Marx’s analysis of capitalism, unlike bourgeois accounts, is conducted from a historical perspective. In other words, Marx was keenly aware that during the march of history, one economic system, because of internal, irreconcilable contradictions, has been replaced by another until it too falls victim to similar contradictions. Of course, when one is born and matures within a single economy and lacks knowledge of any other system, one tends to take one’s own for granted, believing that it will persevere forever. A historical perspective has the advantage of forcing us to rise above the provincial perspective that assumes economic systems are eternal. We survey from above the vast array of systems that have played their fleeting role on history’s stage. For this reason, Marx’s analysis of capitalism is specifically written with the purpose of unveiling its inner contradictions so that the possibility of its demise stands boldly in relief. This runs directly opposed to bourgeois portrayals of capitalism as “natural” and hence as unalterable as the law of gravity itself.
What distinguishes capitalism from all other economic systems for Marx is, first, the prevalence of the commodity. Under capitalism it becomes the universal form that frames all economic relations. 1 A commodity is by definition something that is produced specifically for the purpose of being exchanged, either for money or directly for another commodity. Therefore it must satisfy some desire on the part of someone other than the producer. This quality is referred to as its “use value,” and is a function of the specific physical qualities of the commodity. When a member of a family cooks dinner and serves the other members, the various dishes are not commodities — they are not produced for exchange. Gifts are also not commodities since supposedly nothing is demanded in exchange. But if someone bakes cookies in order to raise money, the cookies are commodities.
In capitalist society, in its most basic form, producers come together in a market in order to sell their various commodities and buy others. This in turn means that the economic relations among members of capitalist societies are no longer direct, personal relations. People do not come together and collectively calculate the needs of society so that they can plan what should be produced accordingly. Rather, producers assume the roles of private, independent entrepreneurs, each seeking to maximize his private welfare, and all of them relating to one another, at least as far as their economic relations are concerned, only through their commodities.
The question then arises: When producers exchange their commodities, what determines the ratio in which the exchange is conducted? Why, for example, might 2 pounds of coffee exchange for 1 yard of linen? Or, using Marx’s term, what determines the “exchange value” of a commodity?
The Value and Exchange Value of Commodities
Imagine that 2 pounds of coffee and 1 yard of linen each require 10 hours of labor to produce. But suppose that when the weaver brought his linen to market, he only succeeded in securing 1 pound of coffee in exchange for his 1 yard of linen. Under such circumstances, the weaver would undoubtedly calculate that the arrangement did not proceed in his favor. He brought the equivalent of 10 hours of labor to the market but only left with the equivalent of 5. If labor were a process of pure joy, the weaver might shrug off the lack of equivalence and simply look forward to producing more linen. But whenever work is unpleasant, and this is particularly true under capitalism, this unequal exchange is no trivial matter. The weaver would quickly conclude that life would be better as a producer of coffee precisely because he could acquire more wealth in a shorter period of time, thereby expending less of his energy than if he remained in the business of weaving. If he and others like him turned to producing coffee so that fewer people were producing linen, a new set of circumstances would emerge. Eventually, the supply of coffee would rise, but, assuming all other factors were equal, the demand for it would remain as it was before. Because of the new abundance of coffee, its producers would soon encounter difficulties in finding customers. To their chagrin, they might be forced to settle for less if they wanted to sell at all. Meanwhile, since the number of weavers declined, less linen would have been produced. Those who remained in this line of business would discover that they could command a higher price for their linen since buyers would be forced to compete among each other over the scarce supply. Instead of 1 yard of linen exchanging for l pound of coffee as before, it might now exchange for, not 2, but 3 pounds of coffee. Here the weaver comes away with the better deal. He brought the equivalent of 10 hours of labor to the market and left with the equivalent of 15 hours. 2
One might conclude that these transactions lack any rational principle, given the constant fluctuations in the ratios of exchanges among the commodities. However, a logic slowly emerges. All the participants attempt to maximize their wealth in relation to the amount of time they are required to expend on procuring it. If they come away from a transaction with the equivalent of less labor time than they invested in the article they sold, they conclude that their line of business is not “profitable” and migrate to a sector of the economy where they could at least receive the equivalent of what they sell, but hopefully get even more in the transaction. Of course, this assumes that producers have the option to change businesses or produce more or less of any particular commodity as they choose, and this option is indeed a requirement of capitalism. When a commodity sells at a rate above its labor time, more producers gravitate into this sector, wanting to take advantage of the windfall. But their move serves to increase the supply of the commodity, thereby eventually reducing its cost since supply has expanded in relation to demand. Conversely, when a commodity sells at a rate below its labor time, producers abandon this sector, thereby decreasing the supply in relation to demand, which eventually translates into a rise in the commodity’s price. If one were to average the fluctuations of each particular commodity over an extended period of time, one would discover that this average hovers around the amount of socially necessary labor time required to produce the article. Or, put differently, when supply and demand exactly balance out with respect to the two articles being exchanged, then both will embody the same amount of socially necessary labor time.
