In the first place then what has socialism to say with reference to purely economic relations?
Economics divides itself into pure or abstract economics and economics as developed in the concrete in the course of historical evolution. Abstract economics takes no account of the modifying influences of the human mind, whereas in dealing with economics historically full consideration is given to these.
In which category do you place the economic relations of to-day?
While these necessarily have their place in the historical development, they also lend themselves to be treated in the abstract, and we will now proceed to so consider them.
Will you, then, define some of the terms we so often find in treatises on political economy? For example, how do you define WEALTH?
Wealth comprises all material things which serve to satisfy human wants and desires. Economically wealth may be defined as such of these things as are practically limited in quantity or are the result of human labour. Thus all land, cattle, machines, houses, furniture, corn, food, and all products of the land, are included in the economical term wealth, because these are all either practically limited in quantity or are the result of human labour; air, on the other hand, could not be described as wealth, because, useful and necessary as it is, it is practically unlimited, and is not the product of human labour.
How do you define LABOUR, economically?
Labour, economically, means productive labour, or labour employed in producing useful objects, i.e., wealth, as above defined.
What is the distinction between wealth and CAPITAL? Is all wealth, capital or is all capital wealth?
Capital means wealth which is employed by its owners, not merely for purposes of production, as, for instance, a hand tool may be by its owner, but which is used, by those possessing it, for the purpose of profit by the labour of others, or as a natural monopoly to tax the consumers.
Then Robinson Crusoe’s wheel-barrow or canoe could not be regarded as capital, as is alleged by some economists?
Certainly not, unless Robinson used the wheel-barrow as a means of making profit out of the labour of Man Friday, that is to say, employed the latter to dig out gold or to grow grain and afterward wheel it down to the coast, there to be taken to the markets of the world to be sold for the profit of Robinson himself.
Does, then, the use of the means of production for the employment of the labour of another person constitute those means of production capital?
Strictly speaking, yes, although the mere direct employment of one man by another, as in the case of Robinson and his Man Friday, is of itself but a very rudimentary form of capitalism. The terms CAPITAL, CAPITALIST, and CAPITALISM, as generally used, imply considerable concentrations of the means of production in the hands of one person or a comparatively small number of persons, and the payment of wages for the labour employed in the use of these means of production, in such wise that the total product remains the property of the possessors of the capital used. Thus capital and capitalism imply the existence of a whole series of social conditions in which the users of the tools, the means of production, have no ownership or control over the tools which they use. The terms of the bargain between capitalists and non-capitalists are, therefore, the following: We are the proprietors of the whole produce of our property, our tools, and we agree to pay a small proportion out of this product to you, the actual producers.
What is the meaning of the term VALUE, as used by economists?
A variety of meanings have been given to the term value, but the meaning we attach to it is that of the classical economists, Adam Smith, Ricardo, and others, i.e., value represents the relative amount of average social labour embodied in any useful article.
But does not the usefulness, rarity, or other quality of an article constitute its value?
To some extent, yes; as before stated, various meanings are attached to the term, both by certain economists and in common phraseology. For instance, value is often confounded with the useful quality of an article, its rarity, or even its price in the market. But on examination it will be found that these definitions merely refer to the forms in which value manifests itself, and not to that permanent clement which constitutes value at all times and places where exchange takes place — in other words, that which is its essential character.
But do not people when they speak of value mean the useful quality of an article rather than the amount of labour embodied its that article, or its cost of production its labour?
That is, undoubtedly, the popular idea, but it is a mistaken one. The true economic value of an article is not determined by its usefulness at all, but, except in cases of a monopoly, by the actual amount of socially-necessary labour embodied in it. This applies to all articles the production of which can be carried on to a practically unlimited extent. Even in cases where value might be supposed to be due to scarcity, as with gold and silver and precious stones, it will be seen on examination that the value is really determined by the amount of average labour expended in producing these things. It is only in the case of articles which cannot be reproduced, such as rare pictures, etc., or where there is a complete monopoly, that the element of scarcity enters into value.
