Socialism is a society in which all the members of the community collectively and democratically determine their way of living. In order to do so, they must control the use to which technology and resources – the means of production – are put.
Every capitalist competes with every other one for a market. When they sell similar goods, their competition is obvious. Even when they sell altogether different goods, like TV sets and houses, they still compete for the limited wage-packet of the worker. If one capitalist does not compete, he is lost. Others will acquire his buyers.
Competition means under-selling and price-cutting on the one hand, and on the others, advertising wars Whoever can undersell or spend more money on advertising is sure to win and knock the others out of the running. In other words, the bigger the amount of capital under your control, the bigger it is going to become. Only the very big capitalists can afford the techniques of mass production. Only the big ones can buy raw materials in bulk.
To become big the capitalist must first squeeze out his weaker competitors and add their capital to his – centralization of capital – or make as much profit as possible from his current sales and reinvest it – accumulation of capital. The first method is of no direct interest to the worker as it matters very little who the boss is. If the capitalists want to fight things out amongst themselves, it is their business. It is of little interest for another reason: it adds nothing to the productive powers of society; the national wealth does not grow as a result of it. In fact all it leads to is the concentration of the same amount of wealth in fewer and fewer hands.
We are interested mainly in the second form of capitalist growth: the accumulation of capital. It is accumulation which has made capitalist society the dominant form of society in the world. This is what affects the worker most directly. How do capitalist firms accumulate? Where does the money which they reinvest come from?
The source of accumulation – surplus value
In order to produce commodities for the market, every capitalist must buy other commodities which he uses in production. The things he buys are mainly: machines, raw materials or semi-finished goods, and labour-power. Machines, raw materials or semi-finished goods, although an item of expenditure on the part of one capitalist, are commodities sold by other capitalists and appear as part of their incomes. Those capitalists also spend money on machines, raw materials or semi-finished goods and labour-power, the money spent on machines, raw materials and semi-finished goods being the income of yet another group of capitalists who spend money on... and so on indefinitely. Whenever one capitalist spends money on machines, etc., that money is part of the income of other capitalists who then hand it over to yet other capitalists for machines, etc. If all the capitalists belonged to one great trust these transactions would not take place and the only buying and selling that there would be is the buying of labour-power by the capitalists and the selling of it by the workers and technicians in exchange for wages and salaries. Taken all in all, the capitalist class (not the individual capitalist) has only one expense – buying labour-power. Whatever remains to that class after its purchase of labour-power is profit (surplus value).
That part of the capitalist’s expenditure which is spent on machines, raw materials and unfinished goods goes the rounds from one capitalist to another in a perpetual circle – this is the social wealth that has already been created. If the productive forces of capitalism were to remain static and not increase, this expenditure would appear like a constant, fixed fund thrown from hand to hand in an endless relay race of production, each capitalist handing on to the next the exact amount required to renew his stock of machines and raw materials. No profit would be made on such sales as each capitalist would swap exactly that amount of machines, etc., for an equivalent amount, and, when all the exchanges were done with, everyone would be where he started.
There is, however, one item of expenditure which makes all the difference, namely, wages and salaries – the expenditure on labour-power. This expenditure is the only one which is not a transfer of goods already produced from one capitalist to another. It is the only item of expenditure which is productive in the dual sense of producing the wealth of society and in the sense of producing profits for the capitalist. Labour alone produces wealth.
The capitalist controls the physical means of production; the workers control nothing but themselves, the capacity to work. They are driven to work, to sell their labour–power to the capitalist, in order to keep themselves and their families. When they sell, they demand a ‘living wage’ for their labour-power, and, if unions are strong and there is not much unemployment, they usually get it. Of course there are exceptions, but by and large, for the working class as whole, this is true.
If the worker produced exactly that amount of products which he could buy for his or her weekly wage plus what would replace the raw materials and machinery used up in its production, the capitalist would clearly not make a profit. Profit can only be made when the workers produce more than their wage bill and the depreciation of machinery and the depletion of stocks of raw materials put together, i.e. when they produce surplus value, value over and above the wages necessary to maintain themselves and their families.
Adapted from here