Marx is quick to point out that the socially necessary labor time required to produce an article does not necessarily coincide with the amount of time actually spent in the production process. If a producer intentionally slows down in order to stretch the amount of time to produce a commodity, this added time does not raise the exchange rate of the article. If the producer nevertheless tried to extract a higher price from the buyer, he would quickly find himself with no customers since, operating in their own self-interest, they would seek the better deal from the more efficient producer.
The socially necessary labor time required to produce a commodity is what Marx refers to as “Value.” The “exchange value” of a commodity designates the number of other commodities or amount of money it can be exchanged for at a particular time. The exchange value will rise or fall, given the relations of supply and demand, while nevertheless fluctuating around the amount of labor time required to produce the commodity. In order to facilitate the process of exchange, money is introduced into the transaction. Money expresses the exchange value of a commodity in the form of a “price.” So Marx is arguing that over time, the average of the various exchange values or prices of a particular commodity will equal its Value. This law is referred to by Marx as “the law of Value.” Others have called it “the labor theory of value.”
This law is not enforced by means of the producer attaching a tag to his article, stipulating the amount of labor required for its production, and demanding an equivalent in exchange. Instead, labor time, as the determination of Value, is only achieved indirectly and impersonally through the mechanism of the market. And unfortunately for the producers, they generally have no idea of the intentions of other producers since all act from the standpoint of isolated, individual, private self-interest. Consequently, at times far too many commodities of a particular type are produced, thereby forcing prices down, to the horror of the producers. At other times far too few of them are produced and the prices surge upwards. This rise and fall in prices is the impersonal, unconscious mechanism that forces the supply of each commodity roughly to conform to the prevailing demand.
Capitalism is consequently an economy in which people only indirectly cooperate with one another. Some people are bakers, others are tailors, others are carpenters, etc. Each person depends on the others to produce the things that he needs. But this cooperation is only achieved through the buying and selling of commodities. Instead of coming together and democratically calculating how much bread, clothes or chairs will be needed by the members of society and then allocating people to these various occupations in proportion to the needs that have been identified, these assignments are determined entirely through the anarchic, unplanned exchange of commodities.
The Determination of Wages
As we have seen, every commodity necessarily has both a use value and an exchange value. The exchange of these commodities then constitutes the surface appearance of the capitalist economy. What lies underneath this surface is labor, for without labor, nothing is produced and society comes to a grinding halt. And this leads to the second defining condition of capitalism: the buying and selling of labor power.
In capitalist society workers, unlike the slaves or serfs of previous societies, sell their labor to the capitalist. In other words, one’s ability to work is itself converted into a commodity and sold like any other commodity. Almost no one would engage in such a transaction voluntarily, but as capitalism emerged from feudalism and serfs were torn from the land, two strikingly different classes of people emerged. On the one hand, there were those who had no means of support: they lacked land, they did not own a shop, and many lacked any tools whatsoever. In Marxist terms, they did not own “the means of production.” Their only asset was their ability and willingness to work. On the other hand, there were landowners, owners of manufacturing shops, etc. who needed people to work for them. In such a situation those with nothing found themselves compelled by the struggle for survival itself to approach those who owned in search of work, and this brought two new social classes face-to-face: the working class or proletariat on one side and the capitalists or bourgeoisie on the other. And before any work began, the two parties negotiated the amount the worker would be paid. One worker, for example, might be offered $10 an hour while another might be offered $20 an hour.