You assert that the basis of all value is the amount of labour embodied its an article, but how can you show that this is the case?
It is quite clear that the production, that is to say, the making or even the finding, of any useful article involves a certain amount of average labour, and it is equally clear that two persons, exchanging two articles, would seek to get value for value. Say, for instance, one man has a pair of boots, which he wishes to exchange with another man for a quarter of wheat; it is quite clear that as articles of use there is no duality in common between the boots and the wheat, and the only way in which the two parties to the exchange can determine if they are getting value for value is by taking into consideration the amount of labour each article has cost to produce. Wheat and boots are alike the product of labour, that is the one quality which they have in common, that is the one quality by which they can be measured the one against the other, and thus it is clear that it is the amount of labour each article contains which gives it value.
That sounds very well in theory, but as a matter of fact people do not judge of the value of the things which they buy in that way, and besides they have no means of judging. How can the man with the wheat tell how much the boots cost in labour to produce, or what does the man with the boots know about the labour-cost of the wheat? Both are in the dark, So is it not more than likely that one or the other gives more value than he gets?
This may be, and as a matter of fact it is very seldom indeed in the actual exchange of commodities that each one exchanges for precisely its value, but what is lost on the one hand is gained on the other, and so over the whole area of exchanges, the gains and losses cancel each other, and the basis of the total sum of value of all the commodities exchanged would finally resolve itself into the amount of labour they have cost to produce.
But admitting that is so, and that it is the amount of labour put into any article which gives it its value, is it not more than likely that two men making precisely the same kind of things will require a longer or shorter time to make the same article; and thus one article of the same kind will contain very much more labour than another?
That is quite true, but it is clear that it is only the necessary amount of labour which can give value; therefore it is always essential, in speaking of labour as the basis of value, to bear in mind that it is average labour, or socially necessary labour, which is meant.
You have used the term COMMODITIES once or twice; what do you mean by commodities? Is a commodity the same thing as an article of use; that is to say, are all useful articles commodities?
Commodities are articles of use produced for exchange. The chief object of practically all labour to-day is the production of useful articles, not for use, but for the market; to be put upon the market for exchange. The owners of the means of production are not greatly concerned with the utility of the articles which they are engaged in producing; a boot manufacturer, far instance, has no special interest in the production of boots, as boots; what he is concerned with is the production of boots as a commodity, as something to sell, in order to make a profit.
Is the profit of the manufacturer, then, made its the course of exchange on the market?
No. If that were so it would be necessary for each manufacturer or dealer on the market to sell above the cost of production, and that, as we have already pointed out, is impossible. The sellers are also buyers, and although some may buy or sell above the cost, while others may buy or sell below the cost, still, as we have already said, these differences necessarily balance each other, and in the total of exchanges there is neither loss nor profit, although generally the whole body of those engaged in exchange participate in it for the purpose of profit, and generally make a profit.
But if the profit is not made in exchange, how is it made? You say the capitalist only enters into production in order to produce commodities to put upon the market for exchange and that he does this for the purpose of profit, and that he usually makes a profit in the process; yet you say that the profit is not made in exchange. If not, where and how is it made, and where is it? “If Peter Piper picked a peck of pepper, where is the peck of pepper Peter Piper picked?”
In the answer to that question lies the kernel of the whole capitalist system of production for profit, with its exploitation and impoverishment of the proletariat. Profit is not made on the market, but in the workshop, in the mine and the factory. Profit is derived from the surplus value which is wrung from the unpaid labour of the workers.
What is this SURPLUS-VALUE, and how is it created?
Surplus-value is the difference between the cost of labour-power to the capitalist and the amount of labour-power he is able to extract from his work-people.
What do you mean by LABOUR-POWER?
Labour-power is the capacity for labour inherent in the workman, and it is this capacity or quality which the capitalist buys in the labour market as a commodity. We are assuming a modern capitalist society in which there are no slaves, and the workmen are free. Consequently the capitalist does not buy the workman, neither does he buy labour; that is to say, labour actually expended or in operation. What he buys, when he engages a workman for a given time, is the power to labour contained in the body of the labourer.
