far higher in the US. This could well give rise to the situation that during a working day of eight hours in the US, the worker produces a value equivalent to that of his labour power in two hours, while in India, the worker must spend half of his nine-hour working day to produce a value equivalent to that of his miserable subsistence. Thus the rate of surplus value in the US may be 400 per cent (8/2) while that in India may be only 100 per cent (41/2 / 41/2), even though the real wage in terms of the mass of various goods and services consumed is far higher in the US. Marx makes precisely this point when he says that it will be found, frequently, that the daily or weekly . . . wage in the first (more productive) nation is higher than in the second, whilst the relative price of labour, that is, the price of labour as compared both with surplus value and with the value of the product, stands higher in the second than in the first.19

It is important, in this context, to note that higher productivity of labour merely makes possible higher real wages. Bourgeois economists and spokesmen repeatedly assert that wages are determined by the productivity of labour (or that wages should be tied to productivity), in the sense that ‘what the worker gets is in accordance with what he produces’. Marx’s position, on the contrary, is that wages have little direct association with productiveness of labour, but fluctuate around the value of labour power. This latter is a function both of the productivity of labour and the historical conditions in which the working class is formed (the so-called ‘historical and moral’ element). As Marx states in his attack on Carey, ‘Carey tried to prove that . . . wages everywhere rise and fall in proportion to the productiveness of labour.

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The whole of our analysis of the production of surplus value shows the absurdity of this conclusion.’20

A Recapitulation In this series of chapters on Marx’s analysis of the capitalist mode of production, we have so far developed what we may call the ‘building blocks’ required for the analytical structure. We started with the commodity as the ‘cell’ so to speak, of capitalist production, the latter being nothing but the generalization and the highest development of commodity production. We found that the commodity is both a value and a use value; viewed in terms of social relations, it embodied a certain portion of total social labour, and thus it was a value, a congelation of abstract labour or labour-in-general. Viewed as a specific object, possessing certain natural properties, it was a use value, a product of a specific kind of labour, or concrete labour. Quantitatively, value is the amount of socially necessary labour time required to reproduce the commodity. Understanding the concept of value both in its qualitative sense and in its quantitative sense, we studied the link between the concept of value and that of the fetishism of commodities. The latter concept was a means to understanding how in commodity (and especially capitalist) production, appearances completely mystify and even invert reality. We then proceeded to analyse the circuit of capital, M–C–M’ with the help of the concept of value. Recalling that value expresses itself as exchange value (which is why Marx calls the latter the phenomenal form of value), we assumed, for the purposes of our initial analysis of the circuit of capital, that commodities exchange at their values. In the course of our analysis, we found out the ‘secret’ of surplus value. Surplus value was seen to originate in production, and was the result of the difference between the length of the working day and the value of labour power. Thus surplus value arises from the peculiar property of labour power, the commodity that the worker sells to the capitalist, namely that its expenditure creates more value than is required to reproduce it. For the capitalist class, then, the working class is ‘the goose that lays the golden eggs.’ The ceaseless quest of the capitalist class for surplus value, and the course of the class struggle between labour and capital give rise to various means of surplus value production and these can theoretically be analysed with the categories of absolute and relative surplus value. In the last three chapters, and in the earlier part of the present one, we have elaborated this analysis. It is now time to bring the various analytical strands and categories together, to apply them to an analysis of the central aspect of the capitalist mode of production. It is to this task that we shall turn in the next chapter. We shall

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now make some preliminary remarks, to indicate the limits of our analysis as we shall present it next.

Accumulation of Capital The circuit of capital commences with the step M–C, or, specifically, LP M MP where M stands for money, LP for labour power and MP for means of production. This step takes place in the sphere of circulation. The next stage, C–P–C’, is the production process, complete as soon as the raw materials are converted, using the instruments of labour, into a new product by the workers. Potentially, this commodity-product C’ contains surplus value. But for it to actually become ‘expanded value’, that is, for the (potential) surplus value to be actually realized, this product must go into the market and be sold at a value exceeding the initial value laid out in its production. This is step 3, C’–M’. It is the constant and successive repetition of these three phases (M–C, C–P–C’ and C’–M’) that constitutes the circulation of capital. We shall assume, in our subsequent analysis, that the phases of circulation M–C and C’–M’ are effected in an uninterrupted fashion, and we shall focus on the production phase, C–P–C’, alone. This means that we retain the assumption that commodities exchange at their values; and that the problems arising in the conversion of money into the constituent (constant and variable) elements of productive capital, and the reconversion of the produced commodity into money, have to be considered later. It needs to be kept in mind of course that these problems do exist and periodically lead to ‘crises’ of certain kinds. Secondly, capitalist society does not consist only of capitalists and workers who produce surplus value for the capitalists. The capitalist who extracts surplus value from his workers must share it with other capitalists, and also with landlords and all other unproductive strata who fulfil various functions in society as a whole. In the analysis that follows we shall not, for the time being, go into the division of social surplus value into rent, interest, profit on merchant capital, profit on industrial capital and so on. These issues are taken up later on. To begin with, therefore, we shall consider capitalist accumulation ‘from an abstract point of view, that is, as a mere phase in the actual process of production’.21 The procedure we are adopting is necessary for a correct analysis for two reasons. The production phase of the circuit of capital, C–P–C’, is absolutely essential to the expansion of value which is the defining characteristic of capital: surplus value can be realized in society as a whole (and distri-

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buted among the exploiting classes and unproductive strata) only when it has first been produced. Secondly, the simple fundamental form of the process of accumulation is obscured by the incident of circulation that brings it about and by the splitting up of surplus value. An exact analysis of the process, therefore, demands that we should, for a time, disregard all phenomena that hide the play of its inner mechanism.22

So we must first study the essence of the problem and then develop the more complex ‘determinations’. With these qualifying remarks in mind, we shall proceed to an analysis of capitalist accumulation. Notes and References 1 2 3

4

5 6 7 8 9 10 11 12 13 14 15 16 17 18

19 20 21 22

K. Marx, Capital, Vol. I, International Pulishers, 1967, p. 509. Ibid., p. 523. See, for instance, Joan Robinson, An Essay on Marxian Economics, Macmillan and Co., 1942, or almost any bourgeois economics textbook that refers to Marx. Marx, Capital, Vol. I, p. 523. The deviation of prices of commodities from their values, while seemingly ‘contradicting’ the law of value, in fact is the means through which the law of value expresses itself. Marx develops this point both in the chapter on money in Capital, Vol. I and also in Vol. III, and we shall have more to say on this later on. Marx, Capital, Vol. I, p. 527. Ibid., p. 530. See H. Braverman, Labour and Monopoly Capital, Monthly Review Press, 1974. Marx, Capital, Vol. I, p. 530. Ibid. Ibid. Ibid., p. 537. Ibid. Ibid., p. 538. Ibid., pp. 539-40. Ibid., p. 546. Ibid., pp. 553–54. Ibid., p. 555. Ibid., p. 559. The importance of the labour of women and children must especially be underlined in the case of the neocolonial countries of the ‘third world’, where males drawn into the industrial working class from the rural areas leave their families behind. The women and children of the family continue to try and produce their own subsistence, and the capitalist has to pay the worker only to reproduce himself and not the whole family. Ibid., p. 560. Ibid., p. 563. Ibid., p. 565. Ibid.

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8 The Process of Capitalist Accumulation

We now begin our exposition of Marx’s analysis of the process of capitalist accumulation. Before proceeding to the analysis proper, let us briefly recall the conditions under which the problem of accumulation is being analysed. We consider only the production phase of the circuit of capital, C–P–C’. The phases M–C and C’–M’ belong to circulation, and we abstract for the time being from the problems arising in the sphere of circulation or commodity exchange. Specifically, we assume that the phases of circulation, that is, the conversion of money into commodities and vice versa, are effected without any interruption, and that commodities continue to exchange at their values. We are thus focusing solely on the production phase and wish to examine the laws governing the operation of this phase. We had examined the phase C–P–C’ in our analysis of the capitalist labour process and found that it was in this phase that surplus value originated. We shall now examine the phase C–P–C’ not in terms of the circuit of an individual labour process (involving one capitalist and the workers hired by him), but in terms of total social capital. The best way to do this is to examine how the process of creation of surplus value from capital is reproduced in society, year after year. What we shall study, then, is social reproduction. Here we may distinguish two possibilities. In society as a whole, the working class produces a certain total mass of surplus value, and this surplus value is appropriated by the capitalist class. Now, the capitalists among themselves can consume immediately the entire surplus value. In this case, the total stock of means of production at the disposal of society remains the same as at the start of the production period, and social production can (given certain other conditions to be examined later on) be carried on at the same scale as before. In other words, there is no expansion (or contraction) of the economy, and we have what Marx calls simple reproduction. On the _________ First published in Social Scientist, Issue 53, Vol. 5, No. 5, December 1976, pp. 47–58.

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other hand, the capitalist class may not spend the entire surplus value in immediate consumption but only a part of it. The remainder may be employed by the capitalist class in expanding production in order to reap more surplus value. In this case, leaving aside the part of surplus value expended in individual consumption by the capitalist class, the remainder, consisting partly of means of production and partly of means of subsistence for new workers to be hired, is ‘invested’ in production, that is, a part of the surplus value is converted into (new) capital. We have here expanded reproduction or ‘conversion of surplus value into capital’. In what follows we discuss first, simple reproduction, and then, conversion of surplus value into capital.

Simple Reproduction Social reproduction is nothing but social production viewed in its continual repetition. Let us first view reproduction in physical terms, that is, in terms of the reproduction of goods and services. Each year, a certain amount of means of production is used up in the process of social production.1 Thus machinery gets depreciated to a certain extent, raw materials such as fuel get consumed and so on. In addition, the workers who perform the labour by means of which social production takes place also expend their labour power in this process. For physical reproduction to take place at the same level as before, the means of production, to the extent that they have been used up, and the goods and services required to reproduce the labour power of all the workers must be produced afresh. While simple physical reproduction implies only replacement of used-up means of production and the production of ‘subsistence’ for workers, social reproduction implies more. Viewing the capitalist labour process from the standpoint of social reproduction, not only must the value advanced be reproduced, but surplus value as well. Capitalist reproduction implies production of surplus value. This surplus value constitutes the ‘revenue’ (income) of the capitalist class. With simple reproduction, the capitalist class spends the entire surplus value that it appropriates from the working class in individual and unproductive consumption.2 Simple reproduction, as reproduction, acquires a character quite distinct from that of a single, isolated once-for-all round of production. Year after year, the workers produce not only what later flows back to them as wages, but also surplus value which goes to feed and reproduce the capitalist class at a much higher level of living than that of the workers. This real state of affairs is concealed by the money form of wage payment whereby it appears that after all the capitalist is paying the worker for his labour. Marx puts the matter thus:

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What flows back to the labourer in the shape of wages is a portion of the product that is continuously reproduced by him. The illusion begotten by the intervention of money vanishes immediately, if, instead of taking a single capitalist and a single labourer, we take the class of labourers as a whole. The capitalist class is constantly giving to the labouring class order-notes, in the form of money, on a portion of the commodities produced by the latter and appropriated by the former. The labourers give these order-notes back just as constantly to the capitalist class, and in this way get their share of their own product. The transaction is veiled by the commodity-form on the product and the money-form of the commodity.3

By working and producing for the capitalists, the working class produces not merely commodities, it produces commodities as capital. That is to say, the objects produced by the workers (i) are commodities, and (ii) constitute the material elements of constant and variable capital in society as a whole. In this way: ‘The labourer therefore constantly produces material, objective wealth, but in the form of capital of an alien power that dominates and exploits him.’4 From the viewpoint of the capitalist class, only that part of the workers’ consumption which is essential to the reproduction of the working class is ‘productive’. For, this alone produces the conditions that make it possible to continue the exploitation of the workers and the existence of the capitalists. By the same token, from the worker’s viewpoint, his individual consumption is ‘unproductive as regards himself, for it reproduces nothing but the needy individual; [and] it is productive to the capitalist and to the state, since it is production of the power that creates their wealth’.5 For the worker, his individual consumption plays a dual role: (i) it helps him reproduce himself; (ii) since, in the process, he consumes his wages, it forces him to go back to the labour market continually. To summarize: ‘Capitalist production . . . under its aspect of a continuous connected process, of a process of reproduction, produces not only commodities, not only surplus value but it also produces and reproduces the capitalist relation; on the one side the capitalist, on the other the wage labourer.’6

Primary or Primitive Accumulation Earlier on, we had examined the process by which surplus value is created from an initial outlay of capital. Surplus value was seen to originate in the production process, during the production phase C–P–C’ of the circuit of capital. Two questions now arise, one relating to the starting point of the process of production of surplus value, and the other to its point of culmination. In this section, we take up the first question.

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To raise the first question, let us go back to the circuit of capital, M–C– M’. The step C–P–C’ leads to the production of surplus value only because of the presence of labour power as a commodity forming a component of C, for it is the difference between the value created by the use of labour power during the working day and the daily value of labour power itself that constitutes surplus value. The question that can now be posed is: what are the social-historical conditions, and their origins, whereby labour power becomes a commodity, and enables the production of surplus value? The LP M MP transaction where M is money, LP is labour power and MP is means of production implies that: (i) labour power has become a commodity; (ii) all means of production have become commodities; (iii) in society there are some in whose hands money has accumulated, and who wish to employ that money in production by hiring others to work with the means of production purchased with the same money; and (iv) there also exist in society a class of people who make a living by selling their labour power. So the question posed above seeks the origin and conditions of existence of these four features. In essence, it asks: how did some people acquire the money to employ others, and how did the latter come to possess nothing but their labour power? Since the question concerns the accumulation of moneycapital at the starting point of capitalist production, it is known as the problem of ‘primary’ or ‘original’ accumulation, also called ‘primitive’ accumulation. Vulgar or apologetic bourgeois economics sought to answer this question by relying on an economic version of the concept of original sin: ‘primitive accumulation plays in political economy about the same part as original sin in theology.’ To put the bourgeois argument crudely: some people accumulated wealth by their intelligence, diligence and thriftiness, while the vast majority squandered their belongings in wasteful living; thus the former became capitalists and the latter, workers! Marx satirizes this conception brilliantly and also describes vividly the actual processes historically involved in primitive accumulation in part VIII of Capital I. We shall therefore not dwell upon it here, except to say that the two main sources of primitive accumulation in the case of British capitalism were the expropriation of the direct producers, thus separating them from their means of production, and the plunder of the colonies. The first of these was absolutely crucial for creating a propertyless mass of people who have to sell their labour power and for converting the means of production into the material elements of capital. The second of these enabled the concentration of wealth in the moneyform in the hands of a small number of merchants and budding manufac-

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turers. The processes of primitive accumulation are, however, very complex and historically varied, and we cannot deal extensively with them here. But it is clear that (i) the class of capitalists holding the monopoly on means of production in society, and the class of propertyless labourers selling their labour power as a commodity, are both historical and not natural creations. And (ii) that these classes were created in the presently ‘advanced’ capitalist countries at the dawn of capitalist production and continue to be created all over the globe today by a whole variety of methods: forcible expropriation of peasants from land; destruction of the artisans and small industrialists through non-economic force and through economic competition from large-scale industry; and other means by which large groups of independent producers and petty traders are economically destroyed and proletarianized, even as a small minority accumulates moneyed wealth in its hands through monopoly of trade, state support and the like.8 We turn now to the second question.

From Surplus Value to Capital Leaving aside the question of how the capitalists came to possess the initial capital M, we come now to the question of what happens to M’, and thus to the surplus value (M’–M). We have earlier shown how M becomes M’, that is, how capital gives rise to surplus value. The task now is to see how surplus value can in turn be converted into capital. That is to say, we wish to examine the process of accumulation of capital. A part of the social surplus value may be unproductively consumed by the capitalists. We are concerned here with the rest. The surplus value initially accrues to the capitalist class in the money-form. Conversion of surplus value into capital requires that surplus value in the money-form be converted into the material elements of capital, that is, into means of production (constant capital) and the necessary consumption goods required to reproduce the labour power of workers to be hired (variable capital). In other words, a precondition for surplus value to be converted into capital that can in turn produce more surplus value is that it be embodied in the appropriate means of production and means of consumption of workers. Given the unplanned and anarchic character of social production in the capitalist mode, the correct proportion (as determined by existing technical and social conditions of production) between the means of production and the means of consumption will not always be automatically maintained, and this is a possible source of interruption in the process of reproduction, that is, of a ‘crisis’. We shall develop this point later on when we go into the capitalist economic crises. For now, we merely recognize the existence of

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this precondition. Assuming that it is always maintained, let us examine the process of accumulation.

Capitalist Accumulation When the conditions governing the conversion of surplus value into capital are satisfied, capitalist accumulation takes place. This generally entails an expanding supply of labour power, although such expansion can take place at a slower rate than that of the use of living labour. It may also be recalled here that the value of labour power is itself determined in such a manner as to provide an expanding supply of labour power. Consider the process of accumulation repeating itself over time. To concretize matters, let total social capital equal 100, with constant capital = 80 and variable capital = 20. Let the rate of surplus value be 100 per cent. Each year the original capital yields a surplus value = 20. In five years, the total amount of surplus value obtained from the original capital will itself be 100. As surplus value accrues to the capitalist and he invests it in production, he can bring more and more workers under his authority. The accumulation of capital thus expands the area of control of the capitalist and enhances the power of capital to dominate labour. The irony of it, inherent in the logic of the capitalist mode, is that ‘the working class creates by the surplus labour of one year the capital destined to employ additional labour in the following year’.9 As capitalist production proceeds, accumulated surplus value becomes more and more the dominant component of total social capital. The proportion accounted for by the ‘original’ capital, that fruit of original or primitive accumulation, becomes smaller and smaller, and tends towards zero. Again, a numerical illustration will help. We saw in our example above that in five years the total surplus value produced by the original capital was itself equal to the latter. Assuming that every year the capitalist class unproductively consumes half the surplus value and converts the rest into capital, in ten years time the total capital created directly from the original capital will equal 100. In addition, all these offshoots of the original capital will themselves have been producing more surplus value, parts of which would in turn have become capital spawning more surplus value and so on. In effect, with capitalist production dominant in society, ‘the ownership of past unpaid labour is . . . the sole condition for the appropriation of living unpaid labour on a constantly increasing scale. The more the capitalist has accumulated, the more is he able to accumulate’.10 To him that hath shall be given! Clearly an important transformation has occurred. We started with the

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laws of simple commodity production. Commodities were assumed to exchange at their values. In the present analysis also, exchange of commodities takes place at their values. Each individual transaction conforms to the law of equivalent exchange. And yet, in society as a whole, there is clearly only an apparent exchange if one examines the relation between the working class and the capitalist class. The former performs all the labour out of which value and surplus value are produced, and the latter both lives off and accumulates surplus value. The equivalent exchange of commodities thus actually conceals the real relation of appropriation of surplus value by the capitalist class from the working class. In the relation between commodity-buyer and commodity-seller, the rule is: to each according to the labour. But in the relation between the classes, the rule becomes: property through others’ labour (for the capitalist) and non-property despite one’s own labour (for the worker). As Marx puts it: At first, the rights of property seemed to us to be based on a man’s own labour. At least, some such assumption was necessary since only commodity-owners with equal rights confronted each other, and the sole means by which a man could become possessed of the commodities of others, was by alienating his own commodities; and these could be replaced by labour alone. Now, however, property turns out to be the right, on the part of the capitalist, to appropriate the unpaid labour of others, or its product, and to be the impossibility, on the part of the labourer, of appropriating his own product.11

The laws of capitalist production are thus the opposite of the laws of simple commodity production and yet they arise on the basis of commodity production itself. Not a single individual transaction may violate the law of commodity production and yet surplus value produced by workers can be appropriated by the capitalists: ‘So long as the laws of exchange are observed in every single act of exchange, the mode of appropriation can be completely revolutionized without in any way affecting the property rights which correspond to commodity production.’12 This entire set of results we have described follows of course from the purchase and sale of labour power as a commodity, for that is the source of surplus value even under conditions of equivalent exchange. And commodity production itself becomes generalized only when labour power becomes a commodity.