The question then arises: What determines the amount a worker receives? Why are the wages of some workers higher and others lower? Marx’s response was entirely consistent with his previous analysis. The workers’ ability to work has been transformed into a commodity and accordingly its Value is determined in the same way as every other commodity — by the amount of socially necessary labor time required to produce it. But a crucial distinction is required in order to follow Marx’s analysis. The worker does not sell the actual labor performed to the capitalist because the wage is negotiated before the work ever begins. The worker is made an offer and only then decides whether or not he will accept the job. Consequently the worker is technically only selling his capacity or potential or ability to work, which Marx designates by the term “labor power.” Some abilities, however, require more labor time to produce than others.
For example, if the job requires unskilled labor, then in order for a worker to have the capacity or ability to do the job, he must be capable of expending minimal mental and physical energy. And for this to take place, the worker must be relatively healthy, he must have eaten food and found clothing and shelter. The amount of time required to produce these basic necessities for one day would then be the amount of socially necessary labor time required to produce this worker’s labor power. Suppose, for example, a farmer required 4 hours of labor to produce enough food for one person to live for a day, a house builder had to do on the average one hour of work a day to maintain an apartment, and weavers, tailors, etc. were required to perform on the average 1 hour a day of labor to clothe an individual. Under these circumstances the worker would have to be in a position to pay all of these people in order to live from one day to the next, meaning that to survive, he would need a job that paid the equivalent of 6 hours of labor time. On the other hand, if the work requires the expertise of an engineer, then the worker would not only require the previous amenities, but years of education as well. Hence, much more labor time would be required to produce the ability for someone to perform the function of an engineer than to perform unskilled labor. For this reason, the wage of the engineer, that is, the price or exchange value of his labor power, is higher, all other things being equal, than the wage of an unskilled worker.
The Origin of Surplus Value
We are now in a position to follow Marx’s analysis of the origin of surplus value that for him is the source of capitalist exploitation. Let us suppose that we are dealing with unskilled labor power that requires 6 hours of labor time each day to produce. Let us also suppose that supply and demand are exactly equal so that exchange value directly coincides with the Value of the articles as measured by labor time. Let us add to this stipulation the supposition that 1 hour of labor time creates the equivalent of $5 of exchange value. Under such conditions, since the labor power of the worker requires 6 hours to produce, the worker would require $30 each day in order to maintain his ability to work. This would be the price of his labor power. Finally, let us suppose that the capitalist offers the worker $30 a day, and the worker accepts the offer.
We must now examine the actual work process. Production, as a general rule, is composed of three elements: (1) the actual work itself; (2) the material upon which the work is performed, which might include linen to be transformed into clothing, wheat to be made into bread, etc.; and finally, (3) the instruments of labor, which in turn might include tools, machines, computers, etc.
If during a 10-hour work day, the worker transforms 2 yards of linen into one coat and if the 2 yards of linen themselves required 20 hours of labor to produce, then the completed coat would therefore include not only the 10 hours of labor performed on that day, but also the 20 hours of labor already contained in the linen. This would amount to 30 hours of labor or $150 hours of exchange value, given our assumption that 1 hour of labor creates an exchange value of $5. Also, if a particular instrument, requiring 1 hour of labor time to produce, is used by the worker to make the coat and if the tool must be replaced each day because of wear and tear, then this would mean that an additional hour is required to make the coat, bringing the total to 31 hours of labor time, translating into $155. Marx argues that neither the instruments of labor, whether they are primitive tools or sophisticated machines, as well as the raw materials do not create new Value — only labor creates Value. Rather, the value embodied in them due to previous labor is transferred to the new article by the current labor.
Throughout this process we have been assuming that supply and demand are exactly balanced so that the price of all commodities is exactly commensurate to the amount of socially necessary labor time required to produce them. Under this assumption, the above coat would sell for $155. Let us now examine how the capitalist has fared in this transaction. In order to acquire the $155 at the end of the day, various expenses were advanced, including $30 in wages paid to the worker, $100 paid for the linen, and $5 for the instrument, totaling $135. To his good fortune, the capitalist ends the day with $20 more than he started, an increase which Marx designates “surplus value.” If this entire process were repeated for another 6 days, the capitalist would enjoy, including the original $20, a total surplus value of $140, which would allow him to hire an additional worker for $30, 2 more yards of linen for $100, and another instrument of labor for $5. And then in 7 more days, the capitalist would be in a position to hire two more workers, etc., all thanks to the labor of the workers he hired, with the exception of his original investment.