You, speak of this labour-power as being bought by the capitalist as a commodity; do you then mean to suggest that it is subject to the same laws as govern other commodities?
Precisely. The labourer and the capitalist meet on the market, the one as seller the other as buyer, in the same way as do the buyers and sellers of other commodities.
Does labour-power, then, exchange according to its cost of production in labour as do other commodities?
Certainly. The exchange-value of labour-power is precisely the same as that of any other commodity, determined by the amount of socially necessary human labour expended in its production; in other words, and in the language usually employed by economists, the return to labour — WAGES — is determined by the cost of subsistence of the labourer. For it is by this subsistence that the labour- power is continually reproduced.
But if the value of labour-power bought by the capitalist is determined by its cost of production in labour, and the commodities this labour-power is employed to produce have also their value determined in the same way, i.e., by the amount of labour incorporated in them, how is this surplus-value of which you have spoken created?
The capitalist buys labour-power at its cost of production in labour, but the amount of labour which the workman expends, that is to say, the capacity for labour, or the labour-power, which the capitalist buys, and which the workman incorporates in the commodities he produces, is a very much greater quantity than is expended in the production of that labour-power, and it is this difference, a difference which the capitalist gets for nothing, which constitutes surplus-value.
But how does the capitalist secure this surplus-value without paying for it? If the workman is free, why cannot he insist on receiving, not the mere exchange-value of his commodity, “labour-power,” but the full value of the labour he expends for the capitalist?
The capitalist obtains this surplus-value owing to his monopoly of the means of production, which enables him to extend the working day, beyond the hours necessary to produce the subsistence of the labourer; by the employment of machinery, by which the labour of the workman is made more effective; and by the organisation of labour, which has the effect of intensifying the expenditure of labour. The labourer cannot, as a rule, command more than the actual exchange-value of his commodity, that is to say, his cost of subsistence, in return for his labour-although his wages, like the prices of all commodities, sometimes rise above this and sometimes fall below — because, although apparently free, he is really not free. He must sell his labour-power in order to live; he has no other commodity to dispose of, and, having no ownership in or control over the means of production, he cannot employ himself. Consequently, he has to find a purchaser for his commodity and must accept the terms that purchaser will offer — subject only to two conditions, his own cost of subsistence and the fluctuations of the market. This principle, that the return to labour is determined by the cost of subsistence of the labourer, is generally known as the “Iron Law of Wages.”
But has not this law been discarded even by some Socialists?
There have been attempts in some quarters to demonstrate that this law does not actually operate with the rigidity at first claimed for it; but, in truth, it stands as firmly to-day as when insisted upon by Lassalle. The variations or modifications in its operation no more destroy its validity as a general economic law, than the fact that no bodies ever proceed in a direct line, owing to disturbances due to friction, disproves the first law of motion, or the law of gravitation.
Does not the machinery to which you just now referred as being used to make the labour of the workmen more effective, itself produce what you describe as surplus-value?
No. This machinery itself is the product of labour, and is, as we have pointed out, used for the purpose of exploiting labour; but of itself it creates no value. The sum total of the value of a commodity represents the sum total of the average labour employed in its production, including that involved in producing the raw material and the amount of the wear and tear of the machinery used up in the commodity, but the surplus-value comes from unpaid labour only.
Then this surplus-value, as you call it, is merely the profit of the capitalist. Why, then, do you use the term surplus-value, instead of simply speaking of it as profit?
Because the profit of the immediate capitalist employer only forms a portion of the total surplus-value. Out of that total the landlord draws his rent for the land upon which the factory is built; the owner of the factory takes a share himself as rent for the factory; as do also the middleman, the dealer, and all those who handle the commodities for the purpose of making a profit. The fees of the lawyer who maybe engaged in drawing up the deeds, etc., the tithes of the clergy, the salaries of public officers, and in short the rewards or payments of all those who are not themselves engaged in the immediate work of production, these, as well as the remuneration of the contractor engaged in the building of the factory or repairing the machinery; the profit of the broker who sells the raw material, and so on, are all derived from the surplus-value wrung from the unpaid labour of the workers.