Accumulation and ‘Abstinence’ British classical economists Smith and Ricardo recognized that surplus value and accumulation are made possible by the labour of the working class. But the bourgeois economists who later followed tried to link capitalist accumulation to the so-called ‘abstinence’ of the capitalist class. They argued

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that the capitalist accumulates by abstaining from consuming the surplus value that has accrued to him. In other words, accumulation is represented as the consequence of ‘saving’ by the capitalist, an act that requires him to suffer the pain of postponing consumption in order that he may increase his capital and thus his future surplus value. As Marx puts it ironically, ‘that part of the tribute exacted by him [the capitalist] which he accumulates is said to be saved by him, because he does not eat it, that is, because he performs the function of a capitalist, and enriches himself’.13 This ‘abstinence’ argument, whereby the surplus value extracted by the capitalist class is seen as a reward for the pain of postponing consumption, has been taken over lock, stock and barrel by the major trends in bourgeois economics, and persists to this day as the conventional wisdom. But the argument is really absurd. It shows a complete failure to see the capitalist as a historical agent, as the bearer of specific social relations in a historically specific mode of production. First of all, accumulation by the capitalist is not the product of the exercise of his powers of ‘abstinence’. Rather, it is the effect of social forces that are independent of his will. We must recall, with Marx, that: ‘Use values must . . . never be looked upon as the real aim of the capitalist.’14 His aim as a capitalist is always self-expansion of value, that is, more and more surplus value, and hence it is that he accumulates. Further, as capitalist production develops, the scale of operation constantly increases, and this forces the capitalist to throw surplus value into expanding production. And competition forces him to try and cheapen commodities, which implies investing resources in developing new methods of production, buying new machinery and so on, and thus implies accumulation. In Marx’s words, ‘competition makes the immanent laws of capitalist production to be felt by each individual capitalist, as external coercive laws. It compels him to keep constantly extending his capital, in order to preserve it, but extend it he cannot, except by means of progressive accumulation’.15 Thus the accumulation of capital by capitalists is not the result of subjective considerations of ‘abstinence’ or otherwise, but the product of the objective forces of competition and the quest for surplus value. Further, as capitalist accumulation proceeds, the capitalist does not at all have to forego enjoyments. In fact he can at once accumulate more and consume more. Historical experience certainly confirms this. A Rockefeller or a Tata obviously cannot be accused of ‘abstaining’ from enjoying the tributes exacted from the workers of the world. In fact, as the bourgeoisie, from being a rising (and thus progressive) class becomes the entrenched ruling class, it imitates the extravagant habits and ways of life of its feudal predecessors. Further: ‘When a certain stage of development has been reached, a conventional degree of prodigality which is also an exhibition of wealth, and consequently a source of credit, becomes a business necessity to the

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“unfortunate” capitalist. Luxury enters into capital’s expenses of representation.’16 Accumulation, then, is neither the consequence of nor is determined by capitalist ‘abstinence’. Apart from the division of surplus value between capitalist consumption and accumulation – a division determined largely by objective factors such as competition – there are other factors that determine the quantum of accumulation. It is to these that we now turn.

Determinants of Accumulation Given the total mass of surplus value that is being expended by the capitalist class in the expansion of production for more surplus value, the possible extent of such expansion depends on: the degree of exploitation of labour power; the productiveness of labour; and the technical division of capital between constant capital and variable capital. In analysing the problem, classical economists such as Smith and Ricardo made the important point that surplus value is converted into capital, that is, it is accumulated, when it is productively consumed. But such productive consumption itself consists of two elements, a point overlooked by these economists. On the one hand, the means of consumption must go to productive labourers, those that produce surplus value for the capitalist in order to reproduce their labour power, even as they expend it for the capitalists. On the other hand, the production of surplus value by the productive labourers also requires means of production in proportions dictated by the prevailing set of techniques. Thus the total surplus value must consist partly of the material elements of variable capital, means of subsistence, and partly of the material elements of constant capital, means of production. The quantum of accumulation directly depends on the rate of exploitation since the latter helps determine the absolute magnitude of surplus value, which is nothing but the rate of surplus value multiplied by the quantum of labour power available for exploitation. While we have generally assumed labour power to be paid at its value, pushing down of wages below this level has historically played an important role in augmenting accumulation. Marx cites various examples of this. In addition, the proportion between variable and constant capital in production is susceptible to some variation even without major changes in the technique of production. Workers made to work longer would certainly consume more raw materials, but a proportionate increase in the other element of constant capital, namely instruments of labour, would not be necessary. One can cite other examples too to show that the proportion of constant to variable capital is not rigidly determined by technique, but has some elasticity. This elasticity is a source for extracting more surplus value

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out of a given outlay of capital and thus also a source of increased accumulation. As we have already seen, the most important source for increasing surplus value, and hence accumulation, is increase in labour productivity. With increasing labour productivity, the capitalist class can at once consume more and accumulate more. This occurs even while real wages also rise. With the rate of surplus value rising faster than real wages, a given value of variable capital sets to work a greater quantity of labour power, and a given value of constant capital is embodied in a greater mass of means of production. Both these imply a greater amount of accumulation, and a given quantity of capital therefore expands more rapidly. To some extent, of course, increases in productivity may render existing elements of constant capital, for example machinery, obsolete, but on balance, ‘science and technology give capital a power of expansion independent of the given magnitude of the capital actually functioning’.17 In capitalist production, these various sources of accumulation – increased intensity of labour, higher productivity and so on – which are ultimately due to the power of human labour, take on ‘the appearance of an intrinsic property of capital, in which it [the power of labour] is incorporated’: yet another instance of capitalist mystification and commodity fetishism.18

The ‘Labour-fund’ Concept Our analysis above has shown us that the magnitude of accumulation, even when the proportion of surplus value to be accumulated is given, depends on the degree of exploitation of labour, the productivity of labour and other conditions of labour. Some bourgeois economists of the nineteenth century however attempted to show that the magnitude of accumulation was fixed by a so-called ‘labour-fund’. The argument went as follows. First, total capital in society was conceived of as a fixed magnitude, thus ignoring the factors that make it elastic. Secondly, the part of this total capital that consisted of means of subsistence of workers was also regarded as rigidly fixed, in terms of the number of labourers that could be employed. The mass of means of subsistence (corn), called the labour-fund, thus rigidly determined the magnitude of accumulation. The conception is of course erroneous for the reasons we have already outlined. First, the magnitude of total social capital can vary within fairly elastic limits, depending on the rate of exploitation, productivity and so on, and it is thus not ‘a fixed magnitude of a fixed degree of efficiency’.19 Secondly, even if technical conditions fix the physical relation between the means of production and living labour, the means of subsistence consumed by the latter are often pushed below their customary magnitudes. The labour-

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fund argument is actually an attempt to represent workers’ consumption as the bottleneck to capital accumulation, and to sanctify the prerogative of the capitalist to divide his booty of surplus value between consumption and accumulation.

A Summary We began by viewing the capitalist mode in its reproduction, that is, the continual repetition of its process of social production. In doing this, we assumed that the processes of circulation occur without interruptions; the assumption is convenient in so far as it enables us to concentrate on the process of production for now. Later, we will briefly investigate the phases of circulation. We found that capitalist reproduction could be (logically) either simple reproduction or expanded reproduction. The former occurs when the entire surplus value is unproductively consumed and the means of production at the disposal of society remain the same as before. Production can therefore be carried on only at the same level as before. Expanded reproduction occurs when a part of the surplus value, obtained from the initial total social capital, is reconverted into capital, that is, is accumulated. For capitalist production to take place there must be a prior division in society between a small group owning means of production and possessing moneyed wealth, and a large group of propertyless people compelled (and ‘free’) to sell their labour power. The processes by which this division is brought about constitute primitive or primary accumulation, discussed extensively by Marx, and later Lenin, Baran and others. As capitalist accumulation proceeds, the initial capital, as a component of social capital, recedes in importance. More and more of existing capital is nothing but past and present surplus value. In this way, the laws of private appropriation under (simple) commodity production – enrichment through one’s own labour, are replaced by the laws of capitalist appropriation – enrichment through others’ labour. The working class reproduces and expands the power of capital over itself, the wealth of the capitalists, and its own bare livelihood and subordination. Bourgeois economists try to argue that capitalists suffer the pains of ‘abstinence’ in not immediately enjoying in consumption the entire surplus value, and that profits are a reward for ‘abstinence’. The facts as we have seen are quite otherwise. The bourgeoisie enjoys an ever-rising standard of life and it is the working masses that have often to ‘abstain’ from the most elementary necessities. The magnitude of accumulation is determined by (i) the division of sur-

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plus value between consumption and accumulation; (ii) the productivity of labour; and (iii) the degree of exploitation of labour. Advances in science and technology, and the elastic limits to the degree of exploitation, make the notion of social capital as being rigidly fixed and of accumulation as being rigidly determined by the so-called ‘labour-fund’, nonsensical. Notes and References 1

2

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9 10 11 12 13 14 15 16 17 18 19

‘Year’ refers to the period of production. For simplicity of exposition, we are assuming an average period of production for social production as a whole. Consumption of means of production in the labour process by productive labourers and the individual consumption of these labourers in so far as it is necessary to reproduce them constitute productive consumption. Under capitalism, productive labour is that which produces surplus value for the capitalist. All consumption which is not essential to the production of value and surplus value is unproductive. K. Marx, Capital, Vol. I, International Publishers, 1967, p. 568. Ibid., p. 571. Ibid., p. 573. Ibid., p. 578. Ibid., p. 713. For extensive historical material see, among others, ibid., part VIII; R. Luxemburg, Accumulation of Capital, Monthly Review Press, 1962; P.A. Baran, The Political Economy of Growth, Monthly Review Press, 1968; and V.I. Lenin, The Development of Capitalism in Russia, published in Vol. 3 of Collected Works, Progress Publishers, 1964. Marx, Capital, Vol. I, 582. Ibid., p. 583. Ibid., pp. 583–84. Ibid., p. 587. Ibid., pp. 591–92. Ibid., p. 152. Ibid., p. 592. Ibid., p. 594. Ibid., p. 605. Ibid., p. 607. Ibid., p. 609.

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9 The General Law of Capitalist Accumulation

The previous article introduced the concept of social reproduction, distinguished into two kinds: simple and expanded. A study of simple reproduction is analytically useful. It is however clear that the main feature of the capitalist mode of production from the standpoint of reproduction is the conversion of surplus value into capital, that is, expanded reproduction or the accumulation of capital. Marx’s analysis emphasizes that use values must never be looked upon as the aim of the capitalist. Capital, by virtue of its very nature as self-expansion of value, strives to expand ceaselessly. To discover the economic laws of motion of the capitalist mode of production, therefore, one must analyse the process of capitalist accumulation. The present chapter is an attempt to present Marx’s analysis of the process. Marx arrives at what he calls the general law of capitalist accumulation by bringing together a number of strands of theoretical argument that he first develops. His procedure is followed in this exposition. Briefly, the accumulation process leads to (i) the replacement, on an increasing scale, of living labour by machinery; (ii) the ruin of many capitalists, and the survival of fewer and fewer capitalists in the competitive struggle, with these survivors controlling ever larger amounts of capital; and (iii) as a result of both the above developments, the creation and expansion of a ‘reserve army of labour’, a term to be elaborated below.

Accumulation and Wages Historical experience shows that in capitalist society, periods of feverish economic activity alternate with periods when the economy is in the doldrums. At times, due to one or more of such factors as the opening up of _________ First published in Social Scientist, Issue 56, Vol. 5, No. 8, March 1977, pp. 41–50.

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new markets, a whole new crop of scientific–technical inventions, conquest of colonies and so on, the capitalist class seeks to convert as much of its surplus value into capital as possible, trying to take advantage of very profitable business conditions. In such periods, the rate of accumulation becomes quite high. With the levels of technique in society as a whole more or less fixed at existing levels, this implies a considerably increased demand for labour power. However, given the nature of the commodity, labour power, it is clearly not possible to increase its supply immediately in accordance with the capitalists’ demand. The increased demand for labour power thus expresses itself in an increase of wages above the customary value of labour power. There are, however, severe limits to the rise of wages. In the first place, such wage increases will occur only in so far as the capitalists find themselves more than compensated by the increased surplus values accruing to them from their investments. In the second place, if the rise in wages cuts into the gains of the capitalists, the stimulus of gain is thereby blunted and the capitalists will reduce their investments, thus slowing down the rate of accumulation and therefore removing the cause of the wage increases. Marx puts the matter thus: If the quantity of unpaid labour supplied by the working class, and accumulated by the capitalist class, increases so rapidly that its conversion into capital requires an extraordinary addition of paid labour, then wages rise, and, all other circumstances remaining equal, the unpaid labour diminishes in proportion. But as soon as this diminution touches the point at which the surplus labour that nourishes capital is no longer supplied in normal quantity, a reaction sets in, a smaller part of revenue is capitalized, accumulation lags, and the movement of rise, in wages receives a check. The rise of wages therefore is confined within limits that not only leave intact the foundations of the capitalistic system, but also secure its reproduction on a progressive, scale.1

A number of points need to be made here. It is the rate of accumulation by the capitalist class that determines the level of wages and its rise. Thus, even in a period of capitalist prosperity, the fact remains that the incomes of employed workers are determined by the independent decisions of the capitalist class. Secondly, nothing of basic importance changes as a result of the temporary rise in wages. Workers continue to produce surplus value, and in fact a larger total mass of surplus value. The relation of the worker to the capitalist remains the same as before, just as little as better clothing, food and treatment, and a larger peculium, do away with the exploitation of the slave, so little do they set aside that of the wage-worker. A rise in price of labour, as a consequence of the accumulation of capital, only means, in fact, that the length and weight of the golden chain

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which the wage worker has already forged for himself allow of a relaxation of the tension of it.2

As noted before, rise in wages is checked as soon as it seriously cuts into the surplus value of the capitalist class, which then cuts down investment; consequently, demand for labour power declines and the cause of the wage rise, namely shortage of supply of labour power in relation to its demand, disappears. To go a step further, the rise in wages along with the ever-present competition among capitalists lead to the use of machines that displace labour, thus rendering a part of the work force ‘superfluous’ or ‘surplus’. Marx’s argument here is extremely important and it contrasts sharply with Malthusian views on the problem, fashionable among the ruling classes then and now. Malthus claimed that the mechanism that equilibrated the demand for and supply of labour was a ‘natural’ law of population. According to his argument, whenever, as a result of a sudden rise in the demand for labour, the wages of workers rose above subsistence levels, the working classes tended to multiply rapidly. The consequent increase in their numbers would set right once again the balance between supply and demand for labour, wages would be restored to subsistence levels, and the working classes would then reproduce at a ‘normal’ rate. Such an argument was naturally very pleasing to the ruling classes, since it claimed that unemployment and low wages were consequences, not of the capitalist system and its inherent laws, but of natural forces and the ignorance of the working masses. Marx rightly denounced the Malthusian argument as ‘a libel on the human race’ and showed by a concrete illustration, the absurdity of it all. Referring to a temporary rise in wages (to rather modest levels in fact) in the English agricultural districts, Marx pointed out: What did the farmers do now? Did they wait until, in consequence of this brilliant (!) remuneration, the agricultural labourers had so increased and multiplied that their wages must fall again, as prescribed by the dogmatic economic brain? They introduced more machinery, and in a moment the labourers were redundant again.3

So much on the relation between accumulation and wages. Quite in contrast to Malthusian arguments, it is the process of capitalist accumulation itself that periodically renders a part of the labouring population unemployed. To see this, two other strands of the argument must be pursued.

Constant vs. Variable Capital As capitalist production advances, the transition from production of absolute surplus value to that of relative surplus value takes place. The transition

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occurs both on account of the class struggle between labour and capital, which closes off the avenue of lengthening the working day, and on account of the competitive struggle among capitalists themselves, which forces them to try and cheapen commodities. The increasing labour productivity essential to the production of relative surplus value is achieved by methods that call for greater and greater use of machinery, and systematic application of science and technology to production. This process then leads to increases in the extent to which capital is laid out in the constant as opposed to the variable form. Thus, if a certain individual capital of value 100 consists, to begin with, of 50 constant and 50 variable, after mechanization it may consist of 80 constant and 20 variable. Historical experience shows that with the era of machinery and automation, an enormous mass of means of production is set in motion by a given amount of living labour. It must of course be noted that the physical increase in the mass of means of production moved by a unit of living labour is much greater than its increase in value terms. This is because enormous increases in the productivity of labour take place in the processes by which machines are themselves produced. Nevertheless, the trend in capitalist accumulation is for the proportion of capital laid out in means of production to increase. Marx calls the ratio of the value of constant capital laid out in production to the value of the variable capital so laid out, organic composition of capital. At any given point of time in a particular society, the existing set of techniques determine, for each branch of production, the technical proportions in which means of production and living labour can be combined. The existing level of labour productivity then determines, on the basis of this technical composition of capital, the value or organic composition of capital. The increasing mechanization that characterizes the capitalist accumulation process can now be seen as giving rise to a more or less continuous increase in the organic composition of capital. Thus, as capitalist accumulation proceeds, competition and class struggle lead to the increasing dominance of dead labour over living labour. This aspect of capitalist accumulation plays an important role in the generation of the contradictions of the process of accumulation.

