Capitalism’s problems are often isolated as single issues to obscure the flaws of the entire system. Capitalism is identified with private control of markets organized on profit and loss economics.Right-wing libertarians, or more accurately, propertarians, espouse not liberty but wage slavery. Capitalism is capital accumulation. Capitalism breeds inequality
“From what source did profit originate?" Knowing this would certainly give us a better understanding of how our existing capital economy works and maybe how the economy might work under conditions of greater freedom.
Profit at its most basic is the difference between the money a business obtains from the sale of its products and the money it has to spend on producing them. Profit arises from capitalist firms employing wage labour selling goods but only having to pay their employees the value of their labour-power, which is less. The need to accumulate capital out of surplus-value is the driving force of capitalism. It stems from the economic competition between enterprises which compels each enterprise to increase their market competitiveness or succumb to superior competition and go bankrupt. So, increasing the amount of capital at their disposal to invest in more productive technologies means increasing the amount of surplus value extracted from their workforce which in turn means, among other things, holding down their costs, including their labour costs i.e. our wages.
One of Marx’s crucial discoveries in the field of political economy was that the working class of wage and salary earners gets paid less than the value of the goods it creates, the difference being a surplus-value which accrues to the owning class in the form of ground rent, interest and profit. Capitalism turned human labour-power into a commodity – something bought and sold. When capitalists buy a worker’s labour they buy the worker’s capacity to work for a full day. Wages are set, however, like every other commodity, by the value of labour-power needed to reproduce them, which in the case of labour is the value of food, clothing, etc. needed to keep the worker in a fit condition to work. But the value of ‘labour power’ is different from the value created by the worker’s labour and this difference, called surplus value, belongs to the capitalist. The working day under capitalism, therefore, divides into two parts; ‘necessary labour’ when the workers actually earn what they are paid in wages, and ‘surplus labour’ which is the time spent producing ‘surplus value’ for the capitalist employer. The aim of capitalist production is the production of surplus-value. The new value added by labour in the process of production to the previously existing value of the raw and other materials is divided into wages and surplus value, which goes to the capitalist employer and is the source of profit. Profits are made in the sphere of production but only “realised” in the market. What is so vital about profit that makes this necessary? It is the source of the capitalist’s capital. The more capital they can accumulate out of the profits accruing to them the more effectively can they compete–by investing in more productive technologies to undercut their competitors–and thus claim a larger share of the market for themselves. If they did not do this then their competitors would, and could knock them out of business. Economic competition between enterprises fuels the drive towards capital accumulation. This, in turn, necessitates profit maximisation which expresses itself as a continuous downward pressure on wages (reinforced by competition between workers on the labour market)
We’re the ones who build things, make things, provide services, make things work, provide ideas. But though we build the world around us, it does not belong to us. Everything that has been built around us is the result of our work and yet we don’t work for ourselves. We produce not for ourselves, but at the behest and whims of others. The worker is compelled to labour for the purpose of producing something to satisfy the wants of others who, holding the things necessary for his life, thereby control him. He is, therefore, still a slave.We are the ones who are told what to produce, how to produce it, how much, and how fast. We are the ones who receive a paycheque, be it high or low, not for selling what we produce but for selling our power to work. With that paycheque, we try to buy back what we make. The source of someone else’s profits comes from our work. Capitalism is based on wage labour and if a theoretical non-capitalist market economy was a reality it would have to be based on self-employed farmers and artisans. It would also have to be an economy based on handicraft rather than industrial production.(The reason for this is that where there is industrial production the work involved in turning the raw materials into a finished product is no longer individual, but collective.)
This would bring some inevitable consequences.