But, surely, there are some among the functions even of the State of to-day, as, for instance, the administration of public affairs, which must be paid for from some source, and which, benefit the whole community including the workers themselves; how are these to be remunerated if there is to be no profit at all, or no surplus-value and the workers are paid in full?
It is quite true, as regards the State of to-day, that certain functions are useful and necessary, but many of these functions would be abrogated in the industrial organisation under Socialism. The whole of the administrative work of society would then he necessarily very much simplified, and that which was necessary would, of course, have to be borne, directly or indirectly, by the whole of the members of the social body. Practically, all useful functions then would be public functions — not only those of administration — which would be comprised in the useful work of the community, and each would have to bear his share. This, obviously, involves neither profit nor the capitalistic exploitation of labour.
Then are we to understand that Socialists do not accept the theory of the division of profit, as stated by the orthodox political economy, into Wages of Superintendence, Indemnification for Risk, and Reward of Abstinence (Interest on Loan)?
We certainly do not accept this theory, which is a very lame attempt to explain and justify the profit-making system. Although a portion of profit is spoken of as Wages of Superintendence, it is clear that in so far as such wages are strictly a return for the useful work of management, they are not profit at all, and it is only by a misuse of terms that profit can be so described. The term Wages of Superintendence, however, is generally only a fancy phrase applied by the capitalist to a portion of his profits, and bears no relation whatever to wages in any shape, or to any useful service which the capitalist may perform. As to Indemnification for Risk, the capitalist might so describe a portion of his profit, but as a matter of fact this is purely speculative, as there is no relation between his profit and his risk; while the less said about the abstinence for which he claims to be rewarded the better.
Do you mean to say, then, that the capitalist does not perform a useful function in running a risk for the profit he receives?
For the profit he receives, no. In so far as he exercises the function of management and receives remuneration for this, his remuneration is, as we have already pointed out, not profit at all, but wages of superintendence, and the functions of management would be undertaken by the organised society of the future through its appointed representatives. As to any necessary risk, all individuals would be relieved from this under Socialism, as it would be borne by the whole of society.
But admitting all you say with regard to present conditions, and the exploitation of labour; and granting that some such organisation of society for production for use, as you suggest, were realised, is it not a fact that the total amount of wealth is insufficient to provide anything more than a very poor standard of comfort for all, even if it were equally divided? Admitting that the extremes of squalid poverty and luxurious wealth which we see now were done away with, would it not result in a dead level of mean and sordid existence for all, at best equal to that of the modern artisan or petty clerk?
That is by no means the case. Even under present conditions the total wealth produced would, if equitably divided, amount to a value equal to more than £200 per year per family, which represents a much higher standard than that referred to. But to suppose that any mere distributive readjustment is what is meant by Socialism is to entirely misunderstand what Socialism really involves. Socialism means the complete reorganisation of production as well as distribution. With production scientifically and socially organised, the productivity of labour would be quintupled, and the amount of wealth would be increased in proportion.
But how would the social organisation of labour, as you say, increase its productivity so enormously?
To begin with, by the saving of the tremendous waste of labour which goes on to-day. All the labour employed in advertising, canvassing, travelling for orders, all the printing, railway, warehouse and other work connected with this, is so much wasted labour; it is entirely unproductive, so far as useful wealth is concerned, and would be quite unnecessary if wealth were produced for use. Then there is the waste of labour involved in the use of obsolete methods, and in the employment of men and women to do work which could be more expeditiously performed by machines, simply because more profit is made by employing the men and women, owing to their labour being cheaper than machinery. And further, there is the inevitable waste of wealth under present circumstances due entirely to the system of production for profit, which makes it often more profitable to destroy wealth or to limit its quantity, rather than, to preserve or increase it. All this would be changed, and the vast mass of labour now wasted would be transferred to useful production, were society organised on a Socialist basis.