Concentration and Centralization The process of accumulation may be examined specifically from the standpoint of competition among capitalists. First the competitive struggle compels each capitalist to accumulate, that is, to convert as much of his surplus value into capital as possible. This process leads, by the very fact of accumulation, to enlargement of the size of individual capitals. With the development of productive forces through capitalist accumulation, an enlarged size

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of capital becomes necessary as well in many branches of production. The increase in size of individual capitals as a result of accumulation is called by Marx, the concentration of capital. As observed earlier, the concentration of capital, which is a direct consequence of the process of accumulation, is in turn a condition for further accumulation, as the developed productive forces require and compel an ever larger scale of operation. However, if concentration of capital was the sole means through which enlarged scales of operation could be made possible, the tremendous increase in productive forces, exemplified in the nineteenth century especially by the building of railways, could not have taken place. As Marx puts it, ‘The world would still be without railways if it had to wait until accumulation had got a few individual capitals far enough to be adequate for the construction of a railway.’4 There is in fact a far more important process inherent in capitalist accumulation that makes possible the considerably larger scales of operation required by the advance of productive forces. There is, first of all, the process of competitive struggle among capitalists in which ‘one capitalist kills many’, to quote Marx. The capitalist who wins out in the competitive struggle expands his own capital in the very process. Often he takes over the capitals of those who have lost out. What takes place here is a redistribution of an existing amount of social capital among fewer individual capitalists. Enlargement of some individual capitals takes place, not through accumulation, but through the reduction or elimination of some other individual capitalists. ‘It is concentration of capitals already formed, destruction of their individual independence, expropriation of capitalist by capitalist, transformation of many small into few large capitals. . . . Capital grows in one place to a huge mass in a single hand, because it has in another place been lost by many.’5 Marx calls this process centralization of capital. There are two important forces that actively promote centralization. One is of course the competition between individual capitalists in each branch of production. But centralization need not take place only through the ‘violent’ destruction of many capitals by a few. It can also take place through the credit system. In the initial stages of capitalist accumulation, the credit system plays the ‘humble’ but useful role of bringing together widely scattered small financial savings and making these available for industrial capitalist accumulation. Subsequently, the credit system also enables the formation of joint-stock companies by means of which many individual capitals are brought together under a single centre of control, thus enabling production on a much larger scale. Here too, a centralization of capital has occurred, but not through competitive destruction or annexation. At a later stage in the development of capitalism, the centralization process that goes on in the credit system as well enables a few large banks to control massive amounts

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of finance and this becomes an important instrument of centralization of industrial capital. The big banks finance the larger capitalists rather more readily than the smaller ones. Thus the credit system, from being the humble assistant of accumulation, becomes ‘a new and terrible weapon in the battle of competition and is finally transformed into an enormous social mechanism for the centralization of capital’.6

Competition to Monopoly The consequences of this centralization process were brilliantly perceived by Marx. First of all, centralization leads to the development of monopoly from competition. As Marx puts it: ‘In any given branch of industry, centralization would reach its extreme limit if all the individual capitals invested in it were fused into a single capital.’7 As Engels notes in a footnote on the above quote, by the 1890s the English and American ‘trusts’ were attempting precisely to attain this goal. Lenin picked up the threads from here to develop his theory of imperialism, which to this day remains a seminal and outstanding analysis of the present stage of the development of capitalism.8 Secondly, the formation of joint-stock companies through the credit system was a truly ‘revolutionary’ advance. It made possible an enormous increase in the scale of production. It made more and more evident the social nature of production which was in direct contradiction with the private nature of appropriation under capitalism. In the case of the joint-stock company, ‘Capital . . . is . . . directly endowed with the form of social capital (capital of directly associated individuals) as distinct from private capital. . . . It is the abolition of capital as private property within the framework of capitalist production itself.’9 Further, this form of capital implies the separation between ownership of capital and its actual control. But as Marx was very careful to point out, this previous sentence does not mean anything like the ‘democratization’ of capitalism or the dominance of the ‘techno-structure’, or many other such ancient and new-fangled bourgeoisreformist and apologist conceptions. It simply means that the few surviving bigger capitalists can play with other people’s money instead of their own: ‘credit offers to the individual capitalist . . . absolute control within certain limits over the capital and property of others. The control over social capital, not the individual capital, gives him control of social labour.’10 These developments expose and thoroughly give the lie to the bourgeois apologetics that link the origin of one’s capital to one’s savings, and talks of ‘abstention’ by the capitalist who is wallowing in the luxury brought by other people’s money and labour. While Marx recognizes the progressive role of credit in the material development of productive forces and the increasing

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socialization of production, he points out quite clearly that the development of stock companies ‘merely establishes a monopoly in certain spheres . . . [and] reproduces a new financial aristocracy, a new variety of parasites in the shape of promoters, speculators and simply nominal directors; a whole system of swindling and cheating by means of corporation promotion, stock issuance and speculation’.11 Finally, he also points out that the credit system contributes significantly to the sharpening of capitalist crises. On all these points, it is Lenin who picks up the arguments and develops them superbly, while the revisionists of the Second International, like Kautsky, and their modern counterparts slur over the contradictions of capitalism, and try to paint cosy pictures of peaceful coexistence and imperialism without war.

Reserve Army of Labour To pull the strands of the argument together, periods of rapid capital accumulation lead to temporary increases in wages. Over a long historical span, working-class struggles (trade unionism and so on) can revise upward the conception of what constitutes the value of labour power, and thus of wages. Further, it is an inherent tendency of the accumulation process to develop productive forces by increasing the constant portion of capital relative to the variable portion. Finally, there are the processes of concentration and centralization of capital. Both centralization and concentration lead in turn to increased mechanization, and thus to an increase in the constant relative to the variable portion of social capital. What all these add up to is that the very process of accumulation constantly puts out of work a portion of the work force. It is true, of course, that a labour-displacing machine may increase productivity so much that the capitalist might considerably expand the scale of production and offer in the end a greater number of jobs, or that employment in related industries may grow, as for example an invention that raises productivity in spinning may provide a vastly increased supply of yarn leading to increased employment of weavers. However, firstly all this takes considerable time and is in most cases no solace to the displaced worker who may not be the one rehired. Secondly, in society as a whole, the cumulative effects of the accumulation process lead to greater displacement or repulsion of labour rather than ‘attraction’ of labour. Further, each mechanization kills potential jobs and tends to reduce the availability of future jobs. Thus, contrary to Malthus, the fact of the matter is this: The labouring population . . . produces, along with the accumulation of capital produced by it, the means by which itself is made relatively superfluous, is turned into a relative surplus population; and it does this to an always increasing extent. This is a law of population peculiar to the capitalist mode of pro-

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duction.12

This ‘surplus’ labouring population – always a relative surplus, relative to the needs of capital, and not an ‘absolute’ or ‘natural’ over-population – is produced by, and is thus a consequence of, the accumulation process. At the same time, in turn it becomes a condition for accumulation at rates consistent with the needs of capital: ‘this surplus population becomes . . . a condition of existence of the capitalist mode of production. It forms a disposable industrial reserve army.’13 The course of capitalist accumulation, with its rapid changes in the technical (and therefore the organic) composition of capital, is one of alternating periods of expansion and contraction, or, to put it more popularly, ‘boom and bust’. It may be divided more finely, as Marx does, into ‘periods of average activity, production at high pressure, crisis and stagnation’.14 Leaving the analysis of the cycle of capitalist activity for a later occasion, we need simply note that the presence of an industrial reserve army created by the accumulation process serves the needs of this cycle perfectly. In the period of expansion, the capitalists readily draw upon the reserve army, thus holding wages in check. And when the phase of contraction is reached, the now-depleted reserve army can be replenished by many new rounds of lay-offs and retrenchments. This industrial reserve army that the process of capitalist accumulation continuously reproduces (and on an expanded scale) acts as a strong deterrent to increases in wages of the employed workers. The law of demand and supply in the case of the commodity, labour power, is based upon this reserve army, and is limited by it. ‘Relative surplus population is . . . the pivot upon which the law of demand and supply of labour works. It confines the field of action of this law within the limits absolutely convenient to the activity of exploitation and to the domination of capital.’15 It is appropriate now to take a look at the ‘sum total’, as it were, of the distinct effects of the accumulation process – increasing organic composition, concentration and centralization of capital, and the reserve army of labour, or, in other words, a discussion of Marx’s ‘general law of capitalist accumulation’.

The General Law of Capitalist Accumulation Marx states the law thus: The greater the social wealth, the functioning capital, the extent and energy of its growth, and, therefore, also the absolute mass of the proletariat and the productiveness of its labour, the greater this reserve army in proportion to the active labour army, the greater is the mass of a consolidated surplus popula-

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tion, whose misery is in inverse ratio to its torment of labour. The more extensive, finally, the lazarus-layers of the working class, and the industrial reserve army, the greater is official pauperism. This is the absolute general law of capitalist accumulation. Like all other laws it is modified in its working by many circumstances, the analysis of which does not concern us here.16

This long text was deliberately quoted in order to avoid misunderstanding the law. What Marx is saying here in essence is that the inherent laws of capitalist accumulation lead to the result that capitalism is less and less capable of employing workers productively. This is one basic aspect of the contradiction between the developing productive forces and capitalist relations of production. In elaborating on the consequences of the law, Marx says: It establishes on accumulation of misery, corresponding with accumulation of capital. Accumulation of wealth at one pole is, therefore at the same time accumulation of misery, agony of toil, slavery, ignorance, brutality, mental degradation at the opposite pole, that is, on the side of the class that produces its own product in the form of capital.17

Bourgeois critics of Marx as well as some vulgar ‘Marxists’ have misinterpreted this statement to claim that Marx hypothesizes or asserts a declining trend of real wages under capitalism. Obviously, Marx does nothing of the kind. From Marx’s analysis of relative surplus value it is possible, with a sufficient increase in the productivity of labour, for both the rate of surplus value and real wages (standard of living) of workers to rise. When he refers to ‘accumulation of misery’ in the above passage, he is certainly not talking in a purely economistic fashion about the real wages of employed workers. The sentences preceding the quote above make it abundantly clear that he is talking of the alienation of workers from the labour process, of the intensification between mental and manual labour, of the increasing power of capital and increasing inequality between labour and capital, of the insecure and tenuous nature of existence of the active and the reserve labour armies, and of the creation and extension of a class of people who are rendered increasingly unfit for any productive work. In particular, he says: all methods for the production of surplus value are at the same time methods of accumulation; and every extension of accumulation becomes again a means for the development of those methods. It follows therefore that in proportion as capital accumulates, the lot of the labourer, be his payment high or low, must grow worse.18

To emphasize, Marx’s general law of capitalist accumulation states in essence that the reserve army of labour grows with accumulation; and that

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while the non-producing class (the capitalist class) enjoys greater and greater concentration of wealth and power, the working class faces increasing insecurity of employment and instability of existence, this last being especially the product of recurring capitalist crises.

Accumulation and Crises This article has highlighted certain basic features of the process of capitalist accumulation, specifically the tendency for (i) continual increase in the organic composition of capital; (ii) centralization of capital promoted by competition and the credit sytsem; and (iii) an expanding reserve army of labour, both as a condition and as a consequence of the accumulation process. There are two major directions in which the analysis must now be developed. First, only passing references were made so far to ‘crises’, which, in the capitalist mode of production, mean interruption in the process of reproduction of social capital. The immediate manifestation of all capitalist economic crises is the accumulation of large quantities of unsold stocks of all important commodities in the hands of sellers. But while the manifestation is this, the roots of capitalist crises lie elsewhere. In essence, such crises are the products of certain fundamental contradictions of the capitalist accumulation process. To discover these, one must go deeper into the implications of the tendencies of capitalist accumulation which have been outlined above. The sphere of circulation, left out so far, ought to come into this analysis. Secondly, the process of centralization of capital is extremely important in that it leads to the development of monopoly from competition. The generalization of this process gives rise to the monopoly stage of the capitalist mode of production. Lenin has shown the politico-economic implications on a global scale of this logical development of monopoly capitalism from competitive capitalism in his work, Imperialism. Further development of the analysis calls for a study of imperialism, which Lenin identified as the product of the monopoly stage of the capitalist mode of production. The question of capitalist crises will be taken up next, to be followed by the Marxist–Leninist understanding of imperialism. Notes and References 1 2 3 4 5 6

K. Marx, Capital, Vol. I, International Publishers, 1967, p. 620. Ibid., p. 618. Ibid., p. 638; exclamation within parantheses added. Ibid., p. 628. Ibid., pp. 625–26. Ibid., p. 626.

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Ibid., p. 627. V.I. Lenin, Imperialism: The Highest Stage of Capitalism; see also N.I. Bukharin, Imperialism and World Economy, Monthly Review, 1972, and P.M. Sweezy, The Theory of Capitalist Development, Monthly Review, 1942. Marx, Capital, Vol. III, p. 436. Ibid., p. 439; emphasis added. Ibid., p 438. Marx, Capital, Vol. I, pp. 631–32, emphasis added. Ibid., p. 632. Ibid., p. 633. Ibid., p. 639. Ibid., p. 644. Ibid., p. 645. Ibid., emphasis added.

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10 Prices and Values: Marx’s Critique of Bourgeois Price Theory

We started with an introduction that dealt with historical materialism and the Marxist approach to the study of society. We then developed the concepts of value, surplus value and exploitation, and discussed the modes of production of absolute and relative surplus value. Utilizing these analytical categories, we provided an exposition of the basic laws of capitalist accumulation as formulated by Marx in Volume I of Capital. In the previous chapter we noted that our analysis has so far been confined to the sphere of the capitalist process of production alone, and that it needs to be extended in two directions: (1) An analysis of the process of capitalist circulation, and thus also an analysis of the laws of reproduction of social capital conceived as the unity of the capitalist production and circulation processes, must be provided. In particular, the Marxist theory of capitalist crises – the interruption of the reproduction of social capital – must be explained. (2) Taking Marx’s law of the centralization of capital as the starting point, its implications have to be understood. Specifically, the development of monopoly capitalism – ‘imperialism or the highest stage of capitalism’, as Lenin called it – from competitive capitalism needs to be explained, and the Marxist–Leninist understanding of imperialism exposited. In the present chapter, we prepare the ground for the above two extensions of our analysis by dealing with certain preliminary problems.

Value and Prices In the second chapter, we had developed the concept of value. In its qualitative aspect, value is the social property common to all commodities, namely, that of their being products of abstract labour or human labour-in-general; _________ First published in Social Scientist, Issue 60, Vol. 5, No. 12, July 1977, pp. 44–57.

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quantitatively, value of a commodity is measured as the amount of socially necessary labour time required to reproduce the commodity. Until now, we have assumed that commodities exchange at their values. However, we had also stated that: In the further development of the argument, Marx’s law of value does not state that commodities are sold at their value but rather that commodities tend to exchange at their prices of production. The latter . . . can be understood as values modified to take into account the tendency under capitalist competition towards a uniform rate of profit on capital.1

The questions that we now address ourselves to are: 1. What are ‘prices of production’? 2. How are they related to values? 3. Why is it necessary to develop the concept of ‘prices of production’? The problem of deriving prices of production from values – implicit in the above set of questions – is known as the ‘transformation problem’. It has been the source of a great deal of academic fuss, and its alleged ‘insolvability’ has been taken by academic economists and other professional antiMarxists to imply the total breakdown of the labour theory of value. We shall take up this problem in some detail below. Before dealing with the set of questions raised above, however, one point needs to be made clear. Marx regarded neither value nor price of production as being the actual rate at which a commodity is sold. This latter item is what we in our everyday experience identify as ‘price’, and Marx calls it ‘market-price’. Marx handles the question of prices of commodities at three distinct levels of abstraction. At the highest level of abstraction, there is the fundamental or basic determinant of prices, and this is value. At a lower level of abstraction, when some more specific requirements of the capitalist mode of production are brought into the picture, we have a more complex determination of prices in the category price of production. Finally, on the surface of capitalist reality itself, taking into account all the accidental fluctuations of supply and demand, we have the ruling market-price. This will become clearer following our exposition of the transformation problem.

Transformation Problem Taking the assumption that commodities exchange at their values as the starting point, let us consider the following problem. It is well known that techniques of production differ considerably as between various industries. Specifically, the proportions in which constant and variable capital figure in the capital outlay of one industry differ from those of the next. Let us assume that in industry A, constant capital accounts for 80 per cent and

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variable capital for 20 per cent of the outlay, while in industry B, constant capital accounts for 20 per cent and variable capital for 80 per cent of the outlay. Let the prevailing rate of exploitation, assumed to be the same in all industries, be 100 per cent. Then, considering 100 units of capital outlay, the value of commodity A produced with this outlay will be 80 + 20 + 20 (C + V + S) = 120, while that of B will be 20 + 80 + 80 = 180. If commodities A and B exchanged at their values, the capitalist in industry A will realize a surplus value of only 20 units on his 100 units of capital outlay, while the capitalist in industry B will be appropriating 80 units of surplus value on an identical outlay of 100 units. Clearly, this ‘contradicts all experience based on appearance’. As Marx elaborates: Everyone knows that a cotton spinner, who reckoning the percentage on the whole of his applied capital, employs much constant and little variable capital, does not, on account of this, pocket less profit or surplus value than a baker, who relatively sets in motion much variable and little constant capital. 2

What is the contradiction here? It is simply this. We know that with constant competition between capitalists, if one industry offered a much higher return on a given total outlay than another, capital would gravitate to the industry with the higher rate of return or ‘rate of profit’. In other words, there is a tendency for the rate of profit on total capital (constant plus variable capital) to become equal across all the different industries. But with a uniform rate of exploitation, exchange of commodities at their values leads to widely different rates of profit in the various industries. In Marx’s words: There is no doubt . . . that aside from unessential, incidental and mutually compensating distinctions, differences in the average rate of profit in the various branches of industry do not exist in reality, and could not exist without abolishing the entire system of capitalist production. It would seem, therefore, that here the theory of value is incompatible with the actual process, incompatible with the real phenomena of production, and that for this reason any attempt to understand these phenomena should be given up.3

The problem in a nutshell is as follows: the simple form of the law of value states that commodities exchange at their values. However, with different organic compositions of capital in the different industries and a uniform rate of surplus value, this will imply different rates of profit in different industries. But competition among capitals tends to equalize the rate of profit across industries. Some might think that the problem can perhaps be dealt with by rejecting the assumption of a uniform rate of surplus value. The moment we drop this assumption, however, we lose whatever moorings the simple form of

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the law of value gave us as a first step in the analysis of capitalist relations. Moreover, the assumption is not an arbitrary one, but one which reflects at the theoretical level a real process going on in capitalist society. After referring to Adam Smith’s work which validates this assumption, Marx says: although the equalizing of wages and working-days, and thereby of the rates of surplus value, among different spheres of production . . . is checked by all kinds of local obstacles, it is nevertheless taking place more and more with the advance of capitalist production and the subordination of all economic conditions to this mode of production. The study of such frictions, while important to any special work on wages, may be dispensed with as incidental and irrelevant in a general analysis of capitalist production.4

The point, then, is that in a theoretical (therefore necessarily ‘abstract’) study of the essence of the capitalist mode of production, differences in rates of surplus value in various sectors of the economy can be legitimately ignored. In fact the uniformity of the rate of surplus value is a necessary abstraction to enable us to deal with the essential (as opposed to secondary) aspects of the capitalist economy.