But from where exactly did the surplus value arise? Marx insists that in this entire process “… the laws governing the exchange of commodities have not been violated in any way. Equivalent has been exchanged for equivalent.” 3 The answer lies in the crucial distinction between labor time and labor power. As we saw, one’s labor power is simply a potential or capacity to work. As with all other commodities, ts value is a function of how much time is required to produce it. The value of one’s labor power is consequently established prior to the beginning of the working day. In the above example, the value of the labor power was the equivalent of $30. But after the worker accepted the job and actually performed the work, he was engaged in creating new value from the moment he started working. During the first 6 hours of the working day, he recreated the amount of value equal to his own wages, but the workday continued another 4 hours, which accounted for the surplus value of $20.
Thus far we have considered the basic concepts of Marx’s analysis from which he derives the fundamental laws of capitalism. We must now focus our attention on a few of the general tendencies of the movement of capitalism that will in turn highlight the social relations spawned by this system.
Keeping in mind that capitalism rests on the principle of competition, we observe that when it operates according to its defining principles, individuals compete against one another in pursuit of their private interest, often at the expense of each other. Capitalist apologists have assured us for centuries that this is all for the best. They argue, for example, that if one butcher sells healthy meat while the meat of his competitor is rancid, then consumers, operating in their self-interest, will patronize the former establishment and shun the latter with the result that the latter will be forced to shut down. Or, if two butchers sell the same quality meat but one operates his business more efficiently, reducing the labor time necessary to produce the meat and passing this saving on to the consumer, then customers will patronize his shop. And so, we are told, capitalism creates the best of all possible worlds by forcing producers to create commodities with the highest quality at the lowest price.
But such an analysis, by restricting its focus to business owners and consumers, conveniently omits consideration of the impact of this system on workers, who constitute the vast majority of the population in capitalist societies.
Every capitalist who is intent on survival is compelled to reduce his production costs to a minimum. Otherwise, an industrious competitor who succeeds in this endeavor and passes the savings on to the consumer can lure the customers to his business and eliminate his less efficient opponent. However, labor costs comprise a major component of production costs, and consequently, in order to remain in business, each capitalist is compelled to reduce labor costs to the absolute minimum, given this fiercely competitive environment.
But workers, shunning a purely animal existence, are determined to enjoy a comfortable life. They want enough money to provide for themselves and their families in terms of putting food on the table, buying a house, accessing quality health care for the entire family, etc. They want long vacations and shorter working days so that they can spend time with family and friends and indulge in recreational interests.
Of course, all of these amenities cost money with the unavoidable result that an irreconcilable contradiction is wedged between the workers and their employers which, when the social niceties are peeled away, is nothing short of class war. Sometimes this war is barely visible and at other times it explodes into violent conflict, but whatever guise it assumes, it is relentless and abiding.
Accordingly, workers organize themselves into unions and conduct strikes with the intent of imposing their collective will on the bosses. Meanwhile, the capitalists have devised a myriad of insidious tactics aimed at undermining working class solidarity and lowering wages. For example, they introduce a two-tiered wage system or convert full-time positions into part-time positions, tactics that in either case divide workers among themselves, lower the wages of some, and weaken the resolve of all. Or they pack up and move to another country where wages are cheap and environmental standards are almost nonexistent. Or they replace workers by machines so that they can lower labor costs and reduce the threat of a strike. All of this is accomplished with little concern for the misery that is left in its wake: families are destroyed because workers, having been laid off, can no longer provide for their dependents, and communities are devastated because factories have abandoned them. The capitalists mercilessly press forward, casting demoralization in all directions, but unshakable in their conviction that their own survival is at stake in this dog-eat-dog “war of everyone against everyone” where life is “nasty, brutish and short.” 4 Meanwhile they arrogantly assure us that capitalism is the best that history can deliver, even though the rich are forever getting richer while the well-being of working people, the majority of the population, is relentlessly being trampled under foot by the inexorable laws of capitalism.