But might not this greater productivity be to some extent counterbalanced by greater waste in consumption?
On the contrary, with society properly organised there would be, with the unrestricted enjoyment of wealth, very much less waste — in both labour and material — in consumption. That is to say, the consumption or enjoyment of wealth would be more organised, more social, and less individualistic than it is to-day, with the result that while being the reverse of niggardly it would be infinitely less wasteful than now. For instance, with socially organised enjoyment of wealth it would be possible to have much better food, with the best cooking, serving, etc., for all, and that would be more economical than under the individualistic life of to-day. So with other departments; locomotion would be more economical when social than to-day, where the individual has his own horse or his own carriage; washing would be better and more economically done if socially organised; large dining-halls might take the place of the innumerable little dining-rooms of the present; while the fifty little drawing-rooms of the fifty suburban villas, attended by the fifty “slaveys” of the present time, might be replaced by splendid salons, in which people would meet with much more ease, pleasure and comfort than our present social life affords; and all this without in any way trenching upon the reasonable privacy of individual life. Here it must be distinctly understood that we are not dogmatising as to what will be, but simply suggesting what may be done, in at least one way, to economise consumption by a proper organisation.
Talking of the higher standard of living of the future is it not a fact that the standard of life nowadays, in consequence of the greater productivity of labour through the development of machinery, is very much higher, even among the working classes, than it was, say, fifty or a hundred years ago? Has not it been shown by figures?
In a sense that is true, but only to a very limited extent. A certain proportion of the working-class, i.e., the skilled workers, have probably attained a higher standard of living than those of fifty or a hundred years ago; but these are only a very small minority, and the difference between them and the great mass of the working class, whose position has not been improved at all, is proportionately greater. Furthermore, the improvement, even so far as this minority is concerned, has to be discounted by the fact that labour is much more intense than formerly, in consequence of machinery, so that more is taken out of a man in a day’s work, and in consequence better living is required in order to keep him in a fit state for working; added to which, employment is, generally speaking, much more precarious, and in a bad season he is worse off than ever before. Then, again, the purchasing power of money has decreased to a very great extent, so that the same nominal wages are not really worth as much as formerly. Figures only go to show that the number of those paying income-tax has increased, from which he appears to conclude that the general body of the people must be better off. But the increase in the number of income-tax payers is fully accounted for by the ordinary growth of population; their proportion to the rest of the community is the same as formerly, and thus the mere increase in their numbers is no evidence at all that the general standard of living is higher.
Is not this fact of the increase is the number of income-tax payers often adduced to show that the Socialist theory, that wealth and capital tend to concentrate into fewer mid fewer hands, is fallacious?
Certainly this is often attempted to be done by those who have never taken the trouble to understand what the Socialist theory of the concentration of wealth and capital really means. But as a matter of fact the increase in the number of income-tax payers proves nothing of the kind. The concentration of wealth and capital into the hands of a comparatively few people, and the corresponding augmentation of the mass of misery, is a fact too glaringly obvious to be disputed, and it is easy to see that the number of people paying income-tax might increase considerably without any increase in the total amount of wealth shared among the general body of these, at the same time that the aggregation and concentration of wealth increased enormously and the masses of the people become still more impoverished. The same argument applies to the statements that are sometimes made with regard to the deposits in the Post Office Savings Bank and similar institutions, and the evidence these afford of the increased well-being of the mass of the people. As a matter of fact, most of these deposits are pitifully small and their owners miserably poor; it is only the few who possess considerable sums, or are much above beggary. So far from these deposits proving the well-being of the workers, they are monuments to their patience in misery. They have been laid up against the ever-threatening “rainy-day,” and as soon as that rainy-day comes these small hoards are swept away at once.
Belfort Bax and H. Quelch 1903
A New Catechism of Socialism