Marx’s Solution It is clear from what has been said above that Marx was perfectly aware of the contradiction between the simple form of the law of value used in Capital I and the more complex requirements of price formation in capitalism. It is equally clear from his writings, however, that he saw no need to abandon his theory of value. Rather, he builds the more complex determinants of commodity prices into his basic value framework.5 We shall briefly outline Marx’s theory of prices of production. Let us consider the individual capitalist. With the money-capital M, he buys means of production and labour power. Assume for the moment that the means of production get fully expended in a single period of production. Let C be the value of this part of advanced capital, and let V be the value spent on variable capital during this same period of production. So the capitalist’s outlay is C + V. We know that the value of the commodity produced in this period is C + V + S’ x V, where S’ = the rate of exploitation or rate of surplus value. Marx calls C + V the cost-price commodity. The cost-price is what the commodity costs the capitalits. We know that the capitalist only pays the worker the value of his labour power, and receives gratis a certain amount of surplus value. The value of the commodity, on the other hand, is what the commodity costs the society, that is the amount of society’s labour-time expended in its production. Now, profit is reckoned on the whole of the capital advanced, that is, on C + V. If R is the rate of profit, then R (C + V)

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is the profit on his outlay of C + V. In order to ensure the capitalist this profit, the price of the commodity must be (C + V) + R x (C + V). It is this price – that is, a price that is such as to provide the capitalist the ruling rate of profit on his capital outlay – that Marx calls price of production. In other words, price of production is simply cost-price plus profit. The question now becomes: what determines the rate of profit R? To answer this, let us resort to a numerical example. Let an economy consist of three industries – A, B and C – having the organic compositions specified below: Industry

Share of constant capital (C)

Share of variable capital (V)

Organic composition (C/V)

A

80

20

4

B

60

40

3/2

C

40

60

2/3

For simplicity, let us consider the total social capital to be distributed equally among the three industries, and let us choose the units of measurement so that the outlay in each industry can be reckoned as 100. Let us assume the rate of exploitation to be 100 per cent. The table below shows the value and price of production calculations. Industry

Constant capital C

Variable Surplus capital value V (S’ = 100%)

Cost price C+V

Value C+V+S

Price of production (C+V) + R x (C+V)

A

80

20

20

100

120

140

B

60

40

40

100

140

140

C

40

60

60

100

160

140

Totals

180

12

120

300

420

420

It is evident that in arriving at the price of production (last column), we have used a uniform rate of profit of 40 percent. How did we get this? The answer will be clear from the bottom row of totals. We have proceeded in the following way. Consider the economy as the ‘joint-stock concern’ of all the capitalists. The total capital of this ‘concern’ is the total social capital equal to 300. This ‘concern’ collectively extracts from the working class for appropriation by the capitalist class the total social surplus value of 120. So the rate of profit of this ‘concern’, that is, the average social rate of profit, is 120/300 = 40 per cent. The total booty extracted from the working class is now divided up among the members of the capitalist class in proportion to

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the share of total social capital advanced by each of them. Since in our example, the three industries had equal weights, they each get one-third of the total profit.

Complications The mystery of getting ‘prices of production’ from ‘values’ thus turns out to be not very mysterious after all! However, a number of qualifying points must be made: 1. We have chosen the simplest possible example. We can complicate the matter by altering the relative shares of industries in the total capital of the economy, but the same procedure as above will work to give us prices of production (which will now be numerically different as between industries). 2. We have ignored the problem of turnover of capital. It is well known that in some industries, the turnover of fixed capital (machines and such things which do not give up all their value to the product in a single period of production) may take many years. Here we have used what is known as a ‘pure circulating capital’ model. Machines and the like, which form a part of constant capital (along with raw and auxiliary materials), have been assumed to be entirely used up in a single period of production, taken to be a ‘year’. It needs to be emphasized that, in addition to differences of organic composition of capital, differences in turnover periods also affect the rate of profit. Marx was fully aware of the problem, and dealt with it in Volumes II and III of Capital, as well as in Theories of Surplus Value. We cannot however go into this problem at length here. 3. We arrived at the prices of production by adding to cost-price an amount of profit calculated by (i) determining the average social rate of profit (total social surplus value divided by total social capital), and (ii) multiplying the cost price by this rate of profit. But transactions among capitalists themselves for purchase and sale of means of production are conducted in terms of prices. This means that the elements of which the cost price is composed themselves contain profit on capital added from the earlier stages of their production. For example, the steel that I buy to make furniture is an element of my cost-price, but I buy it at its price of production and not at its value; the price I pay for the steel thus includes the profit of the steel manufacturer. So the cost-price itself cannot be reckoned purely in value terms as has been done in our simple solution of the transformation problem above. Marx was of course perfectly aware of this problem: We had originally assumed that the cost-price of a commodity equalled the value of the commodities consumed in its production. But for the buyer the price of production of a specific commodity is its cost-price and may thus pass

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as cost-price into the prices of other commodities. It is necessary to remember this modified significance of cost-price and to bear in mind that there is always the possibility of an error if the cost-price of a commodity in any particular sphere is identified with the value of the means of production consumed by it.6

However, Marx did not live to incorporate this point in a systematic way into the theory of prices of production. As a result, his specific solution to the transformation problem remained incomplete. The logical aspects of the problem have since been satisfactorily dealt with, in the sense that a clear correspondence has been shown to exist between values and prices of production.7 Despite its approximate character, therefore, Marx’s solution deals quite adequately with the essence of the transformation problem.

Significance of the Transformation Problem Bourgeois economists, concerned exclusively with the logical details of the transformation problem and motivated to a certain extent (consciously or otherwise) by ideological considerations, have generally failed to understand the real historical significance of the problem. While initially they seized upon the incompleteness of Marx’s solution, they have since been forced to recognize that there is a logical and complete solution to the transformation problem which upholds Marx’s basic point, namely the derivability of prices of production from values. They have now shifted their ground, arguing that while an exact ‘value’–‘price of production’ correspondence exists, it is quite unnecessary to use the concept of value in analysing a capitalist economy. The argument seems to be that if you have a logically consistent system of prices (such as the prices of production), you do not need ‘value’ at all. We shall now try to show that this argument is profoundly mistaken. Let us begin by recalling that in deriving prices of production, we had to use an average rate of profit. We obtained this average rate by looking at the ratio of total social surplus value to total social capital. In other words, it is surplus value and rate of surplus value that lie behind profit and the rate of profit. It is now possible to see (albeit in a rather simple manner) the significance of Marx’s procedure of starting with ‘value’ and developing ‘price of production’ as a more complex determination of prices in a capitalist economy. Marx’s scheme, in essence, is as follows. As a historical materialist, he begins by analysing the capitalist mode of production in terms of its fundamental social relation – the relation between the capitalist class and the working class. The value analysis developed in Capital I focuses on this basic relation. Social production in this mode is commodity production on the basis of the capital–wage labour relation. Hence products take on the

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character of values, and surplus value is appropriated by the capitalist class through its exploitation (scientifically defined) of the working class. The problem of value and surplus value concerns the production of surplus value and the relation between the working class and the capitalist class. The problem of prices, on the other hand, concerns the distribution of surplus value between the capitalists and thus the relations within the capitalist class. The analysis in terms of value and surplus value is absolutely essential, therefore, for two basic reasons: 1. It lays bare the fundamental social relations of the capitalist mode of production. Specifically, it cuts through the mystifications of apparent (legal and so on) ‘equality’ between labour and capital, and shows clearly the exploitation of the working class by the capitalist class in the scientific sense of appropriation of workers’ surplus labour by capital. 2. By providing the basis for determining the average rate of profit, it demonstrates value to be the basic or simple determination of prices. The more complex price of production is only derived on the basis of value and value relations.

Price Theory in Vulgar Economics The second of these two reasons acquires special significance in the light of the failure of bourgeois economics to develop a satisfactory theory of prices. Recent controversies in bourgeois economics have brought out the point that prices in a capitalist economy cannot be determined independently of the rate of profit.8 The same controversies make it clear that bourgeois economics lacks a consistent and convincing theory of profit.9 To clarify these points, we turn now to a brief discussion of bourgeois price theory. In briefly discussing bourgeois price theory, one may, with Marx, distinguish between vulgar economy and classical economy. Though Marx used the terms to characterize economists contemporary and prior to him, the term can be applied to modern economists as well. In the vulgar conception, prices are determined by supply and demand. To determine demand, one proceeds from hypotheses governing individual behaviour. These hypotheses are formulated in terms of the subjective preferences of individuals who are assumed to maximize their ‘satisfaction’, given the constraints of their incomes. To determine supply, one makes hypotheses concerning the behaviour of individual ‘firms’ or producers. We may illustrate the vulgar logic as follows. Let us consider a specific commodity, say, biscuits. The demand for biscuits arises from individuals with both the purchasing power and the desire to buy biscuits. This demand is theoretically represented by a ‘demand schedule’ which is derived as follows. Given his income and tastes, and the prices of all commodities other than biscuits,

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the individual will buy at any specified price of biscuits that amount of it which would ‘maximize his satisfaction, subject to his income constraint’. By confronting the individual with various hypothetical prices of biscuits, we can get the corresponding quantities he would buy. By carrying out this exercise with every potential biscuit consumer, we can sum up for each price of biscuits the total quantity ‘demanded’. The relation between price of biscuits and quantity of them ‘demanded’ can be graphically drawn as a demand curve. Now to the determination of supply. The firms take the price of their product as independently given, and produce that quantity of output at which the difference between the sales revenue (price x quantity sold) and costs (consisting of fixed and variable costs) is maximum. Corresponding to any given price of the particular commodity (for example, biscuit), the various biscuit manufacturers will be willing to supply various (hypothetical) amounts of biscuits, these being such as to maximize their profits. The sum of the amounts of biscuits that would thus be willingly supplied gives us the supply of biscuits corresponding to the given price. For various hypothetical prices of biscuits the corresponding supplies can be similarly determined. This ‘supply schedule’ can be graphically drawn as a supply curve. Drawing the supply and demand curves (SS and DD) on the same graph sheet to the same scale the point E where the two curves intersect (see figure below) can be seen as representing that price (AE) of biscuits at which the

D

Price of biscuits

S

E B

D S

O

A

Quantity supplied Quantity demanded

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quantity of biscuits demanded by the ‘consumers’ equals that which ‘producers’ would be willing to supply. E is said to be a point of ‘equilibrium price’ in the sense that if it happened to prevail, producers’ decisions and consumers’ decisions will be consistent with each other. The above is of course an extremely simple (even perhaps simplistic) representation of vulgar price theory. The argument can be embellished by recognizing that what we have is a partial determination of price inasmuch as we have kept prices of all other commodities fixed. One can (and many have) proceed to generalize the argument by stating that prices of all commodities are simultaneously determined by supply and demand forces operating in all the markets. This gives us the ‘Walrasian’ world in which there are fixed stocks of various resources distributed among all the economic agents initially in some arbitrarily specified way. Prices are then determined by both the subjective ‘preferences’ of the economic agents and the objective constraints of ‘technology’ subject to the initial distribution.10 One can go further and ‘extend’ this ‘model’ to the never-never world of infinite commodities specified over all possible states of the universe. But nothing of essence changes thereby. Prices continue to be ‘determined’ in a perfectly tautological manner: they are what they are because of ‘demand’ (what people are ‘willing’ to buy, an item that cannot be objectively determined) and ‘supply’ (what producers are ‘willing’ to sell at various prices, again a hypothetical item). Surely Marx was right when he wrote: The real difficulty in formulating the general definition of supply and demand is that it seems to take on the appearance of a tautology, and . . . if supply and demand balance one another, they cease to explain anything, do not affect market-values, and therefore leave us so much more in the dark about the reasons why the market-value is expressed in just this sum of money and no other.11

The point of course is not that supply and demand are irrelevant. They are very relevant, but not as the basic determinants of price. The role they play in Marx’s analysis will be brought out later on. But before turning to that discussion, we must take a brief look at ‘classical’ price theory. We cannot, however, go into the various refinements and modifications of vulgar price theory which in themselves constitute a highly sophisticated pseudoscience in bourgeois academic economics. For that, we refer the reader to the literature.12

‘Classical’ Price Theory We use this term to embrace both the classical economists such as Ricardo and Smith, and their modern adherents who have made this theory more

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rigorous and systematic. The classical stream is close to Marx in the sense that it recognizes the role of supply and demand to be secondary in the determination of price. The classicals were also the first to develop and adhere to the labour theory of value, although their version of that theory was somewhat crude and inconsistent.13 Without going deeply into the conceptions of Ricardo and Smith since these are both intricate and confused, we may summarize here the modern version of Ricardian price theory.14 This theory begins by recognizing that the process of capitalist production is one where commodities are produced by means of labour and other commodities. Using a certain analytical scheme, this theory can be used to demonstrate that prices of commodities, in order to ensure social reproduction, must bear definite relationships to the quantities of labour directly and indirectly required to produce them. However this theory, while relegating supply and demand to a secondary role in price determination, nevertheless leaves the determination of prices incomplete in the sense that either the price of labour power (the wage rate) or the rate of profit on capital needs to be specified ‘exogenously’ in order to determine basic prices. What this scheme lacks, then, is a theory of profit. Various versions based on the scheme differ in their theories of profit. The absence of a theory of profit in the scheme allows vulgar economics to enter by the backdoor, as it were, with its subjective abstinence-type theories of profit which we had mentioned earlier. Adherents of this ‘neo-Ricardian’ scheme, however, generally reject abstinence theories. They prefer instead another (partly) subjective theory in which the ‘animal spirits’ of the capitalists determine the rate of capital accumulation, which in turn determines the rate of profit (subject to a limit below which the wage rate cannot be pushed) and thus prices.15

Marx on Supply and Demand It should be clear from the above that while vulgar price theory is patently unscientific, the modern classical theory is incomplete and open to subjective distortions. Marx’s theory remains the only consistent and objective one, though certainly open to further refinement and concretization. Marx has a theory of profit which is firmly anchored in and derived from the labour theory of value and surplus value. It is his value scheme which provides the fundamental deteimination of price, and it is his theory of profit that leads to the more complex determination, namely price of production. The structure of price determination is then completed by bringing in supply and demand, which brings us to the surface of capitalist society, to that category of everyday experience which we call market-price. Marx recognized the importance of ‘the forces of supply and demand’ to

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the functioning of a system of commodity production in which social production takes place not according to a conscious plan but as the outcome of the uncoordinated actions of millions of capitalists and other decision-makers. The famous law of value – that prices of commodities bear definite relationships to the amounts of social labour directly and indirectly required to produce them – operates precisely through the mechanism of supply and demand. We may concretize the argument as follows: taking any specific commodity, we know that different producers produce it under varying conditions, taking (slightly) different labour-times for such production. The time taken in one particular production unit may be considered as the ‘individual value’. The average of these individual values, taking into account the quantities produced in each of the various units, may be called ‘marketvalue’. For commodities of a kind to be sold at a uniform market-price, there must be (i) competition among producers, and (ii) a common market where all the articles are offered for sale. For this market-price to correspond to the market-value, it is necessary that the pressure exerted by different sellers upon one another be sufficient to bring enough commodities to market to fill the social requirements, that is, a quantity for which society is capable of paying the marketvalue. Should the mass of products exceed this demand, the commodities would have to be sold below their market-value; and conversely, above.16

Market-prices differ from values, or rather from prices of production, whenever the supply brought to the market exceeds the prevailing social demand. Now this ‘social demand’ is not for Marx a subjective entity based on the psychology of millions of individuals. Rather, the ‘social demand’, that is, the factor which regulates the principle of demand, is essentially subject to the mutual relationship of the different classes and their respective economic position, notably, therefore to, firstly, the ratio of total surplus-value to wages, and, secondly to the relation of the various parts into which surplus value is split up (profit, interest, ground rent, taxes etc.). . . . This . . . shows how absolutely nothing can be explained by the relation of supply to demand before ascertaining the basis on which this relation rests.17

The ‘social demand’ for any commodity, then, is neither (primarily) psychologically determined nor rigidly fixed. If subsistence goods became cheaper or money wages rose, for example, workers would buy more. ‘Supply and demand’ do influence market-prices, causing these to deviate from values, or rather prices of production, whenever ‘supply’ exceeds ‘demand’ or vice versa. But the important points are: (i) that ‘supply and demand’ themselves are governed by more fundamental social forces, namely,

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the relative shares of the capitalist class and the working class in total income, and the distribution of the income among various categories of the propertied classes; and (ii) in turn, market-prices influence ‘supply and demand’. For instance, a higher-than-average price brings forth increased ‘supply’ and causes reduced ‘demand’. We may sum up the essence of Marx’s position in his own words: On the one hand, the relation of demand and supply, therefore, only explains the deviations of ‘market-prices’ from market-values. On the other, it explains the tendency to eliminate these deviations. . . . For instance, if the demand, and consequently the market-price, fall, capital may be withdrawn, thus causing supply to shrink. . . . Conversely if the demand increases, and consequently the market-price rises above the market-value, this may lead to too much capital flowing into this line of production and production may swell to such an extent that the market-price will even fall below the market-value. . . . Supply and demand determine the market-price, and so does the marketprice, and the market-values in the further analysis, determine supply and demand. 18

It has taken us a great deal of space to deal with just one of the preliminary problems that we had hoped to take up in this chapter. Even that problem has been dealt with rather cursorily. But what has been said above perhaps suffices to demonstrate the essential correctness of Marx’s approach to the problem of price determination under capitalist competition. A purely ‘supply and demand’ approach fails to see (i) that ‘supply and demand’ are themselves derived from more fundamental relations, and (ii) that they can only explain why prices are ‘high’ or ‘low’ in relation to a certain ‘normal’ value or range of values. The modern classical approach recognizes that prices are basically determined not so much by ‘supply and demand’ but by the ‘costs of production’, these in turn being ultimately traceable to the quantities of labour-time directly and indirectly required to produce the commodities. But the approach stops short of a full-fledged theory of price determination because it leaves prices dependent on the distribution of ‘net product’ between ‘profits’ and ‘wages’, in which distribution in turn is left unspecified. Marx, on the other hand, starts with the theory of value and surplus value; he sees in value the basic or simplest determination of prices; he then brings in intra-capitalist relations to develop ‘profit’ and ‘price of production’ on the basis of ‘surplus value’ and ‘value’, and completes the edifice by bringing in ‘supply and demand’ and thus market-price. We have tried by our discussion to place the ‘so-called’ transformation problem in a proper perspective. We shall next deal with the circuits of capital and the process of capitalist circulation, before going on to crises.