Marx’s analysis in CAPITAL provides a foundation for understanding these tendencies and simultaneously shines a light, in the form of specific strategical guidelines, on the path that can lead to a better world. For example, his analysis directly implies that capitalism cannot be reformed — its basic laws rule out the possibility of a benign version. If workers organize, strike, and win a substantial wage increase, the employer, due to the pressure of competition, will immediately launch a campaign to undermine these gains. He will remind the workers that if the business is to remain competitive, they must all work together to keep costs down. He might get them to agree that newly hired workers should not be eligible for the raise. Finally, if all else fails, he can threaten to close down and relocate in another country.
This is not to say that reforms should be shunned since they often contain valuable learning experiences. When a victory is scored, workers are often inspired to mount even more ambitious struggles, having gained an appreciation for the power they can wield when they are organized and unified. Even in defeat, important lessons can be learned for future struggles. Nevertheless, reforms alone offer no panacea. As soon as workers relax their guard and try to enjoy their victory, the laws of capitalism re-engage and silently set to work undoing all that was won. Like waves pounding sand castles on the beach, even the most magnificent edifices are soon reduced to nothing.
Moreover, Marx’s analysis indicates that any so-called “partnership” between workers and capitalists will function to the detriment of workers, somewhat like helping the hangman when you are the victim. The capitalist must reduce production costs if he is to survive. Hence, when workers commit themselves to helping their employers maintain a competitive edge, they sign on to a program to lower their own wages and in this way not only undermine their own interests but place themselves in an adversarial relationship with their brothers and sisters who work for other employers. Such a strategical orientation has only been promoted enthusiastically, outside the ranks of capitalists, by the labor officials high up in the trade union bureaucracy, perhaps because of their bloated salaries and relatively secure employment, thanks to undemocratic elections. But it has spread defeat and demoralization throughout the ranks of the American working class.
If workers are to defend their interests with any success, they must recognize that capitalism, at its very core, is an economic system that incorporates the exploitation of one class by another since capitalists pursue profits at the expense of workers, and where those who work the hardest are usually rewarded the least. The only salvation of working people therefore lies in organizing themselves as a class, steeled with the determination to overthrow the entire system and abolish exploitation altogether. And such a transformation is entirely realistic. After all, capitalism cannot survive a single day unless workers agree to go to work.
Socialism represents the only rational solution to the irresolvable contradictions of capitalism. Starting with the premise that humans are social animals and that we must cooperate with one another in order to prosper, it rests on the conclusion that no one can be truly free unless everyone is free and that “the free development of each is the condition for the free development of all.” 5 Accordingly, socialism is predicated on the principle that society should be organized in such a way as to promote the interests of the entire community, not simply a tiny elite minority, and that rational planning is the best way to attain this goal, not the impersonal mechanism of the market or the selfish whims of the rich. In other words, socialism proceeds on the principle that everyone should have a voice in deciding the fundamental economic policies that define the community. This means everyone should have at their disposal all the relevant information so that an informed discussion can take place, where people can debate the virtues of various alternatives, and in the final analysis vote, meaning that the majority will truly rule. In this way, socialism raises humanity to a higher stage: it replaces the market with rational planning and it replaces insatiable greed, arrogance, and blind self-interest with the well-being of the entire community as the guiding principle.
Marx’s painstaking analysis of capitalism contained in the four volumes of CAPITAL is intended to serve as a door which, when opened, illuminates an entirely different universe, one governed by reason, freedom, genuine democracy, prosperity for all, peace, and humane principles in general. It is well worth opening.
1. In one of his more literary formulations, Marx described the extent of the penetration of the commodity-form into people’s lives: “Finally, there came a time when everything that men had considered as inalienable became an object of exchange, of traffic and could be alienated. This is the time when the very things which till then had been communicated, but never exchanged; given, but never sold; acquired, but never bought – virtue, love, conviction, knowledge, conscience, etc. – when everything, in short passed into commerce. It is the time of general corruption, of universal venality, or, to speak in terms of political economy, the time when everything, moral or physical, having become a marketable value, is brought to the market to be assessed at its truest value.” POVERTY OF PHILOSOSPHY
2. Marx provides a detailed description of this process in WAGE LABOR AND CAPITAL.
3. Marx, CAPITAL, Volume I.
4. This is the apt description offered by the 17th century philosopher, Thomas Hobbes, in THE LEVIATHAN.
5. Marx and Engels: THE MANIFESTO OF THE COMMUNIST PARTY.