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Notes and References 1 2 3 4 5

6 7

8

9

10

11 12 13

14

15 16 17 18

Chapter 2 above, pp. 14–25. K. Marx, Capital, Vol. I, International Publishers, 1967, p. 307. K. Marx, Capital, Vol. III, p. 153. Ibid., p. 142; see also p. 175. Bourgeois economists have on many occasions loudly proclaimed that Marx’s more complex theory of price formation, elaborated in Capital, Volume III, is utterly incompatible with his value theory of Volume I, and that Marx wrote of prices of production and so forth in Volume III after realizing that his value theory of Volume I was erroneous. This view is of course utterly wrong. Not only had Marx completed the draft of Capital III before Capital I was published, but we also have specific references in Volume I itself, to the inadequacy of the simple form of the law of value in the task of providing a complete theory of price formation. See, for instance, the first of the quotes from Marx in the above section, and the entire paragraph following those lines in Capital I. Marx, Capital, Vol. III, p. 164. See P.M. Sweezy, The Theory of Capitalist Development, Monthly Review Press, 1942, chapter VII, and the references cited therein. The basic reference is P. Sraffa, Production of Commodities by Means of Commodities, Cambridge University Press, 1960. For lucid, non-mathematical expositions, see: Joan Robinson, ‘A Reconsideration of the Theory of Value’, in Collected Economic Papers, Vol. 3, Macmillan, 1965; Joan Robinson, ‘The Relevance of Economic Theory’, Monthly Review, Vol. 22, No. 8, January 1971; and R. Meek ‘Sraffa’s Rehabilitation of Classical Political Economy’, in Economics and Ideology, Chapman and Hall, 1967. For a good survey, see M.H. Dobb, Theories of Value and Distribution since Adam Smith, Cambridge University Press, 1973. For an early critique of bourgeois theories of value, see N.I. Bukharin, Economic Theory of the Leisure Class, Monthly Review Press ,1973. See Joan Robinson, Economic Heresies, Macmillan, 1971, Introduction and Chapters 1 and 3; also Joan Robinson, ‘Normal Prices’, in Essays in the Theory of Economic Growth, Basil Balckwell, 1962. For a good exposition, see J. Quirk and R. Saposnik, Introduction to General Equilibrium and Welfare Economics, McGraw-Hill, 1968. Marx, Capital, Vol. III, p. 186. Quirk and Saposnik, General Equilibrium. It will be recalled that Marx made an important breakthrough with the conception of ‘labour-power’ as the commodity sold by the worker, thus developing the theory of surplus value. Apart from the references cited in footnotes 8 and 9 above, we may also mention here E.K. Hunt and Jesse Schwarz (eds.), Critique of Economic Theory, Penguin, 1973, and an earlier work of M.H. Dobb, Political Economy and Capitalism, Routledge and Kegan Paul, 1940. See especially Joan Robinson’s works cited earlier. Marx, Capital, Vol. III, p. 180. Ibid., p. 181. Ibid., p. 190.

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11 Process of Reproduction of Capital

In our exposition of Marx’s economic analysis in this series, we have not yet discussed the process of circulation in capitalist production. As will be recalled, Marx deals in Capital I with the process of capitalist production as such, that is, the process of production of value and surplus value. The analysis brought out the fundamental nature of capitalist exploitation and uncovered some of the basic tendencies of the capitalist accumulation process, namely, centralization and concentration of capital, relative surplus value production, creation of a reserve army of labour, and so on. However, it was necessarily incomplete as an analysis of the capitalist mode of production, because the latter includes the process of capitalist circulation as well. It is to the analysis of capitalist circulation that Marx turned in Volume II of Capital. Finally, in Volume III, he completed the edifice by analysing ‘the process of capitalist production as a whole’, that is, as the unity of the production process and the circulation process. In the present chapter, we shall summarize Marx’s observations on the process of capitalist circulation.

The Circuit of Capital The process of capitalist circulation involves not merely the circulation of commodities, but the circulation and reproduction of capital. Each individual capital, in its movement, assumes various forms. At one time it is in the form of money. Subsequently, it is embodied in means of production and labour power. Later it appears as a stock of newly produced commodities awaiting sale. When the sale has been effected, it reappears in the money-form. Further, each individual capital exists, at any given point in time, partly as money, partly as means of production and labour power, and partly as stocks of finished commodities to be sold. The _________ First published in Social Scientist, Issue 63, Vol. 6, No. 3, October 1977, pp. 28–39.

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circulation process of social capital, which is nothing but the totality of the circulation processes of individual capitals, exhibits these features in a more developed form. Specifically, the forms in which capital exists are three-fold: (i) Money-capital or capital in the money-form. (ii) Productive-capital, consisting of the material means of production and the labour power purchased by the capitalist with a view to production of surplus value. (iii) Commodity-capital, consisting of produced commodities by the sale of which reconversion of capital into money-form is to be effected. Symbolically, we may represent the general circuit of capital as follows:

—

LP

—

...... M–C ...... P ...... C’ ...... M’ ...... MP where M stands for money, LP for labour power, MP for means of production, P for the production process and C’ for the produced commodity to be sold for M’ = M + VM, VM being surplus value. It can be seen from the general circuit of capital that capital assumes the forms of money-capital and commodity-capital in the sphere of circulation wherein commodities are exchanged for money and vice versa. In the sphere of production or the labour process, capital assumes the form of productive-capital. In Marx’s words: The two forms assumed by capital value at the various stages of its circulation are those of money-capital and commodity-capital. The form pertaining to the stage of production is that of productive-capital. The capital which assumes these forms in the course of its total circuit and then discards them and in each of them performs the function corresponding to the particular form, is industrial-capital, industrial here in the sense that it comprises every branch of industry run on a capitalist basis.1

Money-capital, productive-capital and commodity-capital are thus forms assumed by industrial-capital in the process of performing its relevant function to serve its basic objective of self-expansion of value. The circuit of industrial-capital may therefore be examined from the point of view of each of these forms.

The Circuit of Money-Capital The circuit of money-capital starts and ends with money. It is represented as M–C ... P ... C’–M’. This circuit brings out most sharply the basic goal of capitalist production, namely, money-making. The stage of producion is of

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distinctly secondary importance here. In fact, the capitalist regards the stage of production as ‘an unavoidable link, as a necessary evil, for the sake of money-making’.2 The circuit of money-capital is in fact the general form of circuit of industrial-capital. The essential distinction between the two is that the latter is the constant repetition of the operations contained in the former.

The Circuit of Productive-Capital

—

This circuit has the general formula P ... C’–M’–C ... P. Here we start with the process of production. The produced commodity is then sold, realizing the value and surplus value inherent in it, and the money from M’ is reconverted into elements of production process again. The circuit of productive-capital contains within it two possibilities. The surplus value inherent in C’ and realized in M’ may be unproductively consumed, and only the original advanced value M is reconverted into the elements of productive capital: LP C MP In such a case we have simple reproduction on the same scale as before. Alternatively, a part or whole of the surplus value may also be converted into elements of productive capital, which may be indicated as: LP M’’–C’’ MP where M’’ is equal to or less than M’ but greater than M. This is ‘expanded reproduction’ and is characteristic of the capitalist mode of production. Viewing the process of reproduction of social capital as a whole, there are specific contradictions in both simple and expanded reproduction. These will be analysed later. The emphasis in the circuit of productive capital is on the production stage, and thus on the process of material reproduction. This is in contrast to the circuit of money-capital, where the definite capitalistic character – self-expansion of value – is immediately obvious.

—

—

—

The Circuit of Commodity-Capital This circuit starts with the finished commodity ready for sale, and ends with it. That is, it can be written as C’–M’–C ... P ... C’. If we split up C’ into the original value of the elements of productive capital C’ and surplus value C, we may write:

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C’

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{

C — M’ c

{

LP

M–C

.... P .... C’ MP

m–c

where M – money equivalent of C – is consumed by the capitalist unproductively. The main point to be understood in the above discussion is simply that capital assumes various forms in the course of being reproduced. This helps one to realize the absurdity of the bourgeois conception of capital as simply physical means of production whose ‘marginal productivity’ ‘explains’ the rate of profit. Also one-sided is the conception of capital as merely a fund of finance. Each individual capital takes on the forms of money, commodities for sale and elements of the production process, that is, labour power and means of production, in the course of its reproduction process. Also, at any given point in time, different portions of the initially advanced capitalvalue exist in each of these forms. ‘The actual circuit of industrial capital in its continuity is also the unity of all its three circuits.’3 A second, important point is that the above-mentioned unity of these circuits also implies a contradiction: if the portion of an individual capital now in the form of finished commodity cannot be sold, that is, cannot perform its circuit of commodity-capital, then, this sooner or later blocks the other portions that exist as money and productive-capital also from describing their respective circuits. Thus reproduction of individual and especially social capital requires continuity in each of the circuits whose unity is the circuit of industrial-capital. Let us give a concrete example. A mill owner may have invested Rs 1,00,000 in his factory. In a year, cloth worth Rs 25,000 may have been produced in his factory and be ready for sale. If this is not bought by someone, it will soon affect the fate of the other portions which may exist partly as money, and partly as machinery, raw materials and labour power. A chemical analogy may also help to clarify this point. If in a continuous chemical process, the final product is not drawn off at a constant rate but begins to accumulate in the reactor itself, the result will be either an explosion or an arrest of the ongoing chemical process.4

Time of Circulation We have seen above that industrial-capital, in order to reproduce itself, must go through the stages of production and circulation. Let us view it from the standpoint of its general form, namely money-capital. First, M must be exchanged for LP and MP. This is an act of purchase and this belongs to circulation. Next, the material elements of productive-capital must be con-

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sumed productively in the labour process in order to produce surplus value. This act belongs to the sphere of production. Finally, the produced commodity C’ must be sold and thus reconverted into the money-form. This last act belongs to the sphere of circulation. Every individual industrial-capital, therefore, spends some time in the sphere of production and some time in the sphere of circulation. We have so far examined ‘production time’ of commodities. Now we turn to ‘circulation time’. To begin with, let us define these terms: the movement of capital through the sphere of production and the two phases of the sphere of circulation takes place in a series of periods of time. The duration of its sojourn in the sphere of production is its time of production, that of its stay in the sphere of circulation, its time of circulation.5

The sum of production time and circulation time is the total time taken for the reproduction of the advanced capital (with surplus value, of course), or simply, the ‘reproduction time’. The time of production includes the time taken in the labour process but is usually greater than that. For, there are inevitably stops in the production process (for example, between shifts) during which the component of an individual capital in the form of means of production stays in the sphere of production without any labour being performed on it. Further, the capitalist may hold stocks of raw material in readiness and have the machinery on hand quite some time before the actual production process starts. After all, plants take time to be erected, factory construction takes time and so on. Then there are cases where the nature of the production process itself is such that no living labour is applied, for example, drying in chemical process by exposure to air, or fermenting wine and so on. Thus we may say that production time is the time during which living labour is applied to the other elements of productive capital, plus the time in the production process while no labour is applied, plus the time during which elements of productive capital are held in readiness, plus enforced idleness (for example, machine breakdown, strikes and so on) in the production stage. Those parts of production time when no labour is being applied to the means of production are obviously not value-creating, though they may be quite necessary. It is therefore evident that ‘the more production time and labour time cover each other, the greater is the productivity, self expansion of given productive capital in a given space of time’.6 Circulation time of a given capital is the time taken in the sphere of circulation by it while completing one full circuit. It consists of two operations or changes of form; conversion of money into productive-capital (purchase, M–C) and conversion of the produced commodity into money (sale, C’– M’). The time of circulation therefore depends on the time taken for each of

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these changes to be effected. Since money is readily convertible into commodities, it is usually the sale that is more difficult to effect. One can generally find a seller, but it is not always easy or possible to find a buyer for one’s wares. The sale C’–M’ is more important than the purchase M–C for another reason. M–C is an act necessary for the self-expansion of the advanced value M, but it is only C’–M’ that actually realized the produced surplus value in the money form. The smaller the circulation time, other things being given, the more quickly does capital expand. To put it in another way, during a given period, more surplus value can be produced and realized out of a given initial outlay of capital, if less time is spent in circulation. The single reason is that value and surplus value are produced, and self-expansion of capital takes place only in the sphere of production. The first act of circulation (M–C) provides the necessary condition for production of surplus value, and the second act of circulation (C’–M’) realizes the surplus value produced. Both acts are obviously necessary but neither creates value.7

Cost of Circulation Clearly, there are costs involved in effecting the two changes of form, first M–C and then C’–M’. These two changes are transactions between buyers and sellers, and take time. The capitalist may himself directly do the buying and selling. He could hire workers whose specific task it would be to buy the elements of productive-capital and sell the produced commodity. Or, with capitalist development, buying and selling could become specialized branches of activity carried out by wholesale traders. But whatever may be the mode of organization of these activities, clearly they involve only transfers – of ownership rights; for example, if A sells B a bale of cotton for X rupees, all that occurs is that B has obtained the ownership rights to a bale of cotton while A has become the owner of X rupees. No production is involved, only a transfer of rights. So the labour time expended in the acts of purchase and sale create no value, though these acts are clearly necessary in a system of commodity production. Marx says of the man employed by the capitalist as a buying and selling agent: ‘He performs a necessary function, because the process of reproduction itself includes unproductive functions. He works as well as the next man but intrinsically his labour creates neither value nor product.’8 From the point of view of social production as a whole, workers in the sphere of circulation produce no value. Their wages and salaries are therefore paid out of the surplus value produced by productive labourers. This fact does not mean that workers in circulation (for example, shop assist-

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ants, sales clerks, the cashier in the hotel counter and so on) do not perform surplus labour for their employers. Of course they do, since their wages are also based on the value of their labour power (loosely speaking, on what it costs to maintain them) and form in value terms only a portion of the working day. The worker who expends his labour in buying and selling activities for the capitalist essentially reduces the costs of circulation for him by performing surplus labour. Apart from the acts of purchase and sale as such, there is also the cost of book-keeping. Labour time is certainly expended on this. Under capitalist conditions even more time than is absolutely necessary is spent on this; for instance, on cooking up accounts to avoid taxes. But labour time expended in book-keeping, though also unproductive, differs in an important way from costs incurred simply in buying and selling. The difference is that bookkeeping will be essential in a socialist society as well, so as to keep track of how social labour is expended and how its efficiency may be enhanced: Book-keeping, as the control and ideal synthesis of the process (of production), becomes the more necessary, the more the process assumes a social scale and loses its purely individual character. It is therefore more necessary in capitalist production than in the scattered production of handicraft and peasant economy, more necessary in collective production than in capitalist production! But the costs of book-keeping drop as production becomes concentrated and book-keeping becomes social.9

Then there are the costs of storage, of stocks of money that wear out in the process of purchase and sale, and of transport. Without going into details, we may simply note that transport alone constitutes a productive activity, so that labour time expended in transport is value-creating. The reasons for considering transport as value-creating are to be found within any individual production process. In almost all industrial processes, materials often have to be transported within the factory from one place to another; for example, in a car-making factory the parts produced in various sections are brought to the assembly workshop. As Marx points out: ‘The transition of finished goods from one independent place of production to another located at a distance shows the same phenomenon only on a larger scale.’10

Turnover of Capital: Fixed and Circulating Capital Marx defines turnover as follows: A circuit performed by a capital and meant to be a periodical process, not an

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individual act, is called its turnover. The duration of this turnover is determined by the sum of its time of production and its time of circulation. This time total constitutes the time of turnover of the capital.11

We have earlier seen that productive capital is composed of means of production and labour power, or constant and variable capital respectively. Here, division of productive capital into two components is made on the basis of the distinct roles played by these two components in the process of production of value and surplus value. Productive capital may also be divided on another basis – the rapidity with which its elements ‘turn over’. Specifically, we can distinguish between fixed capital and circulating capital. To see this, let us consider means of production. These consist partly of machinery or instruments of labour, partly of factory buildings and other durable assets, and partly of raw and auxiliary materials. Now, instruments of labour and factory buildings are relatively durable items that remain in use over many successive rounds of production. But raw materials and auxiliary materials are consumed in the process of production itself. While auxiliary materials (for example, coal for heating in industrial processes) do not physically reappear in the product, their value is nonetheless transferred entirely into the product, as is the case with raw materials. But instruments of labour give up their value to the product gradually. Viewed from this perspective, raw and auxiliary materials may be grouped with variable capital which also gives up its value entirely to the product. Now we can define fixed and circulating capital. The portion of constant capital consisting of instruments of labour, including factory buildings and other assets, has the following characteristic – during the entire period of its functioning, a part of its value always remains fixed in it, independently of the commodities which it helps to produce. It is this peculiarity which gives to this portion of constant capital the form of fixed capital. All other material parts of the capital advanced in the process of production form, by way of contrast, the circulating or fluid capital.12 Thus labour power, raw materials and auxiliary materials are all part of circulating capital, while instruments of labour constitute fixed capital. There are a number of common misconceptions concerning these concepts. First, it must be made clear that the concepts are applicable only to productive capital, because they are based on the differences in the manner in which the various material elements of productive capital transfer their value to the product. The opposition ‘fixed versus circulating capital’ has no meaning for money and commodity capitals. As Marx puts it, the latter ‘are indeed circulating capital in contrast to productive capital but they are not circulating capital in contrast to fixed capital’.13 Secondly, the distinction between fixed and circulating capital within

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productive capital is based not on some physical notion of ‘fixedness’. A simple counter-example that Marx cites is the ship, which though mobile is fixed capital, since it loses its value to the product (in this case a service, namely transportation) only gradually. A fallacy closely related to this is the concept of fixed capital as denoting an objective property of a thing rather than a specific economic characteristic – rapidity of capital turnover. Marx cites the excellent example of cattle. As beasts of toil they are fixed capital, while as beef cattle they are raw material and hence circulating capital. Most misleading of all is the tendency to confuse the constant capital– variable capital distinction with this antithesis. The constant–variable distinction is based on the different roles of dead and living labour in the process of production of value, while the present antithesis is based on the difference in the rapidity of transfer of value of product. The practical significance of the distinction between fixed and circulating capital lies in the fact that the fixed capital, once purchased, need not be bought again for a number of years. On the other hand, raw materials and labour power get entirely consumed over short periods of the production process, and so have to be bought again and again. This means that the capitalist must be able to generate sufficient cash by commodity sales periodically so as to buy raw materials and hire labour. The development of the credit system and the system of credit provision for ‘working’ capital partly meet this need. Marx designates the entire period of time that it takes to produce a finished commodity, say, a boiler or a railway locomotive, as the ‘working period’. With the development of capitalism, industries arise in which the working period is considerable. It may take, for instance, anywhere from three months to a year or two to make an industrial boiler, depending on its specifications. Such production will obviously not be possible without sufficient concentration of capital, and here the credit system, by promoting such concentration, plays a positive role. An obvious way to reduce the ‘working period’ is to employ a larger amount of productive capital. In this way, more means of production and labour power can be put to the task. In the course of capitalist development, many methods of reducing the working period also develop. Similarly, developments occur which reduce the time of production and the time of circulation.14 Particularly important in reducing circulation time are the rapid advances made in transport and communication. But improvements in transport and communication also lead to the global extension of capitalist markets, that is, to the emergence of the world market. Since capitalists now produce for markets that are far away, industrial capital stays as commodity capital for longer periods, that is, the time of circulation tends to increase. Also, an increasing share of total social capital comes to be invested in transport and

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communications. These developments in turn become a possible source of ‘crisis’. For instance, ‘with the longer time of commodity circulation the risk of a change of prices in the market increases’.15 Economic conditions may change during the time a particular individual capital stays as commodity capital, and the anticipated surplus value may not at all be realized.

Turnover of Variable Capital We have seen that fixed capital lasts through many periods of production, while circulating capital has to be renewed frequently. We have also seen that developments which reduce either production time or circulation time also reduce thereby the time of turnover, and hence increase productivity. Of particular interest, however, is the turnover of variable capital, since variable capital alone is the source of surplus value. Let us consider two capitals, A and B. The variable portion of A worth, say, Rs 10,000, is advanced and renewed at monthly intervals. That is, I buy labour power for one month paying Rs 10,000, but recover this value (plus of course constant capital value used up, plus surplus value) at the end of a month in money-form and once again use it to buy labour power for the next month. In other words, the variable capital turns over once a month. With capital B, a variable capital of Rs 120,000 is employed from the start for one year. In other words, this variable capital turns over once a year. In both A and B, the same amount of variable capital is employed per unit of time, namely Rs 10,000 per month. Let the rate of surplus value in both cases be 100 per cent. Now, with capital A, total annual surplus value = Rs 10,000 x 12 = Rs 120,000. This is also the case for capital B. But the difference is that the same annual surplus value is obtained in case of A by an investment in variable capital which is only 1/12 of the corresponding investment in B. In other words, the annual rate of surplus value for A is 120,000/10,000 (= 1200 per cent), while for B it is only 120,000/120,000 (= 100 per cent). Because the variable capital in A turns over twelve times as rapidly as that in B, it enjoys twelve times the annual rate of surplus value of B, although the rate of surplus value as such (the rate of surplus value per turnover) is the same for both. Significance of the rapidity of turnover should now be obvious.16 The fact of different periods of turnover of variable capital in different branches of production makes it necessary ‘for money capital to be advanced in order to set in motion the same quantity of productive circulating capital and the same quantity of labour with the same degree of exploitation of labour-power’.17 Finally, the concept of turnover of capital serves to bring out an important difference between capitalist and socialist production. If we take a capital C whose circulating component turns over once in two years (obviously

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the fixed capital takes even longer to turn over), then the rest of the economy is stripped of the labour power employed by C, of the means of subsistence for this labour power, the needed fixed capital and other materials of production, for at least two years. But the product from this process reaches the market only two years from now. This means that a portion of society’s resources are being claimed, without immediate replacement and for money only. In capitalist society, this implies pressure on social resources, for the effective demand rises without itself furnishing any element of supply.18 So prices of both means of production and means of subsistence will rise. Speculation which is inherent in capitalism may destabilize matters further. An economic crash may well follow.19 But it is different in the case of a socialist society. If we conceive society as being not capitalistic but communistic, there will be no money-capital at all in the first place, nor the disguises cloaking the transactions arising on account of it. The question then comes down to the need of society to calculate beforehand how much labour, means of production and means of subsistence it can invest, without detriment, in such lines of business as for instance the building of railways, which do not furnish any means of production or subsistence, nor produce any useful effect for a long time, a year or more, while they extract labour, means of production and means of subsistence from the total annual production.20

Concluding Comment In this chapter, we have dealt with various individual or partial aspects of the process of reproduction of capital such as the forms of circuit of industrial capital, costs of circulation and turnover of capital. But Marx’s theory concerning economic crises in capitalism is based on the analysis of the process of reproduction of social capital as a whole. It is to this that we shall turn in the next chapter. Notes and References 1 2 3 4

5 6 7

K. Marx, Capital, Vol. II, International Publishers, 1967, p. 48. Ibid., p. 56. Ibid., p. 101. Karl Marx, in this discussion of the circuits of capital, makes a number of other points which we have omitted. Particularly useful are his comments on the relation between capitalist and non-capitalist modes of production, and those between ‘natural’, money and credit economies; see especially Capital, Vol. II, pp. 109–11 and p. 116. Marx, Capital, Vol. II, p. 121. Ibid., p. 124. At one extreme, one could visualize the time of circulation going down to zero. Marx cites an example: ‘If a capitalist executes an order by the terms of which he receives payment on

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8 9 10

11 12 13 14

15 16

17 18 19

20

MARXIAN POLITICAL ECONOMY

delivery of the product, and if this payment is made in his own means of production, the time of circulation approaches zero.’ See Capital, Vol. II, p. 128. At the other extreme, a perishable commodity will be worthless if its circulation time is too long. Ibid., p. 131. Ibid., p. 150. Ibid. Storage, by contrast, is unproductive, since it involves no act of production, direct or indirect. Generally speaking, ‘all costs of circulation which are only from changes in the forms of commodities do not add to their value’. Ibid., p. 155. Ibid., p. 158. Ibid., p. 167. But there are some branches of production where nature imposes limits on the extent to which such reduction can be carried. Marx cites the example of forestry: ‘The long production time and the great length of the periods of turnover entailed, make forestry an industry of little attraction to private and, therefore, capitalist enterprise.’ Capital, Vol. II, p. 244. Ibid., p. 252. We may express the above discussion formally thus. Let s’ = annual rate of surplus value, s = the rate of surplus value as such, c = surplus labour/necessary labour per working day, V = advanced variable capital and n = the number of turnovers per year. Then s’ = total annual surplus value advanced variable capital (surplus value per turnover) x (number of turnovers per year) = advanced variable capital (s’ x v) x n s’n. = = V Ibid., p. 314. Ibid., p. 315. While the text merely points out the possibility of a crash, Karl Marx presents a vivid picture of the process. See the brilliant passage in Capital, Vol. II, pp. 315–16 and p. 318. Ibid., p. 315.

Economic Crises under Capitalist Mode of Production 137

12 Economic Crises under the Capitalist Mode of Production

Economic crises, as such, are not peculiar to the capitalist mode of production. However, what is decidedly peculiar, and indeed apparently paradoxical, is the character of economic crises under capitalism. In pre-capitalist social formations, an economic crisis was invariably a situation of severe scarcity of essential goods and services, caused by natural phenomena such as droughts, floods or earthquakes, or by extraordinary social phenomena (such as the Black Death) which were the manifestations of a relatively low level of development of productive forces. By contrast, economic crises under capitalism are situations of overproduction. On the one hand, stocks of various commodities accumulate in the stores and capitalists find themselves unable to sell them even at such low prices as would imply substantial losses. On the other hand, millions of workers are unemployed and therefore unable to buy even basic necessities, while at the same time modern machinery, the product of a high level of development of productive forces, also lies idle. Such an economic crisis – idle men on the one hand and idle means of production on the other; huge stocks of goods adorning shop windows and filling godowns, along with millions unable to buy bread and gruel – would be incomprehensible to men and women of pre-capitalist societies. The manifestations of economic crises under capitalism are of course familiar. But one needs to have a theoretical conception of a capitalist economic crisis in order to be able to analyse its causes. The Marxist conception of the capitalist crisis is that of a rupture of economic life, an interruption in the process of capitalist reproduction. In other words, an economic crisis means that the process of reproduction of social capital – which is nothing but the totality of the processes of reproduction of individual capitals – stands sev_________ First published in Social Scientist, Issue 64, Vol. 6, No. 4, November 1977, pp. 46–58.

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erely interrupted. The question to be posed, therefore, is: how does such an interruption occur?

Sources of Capitalist Crises —

We have seen that the circuit of industrial capital may be represented as: LP

—

...... M–C ...... P ...... C’ ...... M’ ...... MP The dotted lines before M and after M’ denote the constant repetition of this process. We have also seen that each individual capital exists simultaneously in three different forms: a part as money-capital, a part as productive-capital and a part as commodity-capital. We have further seen that each of these parts must successively take on the other two forms, that is, describe its circuit, if the individual capital is to renew itself. But so far we have dealt only with the features of the process of reproduction of individual capitals. To understand crises, we must now look at the process of reproduction of social capital, that is, the total capital in society as a whole. We can conveniently start by dividing social production as a whole into two great branches or departments of production: one producing means of production, and the other means of consumption.1 It will be demonstrated later in this chapter that for social reproduction to take place either on the same scale or on an increased scale, definite quantitative relations between the values of output in each department must be satisfied. But capitalist production does not take place according to a predetermined social plan. Rather, each capitalist makes decisions concerning production and investment independently of, and generally ignorant of, the decisions of other capitalists. There is, therefore, no guarantee that the ‘correct’ proportions between the outputs of various branches of production – here, specifically between means of production and means of consumption – will be maintained. On the contrary, there is every reason to expect the opposite. One possible source of crisis emerges from this, namely, that because outputs of means of consumption (consumer goods) and means of production (investment goods) have not been produced in the proper proportions, the sale of these commodities at prices such as would permit reproduction becomes impossible. Crises which arise as a result of such disproportionality are called ‘disproportionality crises’. Now, while the anarchy of capitalist production certainly implies the possibility of disproportionality, this still remains a rather general proposition concerning the source of capitalist economic crises.2 In fact, Marxist analysis points to two deeper, more specific, sources: the tendency for the rate of profit to fall, and the tendency towards underconsumption. Each of these will be discussed in detail below.

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Disproportionality Crises The total output of the capitalist economy, like that of each commodity, consists, as far as its value is concerned, of three parts. First, there is the constant capital consumed in producing the total output. Then there is the variable capital employed in producing the output. Finally, there is the surplus value produced by the employed working class as a whole. Simple reproduction takes place when the surplus value that accrues to the capitalist class is entirely consumed by them. Expanded reproduction (accumulation) takes place when the capitalists convert a portion of the surplus value into capital: that is, they buy the elements of productive capital, labour power and means of production, with a view to expanding production. Let us divide the economy into two great departments of social production. Department I produces means of production. Its products are not directly used in individual consumption, but serve as elements in various production processes. Department II produces means of consumption. Its products go directly into individual consumption. The values produced in each department may be broken up as below: Department I : Total value YI = CI + VI + SI Department II: Total value YII = CII + VII + SII Here, CI and CII are constant capital used up in departments I and II respectively; VI and VII the amounts of variable capital employed in I and II; and SI and SII the surplus values produced in I and II. First, consider the case of simple reproduction. The product of department I, being means of production, cannot directly enter individual consumption. It is clear, therefore, that for the capitalists and workers of department I to obtain their means of consumption, exchange must take place between departments I and II. Similarly, if production in department II is to continue on the old scale, the capitalists there must obtain the constant capital needed to replace what has been consumed from department I. The definite proportional relationship between YI and YII that must exist for these things to take place smoothly can be obtained in one of two ways, as follows. (i) The total value of means of production produced must equal that which is used up in department I, plus that which is used up in department II. That is, YI = CI + VI + SI = CI + CII or CII = VI + SI (ii) The total value of means of consumption must be entirely consumed by the capitalists and workers of both departments. That is, YII = CII + VII + SII = VI + VII + SI +SII or CII =VI + SI same as in (i) above. This relationship demonstrates the necessity for a definite quantitative

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relationship (in value terms) to be maintained between departments I and II, in order to ensure simple reproduction. The point is that the amount of constant capital needed for replacement purposes by department II must equal in value the amount of means of consumption needed by capitalists and workers of department I. Simply, the purchases by department II from department I must equal in value those by department I from department II. Since, in a capitalist economy, production and investment decisions are taken by millions of individual businessmen and companies, there is no reason to expect this proportionality to be automatically established or maintained, even when we consider only simple reproduction. In the case of expanded reproduction, similar but more complex conditions must be satisfied for reproduction to proceed smoothly.3 Therefore, there is even less reason to expect these conditions to be satisfied. Disproportionality crises arise when the necessary proportionality relations between the outputs of various important branches of production – in our two-department scheme, between consumption goods and capital goods – fail to obtain.4

Underconsumption In the course of analysing the process of capitalist production as such, the assumption was retained throughout that commodities are sold at their values (strictly speaking, at their prices of production). But in our discussion of disproportionality above, we found that if too much is produced, commodities will have to be sold at prices below their values (prices of production). In the discussion of economic crises arising from disproportionality, therefore, this assumption has to be dropped, and specific attention paid to the two circulation phases of the circuit of capital, namely M– C and C’–M’. A particular and fundamentally important case of disproportionality under capitalism is based on the contradiction between the producing power of capitalism and its consuming power, which may usually manifest itself as a disproportion between the production of means of production and that of means of consumption. The contradiction between the development of productive power and that of consuming power under capitalism was clearly recognized and emphasized by both Marx and Engels. However, a misunderstanding of the precise nature and meaning of the contradiction, and an exclusive emphasis on it by some Marxist economists as well as revisionists and reformists, have led, by way of a strong reaction, to this aspect being played down by many Marxists. We shall now try to clarify the meaning of the contradiction between productive power and consuming power, and its role as a source of economic crises under capitalism. Marxist economics recognizes that ‘consumption’ is of two kinds: individ-

Economic Crises under Capitalist Mode of Production 141 ual consumption, by workers and capitalists (food, clothing and so on purchased and consumed by them individually) and productive consumption, of means of production and labour power in various production processes. Under capitalism, the objective of production is surplus value. Competition among capitalists compels them to accumulate in order to obtain more and more surplus value. Accumulation means more and more productive consumption. This growth in productive consumption is one component of the ‘consuming power’ of a capitalist economy. It is clear that the compulsions of capitalist competition – accumulation and the accompanying progress of productive forces, which imply increasing production of means of production (constant capital) – enable productive consumption to grow in relative independence from the growth of individual consumption. This relative independence in the growth of productive and thus also overall consumption serves to show the fallacy implicit in crude underconsumptionist arguments. These crude arguments assert that since capitalism impoverishes ‘people’, it digs its own grave; it cannot develop its own ‘home market’. The implication is that without ‘external’ markets, it is impossible for capitalism to develop. There are in fact a number of versions of crude underconsumption theories.

Crude Underconsumptionism First, there is the argument that since the birth and development of capitalism implies the dispossession of small producers, craftsmen–artisans and peasants, it eliminates its own potential market and therefore it cannot develop at all. This was the position of the Narodniks in Russia in the late nineteenth century. Lenin combated them vigorously and showed that even as many small producers (and especially peasants) are economically ruined, the few who survive amass great wealth and become large capitalists. Also, the peasants and artisans who are ruined become wage labourers, and the means of subsistence which they formerly produced for themselves now become commodities produced exclusively for sale by large agrarian capitalists, and capitalists in the clothing and housing industries. Thus the very process of dispossession and proletarianization – and hence impoverishment – of large sections of the people creates the home market for capitalism.5 Then there is Rosa Luxemburg’s argument.6 She focuses on the surplus value. We may reasonably assume with Marx that workers consume their entire wages. Another part of the total social product goes to replace the used up constant capital. This takes care of C and V out of the total value of the economy’s output. But there remains S, the surplus value. A part of surplus value is no doubt consumed by the capitalists, but what of the rest? Luxemburg thus poses the question: where is the demand for surplus value

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which is not individually consumed? If one answers her by saying that capitalists buy additional means of production (representing produced surplus value) from each other, then the question is, how long can that go on. After all, capitalists are in business to reap surplus value, not to produce more and more for the sake of production. By posing the problem of expanded reproduction in this way Luxemburg concludes that capitalist reproduction is impossible without external markets. Luxemburg’s argument rests on a number of analytical errors. But the main error is one that can be seen quite simply. The total surplus value can be ‘disposed of’ or ‘spent’ and thus ‘realized’ either by capitalist consumption, which will increase absolutely over time, or by being converted into additional productive capital, which implies expenditure on additional means of production and on variable capital. The increase in capitalist consumption as well as the consumption of newly employed workers constitutes additional demand for means of consumption. The part of accumulated surplus value laid out on constant capital constitutes additional demand for means of production. It is thus technically possible for expanded reproduction to occur, and for productive and individual consumption to keep growing over time. So Luxemburg is clearly wrong in asserting the impossibility of expanded reproduction. To recognize Luxemburg’s error is one thing, but to go to the opposite extreme and assert that expanded reproduction can take place smoothly and without contradictions, simply on the basis of the expansion of productive consumption, is quite another. Precisely this error was committed by some economists, notably Tugan Baranowski, a Russian economist of the late nineteenth century, and J.B. Clark, an American economist of the same period. Baranowski argued that inadequacy of consuming ‘power’, in the sense of the purchasing power of the population, can never be a cause of capitalist economic crises since the surplus value can always be spent on machines to make more machines.7 Clark wrote: ‘If capitalists were . . . resolved to save all of their incomes, present and future, beyond a fixed amount, they would capitalize, first, a part of their present means, and then all later income from the capital so created. They would build more mills that should make more mills for ever.’8

Marx’s View Marx poured scorn on crude underconsumptionist arguments. Consider, for example, the view that crises are caused by inadequate consuming power, and that the situation could be remedied by giving workers a greater share of output by increasing their wages. Of this view, Marx said: ‘one could only remark that crises are always prepared by precisely a period in which

Economic Crises under Capitalist Mode of Production 143 wages rise generally and the working class actually gets a larger share of that part of the annual product which is intended for consumption’.9 While rejecting such reformist arguments, however, Marx was careful to avoid the error of asserting that production could be completely divorced from consumption. It will be recalled that for Marx, production, consumption, distribution and exchange constitute a complex and contradictory whole. He laid particular stress on the dialectical relationship between production and consumption in all societies. And with specific reference to the capitalist mode of production, he was quite explicit: a continuous circulation takes place between constant capital and constant capital . . . It is at first independent of individual consumption because it never enters the latter. But this consumption definitely limits it because constant capital is never produced for its own sake, but solely because more of it is needed in those spheres of production whose products go into individual consumption.10

The point is clear enough: under capitalism, production can expand through increased production of machines and other elements of constant capital in relative independence of consumption, but only up to a point. The extent of growth of consumption does place a definite limit on growth by way of growth in the production of means of production. Under capitalism, just as in other forms of social production, production is ultimately related to consumption. What is the specific contradiction between production and consumption under capitalism? Capitalist production is impelled and governed by the drive for surplus value. To increase surplus value, absolute and relative, is the objective of capitalist production. This implies accumulation. The general law of capitalist accumulation, as we have already seen, is a growing reserve army of labour that keeps wages centred around the value of labour power. But for capitalists it is not enough that surplus value be produced. Until the commodities in which the surplus labour of the working class is embodied are sold at the appropriate prices, the surplus value remains only potential. Commodities must be sold for the surplus value to be realized. Whether surplus value can be thus realized depends on whether buyers can be found. This in turn depends, ultimately, on the consuming power of the economy. But the conditions that determine consumption – and thus the realization of surplus – are not the same as those of the production of surplus value. In fact the two are contradictorily related: The conditions of direct exploitation and those of realizing it are not identical. They diverge not only in place and time, but also logically. The first are only limited by the productive power of society, the latter by the proportional

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relations of the various lines of production and the consumer power of society. But this last named power is not determined either by the absolute productive power or by the absolute consumer power but by the consumer power based on antagonistic conditions of distribution, which reduces the consumption of the bulk of society to a minimum varying within more or less narrow limits.11

Let us elaborate. The capitalist mode of production brings forth a tremendous growth of productive forces. Pursuit of surplus value and competition among capitalists, both compel capitalists to accumulate and especially to raise the productivity of labour. Relative surplus value production, taking place through the systematic development and application of machinery and modern industry, at once increases greatly the productive power of society and the reserve army of labour. The growth of the reserve army and the limits on the growth of wages that it implies, both serve to keep the base for consumption rather narrow. The contradiction between the development of productive forces and capitalist relations of production now manifests itself as the contradiction between producing and consuming power. In Marx’s words: ‘The ultimate reason of all real crises always remains the poverty and restricted consumption of the masses as opposed to the drive of capitalist production to develop the productive forces as though only the absolute consuming power of society constituted their limit.’12 Lenin puts the matter in practically the same terms. ‘There is an undoubted unlimited contradiction between the drive towards the extension of production, inherent in capitalism, and the restricted consumption of the masses of the people.’13 Engels, too, makes the same point: The enormous expansive force of modern industry . . . appears . . . as a necessity for expansion, both qualitative and quantitative . . . But the capacity for extension of the market is primarily governed by quite different laws that work much less energetically. The extension of the market cannot keep pace with the extension of production. The collision becomes inevitable.14

It should be clear from the above that Marxist economics identifies a basic contradiction between production and consumption in capitalism. The contradiction is that capitalism develops the productive forces and therefore the productive power of society rapidly, but its relations of production (and thus also of distribution) restrict the growth of the consuming power of society. The existence of this contradiction of course does not imply the impossibility of capitalism nor any narrowly economist conception of the ‘break down’ of capitalism.15 Rather, the contradiction implies a tendency towards ‘underconsumption’. The term ‘underconsumption’ is of course used in a relative sense, that is, in relation to the productive powers available to society. This tendency is aggravated by every period of capitalist

Economic Crises under Capitalist Mode of Production 145 expansion or ‘boom’, which invariably leads to a crisis, a rupture in the process of social reproduction. Of course, every capitalist crisis is the outcome of the combined operation of a number of contradictions, and the tendency to underconsumption must not be emphasized one-sidedly. Further, the tendency must be understood in a general sense. Attempts to derive a ‘tendency to underconsumption’ from very specific empirical assumptions about ‘capital–output’ ratios and so on are examples of misplaced concreteness and casual empiricism.16

The ‘Law’ of the Falling Rate of Profit Marx recognized the tendency to underconsumption as an important element in capitalist crises. He saw that this tendency placed periodic difficulties in the way of realizing the produced surplus value, and led to economic crises wherein capitalists found themselves unable to sell their commodities at their prices of production. But he did not see disproportionality between branches of production and the tendency to underconsumption as exhausting the sources of capitalist economic crises. In fact, he gave considerable attention to a fundamental tendency of capitalism, which he identified as the law of the falling rate of profit. This law may be derived quite simply from the nature of the capitalist accumulation process. Consider the class of capitalists as a whole. The total social surplus value S is, in the first instance, appropriated by this class. The total social capital employed in the production of the social product can be divided into two parts, constant capital C and variable capital V. Social surplus value S is simply total variable capital V multiplied by the rate of exploitation. But what interests the capitalist is not the rate of surplus value as such but the rate of profit. We saw in our earlier discussion of prices of production that the rate of profit is arrived at as a social average. That is, S R= C+V where R = rate of profit, S = total social surplus value, V = total variable capital employed in social production, and C = total constant capital advanced in social production We know that a basic tendency of capitalist production is the increasing use of constant capital in relation to variable capital as a product both of the class struggle between the capitalist class and the working class, and of competition among capitalists. So we would expect C/V to increase steadily as capitalist accumulation proceeds. At the same time, we also know that mechanization and other aspects of the development of the productive forces resulting from the accumulation process lead to relative surplus value production. So S/V also increases, and in fact by the very same processes that

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lead to increases in C/V. Now consider the rate of profit R. It may be expressed as: (S/V) S = (I + C/V) C+V It is clear that opposite forces are at work as far as R is concerned. Increasing use of constant capital relative to variable capital tends to depress R, but the attendant increase in productivity and therefore also S/V tends to push it up. Nonetheless, argued Marx, the tendency on balance is for R to be pushed down as accumulation proceeds. But it must be emphasized that Marx speaks only of the tendency of the rate of profit to fall. In fact he calls it ‘the law of the tendency of the rate of profit to fall’. The capitalist mode of production, says Marx, produces a progressive relative decrease of the variable capital as compared to the constant capital, and consequently a continuously rising organic composition of the total capital. The immediate result of this is that the sate of surplus value, at the same, or even a rising, degree of labour exploitation, is represented by a continually falling general rate of profit.18

It is important to note that Marx recognizes, even in formulating this law, that the rate of surplus value may rise with increasing use of constant capital vis-à-vis variable capital. It is also to be emphasized that the law is seen by Marx as the expression of a fundamental contradiction of capitalism. The progressive tendency of the general rate of profit to fall is therefore, just an expression peculiar to the capitalist mode of production of the progressive development of the social productivity of labour. This does not mean that the rate of profit may not fall temporarily for other reasons. But proceeding from the nature of the capitalist mode of production, it is thereby proved a logical necessity that in its development the general average rate of surplus value must express itself in a falling general rate of profit.19

Marx notes that there are a number of forces that counteract the tendency for the rate of profit to fall. In fact it is precisely these counteracting forces ‘which cross and annul the effect of the general law, and which give it merely the characteristic of a tendency’.20 Faced with the operation of the tendency for profit rate to fall, capitalists attempt to intensify labour by such methods as speed-up. They also try to depress wages below the value of labour power (and in this they are assisted by the reserve army of labour). Further, the rise in productivity of labour brought about by accumulation also swells the ranks of the unemployed and hence the reserve army. This allows the persistence of methods of production that employ more variable

Economic Crises under Capitalist Mode of Production 147 and less constant capital. This in turn serves to stem the rise in organic composition of capital, and hence also the fall in the rate of profit.21 There are two additional and especially important counteracting forces. The mechanization which is inherent in capitalist accumulation does indeed imply an increase of constant capital. But the productivity of labour also increases in the production of means of production. Therefore, although machinery and other means of production are used to a much greater extent per unit of variable capital, the value of these elements of constant capital does not increase proportionately. The actual increase in C/V is therefore less than might appear at first sight. This cheapening of the elements of constant capital, brought about by the increased productivity of labour in their production, thus stems the tendency for the rate of profit to fall. Finally, there is foreign trade. Foreign trade enables capitalists to obtain important raw materials (as well as machinery) more cheaply, thus cheapening constant capital. In this way it stems the fall in the rate of profit. However, it also often enables the import of commodities that enter into the reproduction of labour power. By thus cheapening variable capital, foreign trade acts in a contradictory manner. While the decline in the value of labour power implies an increase in the rate of surplus value, it also implies an increased value of C/V. So, while foreign trade may counteract the tendency for the rate of profit to fall, it is difficult to be categorical about its impact on the rate of profit.22

Falling Rate of Profit and Economic Crisis Marx regarded the tendency of the rate of profit to fall as an important source of capitalist crises. To see the precise relationship involved here, the manner in which the tendency is supposed to operate must be understood. In particular, the tendency discussed above must be distinguished from other forces which may, in specific circumstances, lead to a decline in the rate of profit. One such set of circumstances to which Marx refers at some length is a decline in profitability in the course of capitalist expansion on account of an increase in wages, brought about by exhaustion or depletion of the reserve army of labour. We shall take up these in detail in our next chapter, with which we conclude our exposition of Marx’s economic analysis. Notes and References 1

By failing to do this, and by erroneously arguing that since every purchase is also a sale, total social supply must equal total social demand, bourgeois economists of Marx’s time denied the possibility of overproduction crises. See the instructive discussion in P. Sweezy, The Theory of Capitalist Development, Monthly Review, 1956, chapter VIII. See also V.I. Lenin, ‘On the So-called Market Question?’, Collected Works, Vol. I, Progress Publishers, 1968.

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By ‘anarchy’ we do not of course mean absence of all order or ‘chaos’, since Marxism recognizes capitalism to be subject to specific laws of motion. For a statement of these conditions, see Sweezy, The Theory of Capitalist Development, Chapter X. The method of deriving the conditions is really quite simple. Split up the surplus value in each department into three parts: one part which is consumed unproductively by capitalists (ScI and ScII), another part which is invested in constant capital (SacI and SacII), and a third invested in variable capital (SavI and SavII). Now, total outputs of departments I and II are: YI = C I + V I + S I YII = CII + VII + SII Total demand for constant capital =CI + CII + SacI + SacII Obviously, for equilibrium, this must equal YI. So we have CI + VI + SI = CI + CII + SacI + SacII Remembering that SI = ScI + SacI + SavI and cancelling CI on both sides, we have: VI + ScI + SacI + SavI = CII + SacI + SacII This simplifies to: VI + ScI + SavI = CII + SacII In The Theory of Capitalist Development, Sweezy adds a further refinement decomposing capitalist consumption of surplus value into two parts, an original part and a subsequent increase. A disproportionality crisis may arise, for instance, when too much has been produced in some major industry, say steel, than can be sold at profitable prices. A partial crisis of ‘overproduction’ in one industry may spiral into a general industrial crisis. Faced with poor sales of steel, producers cut back on production, thus reducing their demand for coal and iron ore. Coal producers then cut back production and lay off workers, and so do the iron ore producers. With workers in these major industries laid off, demand for consumer goods will also decline, and so on. In this way, a major disturbance in an important branch of the economy can lead to a general crisis of ‘overproduction’ or imbalance in the economy. While disproportionality as such is a general phenomenon, Marx’s two-department scheme focuses on a strategic type of disproportionality, one which may especially be expected, for fundamental reasons dealt with later in that article. See V.I. Lenin, ‘On the So-called Market Question?’. See also V.I. Lenin, ‘The Development of Capitalism in Russia’, Collected Works, Vol. 3, Progress Publishers, 1972, especially chapter I. The argument as presented here is adopted from Sweezy, The Theory of Capitalist Development. It must be emphasized that despite the errors noted, there is much that is extremely valuable in Rosa Luxemburg’s work, The Accumulation of Capital, Monthly Review Press, 1968. Of her revolutionary credentials, of course, there can be no doubt. For a fuller discussion, see Sweezy, The Theory of Capitalist Development, Chapters X and XI. Ibid., footnote on p. 168. K. Marx, Capital, Vol. II, p. 411. K. Marx, Capital, Vol. III, pp. 304–05, emphasis added. Ibid., p. 244. Ibid., p. 484. Lenin, Collected Works, Vol. 3, Moscow, 1972, p. 56. F. Engels, Anti-Duhring, Progress Publishers, 1969, p. 315. See Lenin, Collected Works, Vol. 3, Moscow, 1972, p. 58: ‘there is nothing more absurd than to conclude from the contradictions of capitalism that the latter is impossible. The contradiction between the drive towards the unlimited expansion of production and limited consumption is not the only contradiction of capitalism, which in general cannot exist and develop at all without contradictions ’. Sweezy attempts to do precisely this in The Theory of Capitalist Development and, in the process, builds his conclusions into his assumptions.

Economic Crises under Capitalist Mode of Production 149 17 18 19 20 21

22

This is the title of part III of Capital, Vol. III, where Marx discusses the problem. Marx, Capital, Vol. III, pp. 212–13. Ibid., p. 213. Ibid., p. 232. The availability of considerable surplus labour encourages the use of relatively ‘labourintensive’ methods of production using the cheap labour. This serves to lower the average organic composition of social capital and thus stems the tendency for the rate of profit to fall. See Marx, Capital, Vol. III, pp. 236–37. As the capitalist mode of production expands and becomes global, the impact of ‘foreign trade’ is no longer confined to the cheapening of constant and variable capital. The role of ‘export’ of capital from the capitalist nation-state on the rate of profit becomes important. A discussion of this aspect is postponed for now. Marx was clearly aware of this. See Marx, Capital, Vol. III, pp. 237–39.

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13 Contemporary Capitalism in the 1970s

This is the concluding chapter. Here we shall first complete our discussion of the sources of economic crises under capitalism. We shall then refer briefly in succession to three important aspects which we have so far not touched upon – namely, the role of money and credit, the features of the imperialist stage of capitalism, and developments in contemporary capitalism. We shall close with some concluding comments.

The Falling Rate of Profit We had noted in the last chapter that the law of the tendency for the rate of profit to decline must be distinguished from other forces that may cause the rate of profit to fall. In particular, a temporary rise in wages brought about by a sharp increase in the rate of accumulation is one important source of such a (transitory) decline in the rate of profit. Marx examines this case at some length in Capital I. He points out that under certain conditions, ‘ the scale of accumulation may be suddenly extended . . . the demand for labourers may exceed the supply, and, therefore, wages may rise’.1 But while this may lead to a decline in the rate of profit, such a decline will be a rather temporary phenomenon. For, accumulation will slacken as soon as profitability is seriously threatened. What is more, the capitalists facing higher wages will resort to mechanization and other labour-saving devices. Both these developments serve to push wages down and restore the rate of profit. ‘The mechanisms of the process of capitalist production remove the very obstacles that it temporarily creates. The price of labour falls again to a level corresponding with the needs of the self-expansion of capital.’2 Clearly, Marx is here dealing with ‘the short run’ and not with a fundamental law or tendency of capitalist production. The tenor of his discussion suggests that _________ First published in Social Scientist, Issue 65, Vol. 6, No. 5, December 1977, pp. 47–58.

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the process (of a temporary decline in the rate of profit) is self-correcting, and rather quickly at that. The decline in the profit rate associated with a spurt in wages brought about by a momentarily high rate of accumulation can spell the end of the upswing phase of a short-term business cycle, but certainly not an economic crisis of capitalism. The tendency for the rate of profit to decline on account of the growth in the organic composition of capital not sufficiently compensated by the growth of labour productivity, is, however, an altogether different matter. Such a tendency to decline expresses a fundamental contradiction inherent in the capitalist development of productive forces. How does this ‘law’ of the tendency for the rate of profit to fall operate? Many have interpreted the law to mean a ‘secular decline’ of the rate of profit. That is to say, the rate of profit would show a gradual and continuous decline over historical time. On the basis of such an interpretation, attempts have been made to verify or to ‘disprove’ the law empirically, by computing rates of profit on capital at various points in time over a sufficiently long period. Apart from the validity or otherwise of such an interpretation of the law, the pitfalls involved in computing from business data something closely resembling the Marxian conception of the average rate of profit on social capital as a whole, are many. This fact in itself would suggest that one has to be extremely wary of treating the results of such exercises as ‘proof’ or otherwise of the law. More importantly, however, the interpretation itself seems questionable. A careful reading of Marx’s discussion of the law suggests rather that the tendency for the rate of profit to decline expresses itself in, and is in turn stemmed and reversed through, periodic economic crises. The picture that suggests itself may be roughly outlined as follows. When a process of long-term capitalist expansion has been in progress for some time, productive forces are developing rapidly through mechanization, that is, increasing organic composition of capital. The investments in new and more ‘capital-intensive’ methods of production required for this process are made by capitalists for at least three reasons: (i) capitalist competition necessitates it; (ii) with gradual depletion of the initially large reserve army of labour wages begin to rise, thus inducing capitalists to mechanize; (iii) the conditions of realization of surplus value – that is, of selling commodities produced at or around their prices of production – are favourable, and are expected by the capitalist class to remain so. But sooner or later, the investments that capitalists are compelled to make on account of the above forces do not yield a commensurate increase in the productivity of labour. After all, technological changes under capitalism are not socially planned but are the products of disparate individual decisions of the capitalists. As such, there is no guarantee at all that the overall increase in productivity of social labour will be such as to render the investments expended in bringing

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about the technological changes profitable. On the contrary, as noted above, there generally occurs a point in the phase of long-term capitalist expansion when the rate of profit tends to drop due to an insufficient increase of productivity.3 This very decline of the rate of profit would lead to a reduction in fresh investment, and to some losses on already committed investments. The competition among capitalists would intensify, as Marx points out: So long as things go well, competition effects an operating fraternity of the capitalist class . . . so that each shares in the common loot in proportion to the size of his respective investment. But as soon as it no longer is a question of sharing profits, but of sharing losses, everyone tries to reduce his own share to a minimum and to shove it off upon another.4

How is this conflict settled, and how are conditions of ‘normal’ capitalist operation (that is, an adequate rate of profit) restored? With the onset of a crisis, a number of developments take place which restore normalcy: many existing establishments close down, so that a certain part of social capital ceases to function as such. The idle capital loses its value, partly through physical depreciation but largely through being rendered idle and hence not yielding profit. Capital which is not a physical means of production but is simply in the form of claims on prospective profit (promissory notes on expected production and so on) loses a great deal of its value as soon as the general rate of profit, and hence also the expected rate of profit, declines. Prices begin to decline and rather steeply in many instances, so that the value of commodity-capital in society as a whole also declines sharply. With declining prices of commodities, the elements of fixed and circulating capital decline in value. The disturbance of normal price relations on account of the onset of crisis interferes with and halts the process of reproduction of capital. Capitalists who are unable to recover their invested capital because of the decline in prices of the commodities that they sell obviously cannot reconvert their capital into means of production on the same scale as before. Further, their existing capital, embodied in various means of production, also loses a good deal of its value. As many capitalists find themselves unable to repay their debts, a chain of bankruptcies follow. The credit system collapses. Meanwhile, the decline in capital-values and the wave of bankruptcies would lead to thousands and thousands of workers being laid off. The net effect of all this would be to reduce the total value of capital stock, to make urgent (after the crisis had been in operation for some time) the replacement of means of production, and to reduce wages. The rate of profit would thus be raised and even restored to its pre-crisis level. In effect, ‘stagnation of production would have prepared – within capitalistic limits – a subsequent expansion of production’.6

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It is thus quite clear that Marx (i) views the tendency for the rate of profit to fall as a source of capitalist economic crises, and (ii) sees the crises themselves as the means by which the profit rate is restored and renewed capitalist expansion is made possible.

Crises and Cycles Capitalism is thus viewed as going through economic crises periodically. These crises are situations where capitalists do not make expected profits, but suffer losses or reduced profits and find themselves unable to sell their commodities, and where workers in great numbers are laid off. The crises are the product of certain basic internal contradictions of capitalism: its planless character (disproportionality); the contradictions inherent in the process of development of productive forces (the tendency for the rate of profit to fall); and the contradiction between the rapid capitalist development of social productive power and the limited development of social consuming power (the tendency to underconsumption). It is precisely through crises that the conditions are restored whereby capitalist expansion can once again take place. Crises perform this task (i) by allowing elements of fixed and circulating capital to depreciate rapidly in value, both through physical wear and tear during enforced idleness, and through steep declines in prices of means of production, and (ii) by increasing the size of the unemployed reserve army and forcing workers’ wages down. Economic crises, then, are both the manifestation of and the typically capitalist ‘solution’ to the basic economic contradictions of the capitalist mode of production. The solution, of course, is not a conscious one decided upon by the representatives of the capitalist class, as some conspiracy theories might suggest, but is rather imposed on the capitalist economy by objective laws independent of the will of individuals. It is to be emphasized that Marxist economics has always recognized alternating periods of capitalist expansion and economic crises as the typical path of development of the capitalist economy. In fact, Marx’s theoretical analysis suggests precisely such a pattern as a basic law of motion of capitalism. Such an analysis is in sharp contrast both to contemporary bourgeois economic theory, which pretends to discover equilibrium and harmony in the capitalist economy, and to petit-bourgeois romantic trends, which infer from the contradictory character of the capitalist economy its impossibility. Crises refer to periods of severe interruption of the ‘normal’ process of capitalist reproduction which persist for a considerable time, and imply stagnation or at best very slow growth over many years. Such phases alternate with expansionary phases in the history of capitalism which are charac-

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terized by rapid growth of productive forces and extension of markets. Crises, therefore, have a periodic character. Quite apart from these long-period cycles of growth and crisis in alternation, the capitalist economy experiences short-period cycles of ebb and flow of economic activity. These cycles arise mainly from the planless character of capitalism, the problems posed by the durability of capital equipment, and price fluctuations due to transitory supply-and-demand phenomena. These cycles are quite short in terms of their duration and mild in terms of their severity. Bourgeois business cycle analysis has mostly concentrated on these short-period fluctuations. Such concepts as ‘the principle of acceleration . . . capacity bottlenecks’ and so on, are meant to apply to these phenomena.6 It is not in explaining these fluctuations that one brings into the argument the basic contradictions of capitalism.

Money and Credit In our rather brief and elementary exposition of Marx’s economic analysis of capitalism, we have left out many important aspects. Particularly important are the aspects of money and credit. The credit system is especially germane to a discussion of crises. With the development of the capitalist mode of production, the credit system arises to facilitate large-scale capitalist operations, and make possible investment of capital in lines of activity where considerable time elapses between the act of investment and the sale of commodities so produced. Money serves here, by and large, merely as a means of payment, that is, commodities are not sold for money, but for a written promise to pay for whom at a certain date. For brevity’s sake we may put all these promissory notes under the head of bills of exchange. Such bills of exchange, in their turn circulate as means of payment until the day on which they fall due.7

Bills of exchange, the first form which credit-money takes, thus serve practically as money in transactions among capitalists (though of course they are not legal tender). By so doing, they serve to make capitalist expansion relatively independent of the quality of the money-commodity (such as gold or silver) or of paper currency issued by the government. A further development of the credit system led to the use of bank deposits which are today ‘as good as money’, that is, widely accepted in the payment for purchases made and in the settlement of debts. The development of the credit system – from bills of exchange and banknotes to the well-developed banking system of today – greatly facilitates capitalist expansion by economizing on the use of cash as such (that is,

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currency and coins) and acting as the lubricant that keeps the economic wheels of capitalism moving smoothly. Also, the credit system – which includes not only banks, but also the stock exchange, investment houses and so on, that is, the financial machinery of the capitalist mode of production – aids greatly the centralization of capital, especially through the formation of joint stock companies. The formation of such companies – the further growth and development of which has given us today’s giant capitalist corporations – is a step of far-reaching significance. It makes possible an ‘enormous expansion of the scale of production and of enterprises’.8 It marks a further important step in the socialization of production. Joint stock capital is in its form ‘social capital (capital of directly associated individuals)’, and the company is a ‘social’ undertaking. With this step, the owners of capital no longer directly administer the enterprise but employ a managerial staff for that purpose. Thus we have ‘the transformation of the actually functioning capitalist into a mere manager . . . and of the owner of capital into a mere owner, a mere money capitalist.’9 Finally credit offers to the individual capitalist . . . absolute control within certain limits over the capital and property of others, and thereby over the labour of others . . . The capital itself, which a man really owns or is supposed to own in the opinion of the public, becomes purely a basis for the superstructure of credit . . . What the speculating wholesale merchant risks is social property, not his own.10

It is evident that the credit system, by placing huge amounts of capital in the hands of a few capitalists who are themselves owners of only a small part of this capital, encourages many risky ventures, feverish speculation and new modes of swindling. Thereby it becomes an added source of instability and serves to increase the severity of economic fluctuations. Thus, on the one hand, the credit system facilitates capitalist development, and on the other, it makes the capitalist economy even more crisis-prone: the credit system accelerates the material development of the productive forces and the establishment of the world market . . . At the same time credit accelerates the violent eruptions of this contradiction – crises – and thereby the elements of disintegration of the . . . [capitalist] mode of production.11

The above fragmentary observations on the credit system are in the nature of general and introductory remarks. It is not possible here to go into the matter in depth and greater detail. It suffices to say that a concrete understanding of the functioning of the world capitalist economy today requires a study of monetary and credit arrangements not only within a

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nation-state, but also (and more importantly) of the international monetary system.12

Imperialism and Contemporary Capitalism We had seen earlier that centralization of capital is an inherent part of the process of competitive struggle. More and more of existing social capital flows into the hands of the fewer and fewer victors in this struggle, while the vanquished join the ranks of the non-capitalist classes. The credit system also aids the process of centralization of capital by developing the banking apparatus and its associated instruments, which enable capitalists to borrow many times the amount of the capital they own and thus operate on a larger scale. More directly, the banking and credit framework bring about centralization by providing larger amounts of credit on easier terms to the bigger capitalists, thus enabling them to crush the smaller ones in the competitive struggle. Both the process of capitalist competition as such and the credit system thus lead to the creation of giant capitalist corporations. In each industry, a handful of such corporations come to account for the overwhelming proportion of production and sales. The national economy itself comes to be dominated – in terms of assets, output and sales – by a few hundred such corporations. Later still, a few hundred monopolies come to account for a major portion of global economic activity. Thus competition and credit lead the capitalist model of production to its monopoly stage. Lenin analysed the development of monopoly capitalism from ‘classical’ or ‘competitive’ capitalism, and called the monopoly stage as the imperialist stage or epoch of capitalism. Basing himself on emerging trends, he identified as the essence of imperialism the following features: 1. The concentration of production and capital, developed to such a high stage that it has created monopolies which play a decisive role in economic life. 2. The merging of bank capital with industrial capital and the creation, on the basis of this ‘finance capital’, of a financial oligarchy. 3. The export of capital, as distinguished from the export of commodities, becomes of particularly great importance. 4. International monopoly combines of capitalists are formed, which divide up the world. 5. The territorial division of the world by the greatest capitalist powers is completed.13 Lenin’s characterization of imperialism pinpoints accurately the essential features of the development of capitalist economies during the period 1870– 1914. The trends on which Lenin based himself have largely continued, and

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today we are at a relatively advanced phase of the imperialist stage. At the same time, important political and economic changes have taken place which have confirmed Lenin’s view that imperialism is the eve of socialist revolution. While a detailed account and analysis of these developments cannot be made here, some brief remarks may be in order. The First World War witnessed a turning point in the history of mankind, namely the Great October Socialist Revolution in the USSR. The capitalist world, having thus ‘lost’ one-sixth of the globe, was before long sent into the most severe depression in its history. Between 1929 and 1939, all the capitalist countries (except Nazi Germany after 1935) experienced phenomenally high rates of unemployment and very sharp declines in their levels of economic activity. Only with the onset of the Second World War did unemployment rates begin to go down significantly. Fascism was given a crushing blow in this War which also saw the birth of People’s China and the East European People’s democracies. Socialism emerged triumphant in China, North Vietnam, North Korea and the East European countries, and capitalism suffered a severe setback. On a world scale at the political, ideological and economic levels, the forces of socialism emerged a great deal stronger than before the War. Within the capitalist world, the ‘old’ imperialist powers of Europe as also Japan had to accept the hegemonic leadership of American imperialism. Between 1945 and 1970, world capitalism went through an expansionary phase under US leadership, and aided by phenomenal scientific and technological progress which saw the extensive development of space science electronics, automation and the whole range of petrochemical industries. Meanwhile fissures of a rather serious nature had developed within the world socialist bloc. We shall not analyse this important political development as well as the other ones here, but instead make a few remarks on the economic features of the contemporary capitalist world economy in the next section.

World Capitalism in the 1970s The trend towards monopoly observed by Lenin – in industry and banking, leading to the fusion of banking and industrial capital which Lenin called ‘finance capital’ – has continued unabated. Some idea of this can be obtained from the fact, for instance, that 0.5 per cent of US manufacturing corporations in 1971 accounted for 35.5 per cent of total sales, 50.9 per cent of total assets and 61.6 per cent of net profit.14 The figures on employment – 0.7 per cent of enterprises accounting for 32.8 per cent of employment in 1967 – tell the same story.15 The figures for the other advanced capitalist countries are not very different. The capitalist expansion during the two decades following the Second World War also saw the great merger waves

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leading to the formation of giant ‘conglomerates’ – capital units that operate in a number of different branches of mining, manufacturing, agribusiness and commerce at once. The centralization of capital has now reached an unprecedented level. The revisionists argued that with only a few very large capitalist combines controlling economic life, capitalist economic crises would be a thing of the past. Lenin exposed the hollowness of this argument by pointing out that monopoly does not mean the elimination of competition. Monopoly in individual branches of production is in fact accompanied by intensified competition among capitals regardless of the branches where they are invested. It is also accompanied by intensified competition among capitalists of the various countries on the world market and for control over the world economy; within each nation-state big capitalist corporations buy out smaller companies, and try to seize companies controlled by other corporations through purchase or merger. Internationally, capitalists based in the advanced capitalist countries utilize to the full their respective state apparatuses in their mutual struggles for markets, raw material sources and investment outlets all over the world. This brings us to a most striking characteristic of contemporary capitalism, namely, the enormous extent of state intervention in national economic life. Historically, of course, the capitalist class has made extensive use of state power ever since its rise to dominance, both to directly guarantee itself high profits via cheap finance, regressive taxation and so on, and to keep the working class down through ideological as well as directly coercive methods. But in the imperialist epoch the role of the state is considerably enhanced. This is especially the case since the Great Depression (1929–39) and the so-called Keynesian ‘revolution’. The rise of socialism and the development of powerful working class movements in the advanced capitalist countries have made it imperative for the ruling classes of these countries to try and prevent the recurrence of such a depression and its associated mass unemployment. The efforts of the imperialist countries led by the US to maintain their hegemony in the non-socialist countries, and to pose a constant threat to the socialist countries, have also meant increasing state expenditures. The trend is also powerfully reinforced by the increased monopolization of economic life, and the tendency towards the integration of the monopolies and the state. The increased role of the state is reflected both in the share of national product accounted for by the state and in the increased regulation of economic life by the state. This tendency is prominent in all the advanced capitalist countries as well as in most backward capitalist countries.16 The emergence of powerful transnational monopolies – giant capitalist corporations which carry on production and sales in many coun-

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tries, though they are controlled by capitalists based in one country – is another important feature of contemporary capitalism. The increasing role of transnational corporations poses a difficult problem for the capitalist state, for it generates new contradictions between different sections of the bourgeoisie. These express themselves primarily in terms of the requirements of national economic policies for keeping unemployment below ‘acceptable’ levels and providing protection from international competition to the domestic producers, on the one hand, and the demands of transnational capital for freer movement of goods, capital and profits across national boundaries, on the other. As an illustration, one may cite the American case where domestic steel producers want protection from Japanese and other competitors, but America-based transnationals like IBM would want freer international movement of commodities and capital so that they can penetrate other economies similarly. Government policy aimed at combating severe unemployment runs up against transnational companies that move to Mexico or South Korea or other such places looking for cheap labour.17 The net effect of all these developments has been to intensify contradictions – both between nation-states trying to protect and strengthen ‘their’ capitalists, and within each nation-state between sections of capitalists as well as between the capitalist class and the working class. Some idea of the intensification of class struggle in the advanced capitalist countries (at least at the economic level) may be obtained from the fact that the average annual number of man-days lost due to strikes more than doubled between 1951–55 and 1966–70. The number of workers involved in strikes increased by 70 per cent during the same period.18 The intensification of inter-imperialist rivalries during the period following the Second World War is of course well documented. With the setbacks to its position of unquestioned hegemony that the US suffered in the 1960s (when its balance of payments was continuously in the red, and it was being outcompeted in many international markets by Japan and West Germany in particular), it resorted to strong protectionist measures beginning in the early 1970s. With the exhaustion of the long boom by 1970, the world capitalist economy entered a period of stagnation and has been in the doldrums since then. Predictably, this period has seen intensified competition among the advanced capitalist countries for markets and raw materials as well as investment outlets. It is not possible, however, for us to go into a detailed analysis of the sources of the present world capitalist crisis. It is clear anyway that rapid inflation, severe unemployment, increasing protectionism, intensified rivalry among advanced capitalist countries and political instability all over the capitalist world characterize the situation of world capitalism today.19

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Concluding Comments The complex of problems mentioned above – and, closer home, the problems and prospects of economic and social development in the backward capitalist countries – can only be understood in terms of the Marxist method and standpoint. This method and standpoint are certainly not to be understood as just Marxist economic theory. Particularly important are the ideological and political levels of social analysis, and especially so in the period of imperialism wherein these levels acquire considerable independence from the economic level, even though latter is ultimately ‘the determining factor’ as Engels calls it. In our series of articles we have not only not ventured upon a discussion of these levels, but have also provided only an elementary exposition of the outline of Marx’s economic analysis of the capitalist mode of production. It is hoped that the present series would have provided the necessary background to pursue further study, especially of problems that are of importance in our concrete political, historical and social context.20 Notes and References 1 2 3

4 5 6

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K. Marx, Capital, Vol. I, International Publishers, 1967, p. 575. Ibid., pp. 580–81. This turn of events may often be accompanied by difficulties in realization as well as due to the operation of the tendency to underconsumption. While theoretically each of these tendencies, as well as disproportionality, can individually contribute to a crisis, the real-world capitalist economic crisis almost invariably is the result of the combined operation of all the three contradictions. K. Marx, Capital, Vol. III, International Publishers, 1967, p. 253. Ibid., p. 255. The ‘acceleration principle’ may roughly be explained as follows. Let us assume, for example that it takes Rs 3 of investment to increase output annually by Re 1. Then, a given increase in demand for final output generates investment equal to three times that increase. This is however a once-for-all increase in investment, and, further, the equipment thus invested in is of a durable character. So, if further increases in demand for final output do not occur, the level of investment goes down. This relationship between investment in fixed equipment and final output (partly technologically determined, partly by prices, wages, etc.), together with the durability of the equipment, causes fluctuations in investment and hence in output, and thus in the economy as a whole. Marx, Capital, Vol. III, p. 100. Ibid., p. 436. Ibid. Ibid., pp. 438–39, emphasis in original. Ibid., p. 441. A useful reference is A. Stadnichenko, The Monetary Crisis of Capitalism, Progress Publishers, 1975. V.I. Lenin, Imperialism, International Publishers, 1933, p. 81. The data is from N. Inozemtsev, Contemporary Capitalism: New Developments and Contradictions, Progress Publishers, 1974. The book is a useful reference. Ibid.

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18 19

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For information and discussion of these points, see N. Inozemtsev, Contemporary Capitalism. The work of the American economist, R. Vernon, Sovereignty at Bay, New York, 1971, may be cited here. Also of interest are E. Mandel, Europe versus America, Monthly Review Press, 1970, and Late Capitalism, New Left Review, 1975. Inozemtsev, Contemporary Capitalism. The political, economic and ideological crises are especially severe in backward capitalist countries which form the overwhelming majority of capitalist countries. Integrated as these are into the world capitalist system and its specific international division of labour, their economies are greatly influenced by what happens in the advanced capitalist countries. In this specific sense, they may be called ‘dependent capitalist countries’. The dependence operates not merely at the economic level, but also at the ideological, political and especially cultural levels. But this dependence has to be understood in a relative and not absolute sense. That is to say, the forces internal to these societies are of primary importance in determining the dynamics of these societies. Their dependence on the advanced capitalist countries operates directly at the economic level and indirectly through attempts at manipulating the internal class alignments and class forces. Some (otherwise) useful references on the relationship between imperialism and underdevelopment make the error of treating dependence in an absolute sense. See, for instance, Samir Amin, Accumulation on a World Scale, Monthly Review Press, Vols. I and II, 1976. A useful introduction to the Indian economy (up to independence) is R.P. Dutt, India Today, Manisha Granthalaya,1948. For the post-independence period, the best introduction is C. Bettelheim, India Independent, Monthly Review Press, 1968.