Industrial production can produce goods at a lower cost per unit than handicraft production, with complete laissez-faire, competition would eliminate most of the independent, self-employed artisans. In other words, industry would begin to be concentrated into the hands of the firms employing industrial methods of production. With complete laissez-faire, competition would result in those firms which employed the most productive machinery winning out against those employing out of date and so less productive machinery. So, there would be a tendency towards a yet greater concentration of industry into the hands of the big firms. What about the displaced independent artisans and the members of bankrupt workers’ co-operatives, some may ask? How would they get a living? Would they not in fact be obliged to sell their skills to the firms that had won out in the battle of competition? But if wage labour appeared then so would profits and exploitation. If these profits were to be shared but the continuing competitive pressures would oblige them to give priority to investing them in new, more productive machinery so as to be able to stay in business and not go bankrupt themselves. So even if it were possible to go back to the sort of multi “free” market economy, the tendency would be for capitalism to develop again. Examples are the kibbutzim and the Mennonites communities which have begun to employ wage labour and orient their production towards making profits and accumulating these as new capital.
Private ownership originally meant the ownership of industry by private individuals. But, while this may have been the case in the days of Adam Smith, this hasn’t been the predominant form of ownership since the introduction and rapid spread in the second half of the 19th century of what in England was called a “limited company” and in America a “corporation”. A limited company is a separate legal entity in its own right. It is the company, the corporation, that owns the assets, the shareholders owning as a collective group, not as individuals. This means that they are only personally liable, if the company goes bankrupt, for the amount of their shareholding, not their total wealth. Hence the name “limited liability company”. In the late 1860s, the 14th Amendment to the US Constitution recognised the slave as having human rights, the nascent corporate elite of the time had their lawyers stake a claim to the same rights with the Supreme Court. They fought and won, and the state henceforth recognised the corporation as a human being, a person in law, with the same right to life, liberty and property.
So, as well as private ownership it would be more accurate to speak of capitalism as nowadays involving a company or corporate ownership. And, indeed, some in the anti-capitalist movement take this into account by talking of “corporate capitalism”. Which is OK as far as it goes. Only it doesn’t go far enough. The key features of capitalism are the production for profit. The motive for producing things under capitalism is to make a profit. The “Profit System” is another very good name for capitalism But from another angle, capitalism could also be called the “Wages System”. The key market in capitalism is the labour market, where workers are forced to earn their living by selling their labour power to an employer.
Capitalism is an economic system where, under pressure from the market, profits are accumulated as further capital, i.e. as money invested in the production with a view to making further profits. This is not a matter of the individual choice of those in control of capitalist production – it’s not due to their personal greed or inhumanity – it’s something forced on them by the operation of the system. And which operates irrespective of whether a particular economic unit is the property of an individual, a limited company, the state or even of a workers’ cooperative. The capitalist system is left unscathed. Nowhere is the market-driven profit system as such challenged. Nowhere is the “can’t pay, can’t have” society we have that consigns the greater portion of the population of the planet to lives of abject misery condemned. Capitalism is taken for granted and all that is being asked in the end is the end of corporations. It is just the demand for wider democracy and fairer trading conditions while allowing capitalism to carry on perpetrating every social ill that plagues us.
Let’s clarify what is meant by markets.
It was with the emergence of the capitalist system that society lost its direct control of its productive resources. In previous societies, it was often the case that production was at near-maximum capacity given the technology and resources available and this determined what could be distributed. In times of good harvests, the whole community could benefit in some shape or form. But with the development of the capitalist system, this was eroded as what is produced depends crucially on what can be sold. This means that distribution through sale in the markets determines production and this is always less than what could be produced.
Capitalism is a market economy, but not a simple market economy. A key difference of course is that under capitalism production is not carried out by self-employed producers but wage and salary workers employed by business enterprises. In other words, by profits, we mean income that flows to the owner of a workplace or land who hires others to do the work. In other words, under capitalism, the producers have become separated from the means of production. This makes all the difference.
Marx explained the difference when he said that what happens in a simple market economy is that the producers brought to market a product of a certain value which they sell for money in order to buy another product or products of equal value. The economic circuit is commodity-money-commodity (C-M-C), the aim being to end up with a basket of useful things. Under capitalism the economic circuit is different. A capitalist sets out with a sum of money which they use to buy commodities (factory buildings, raw materials, working skills) that can be used to produce other commodities with the aim of ending up, after these other commodities have been sold, with more money than they started off with. So the circuit is now money-commodities-more money (M-C-M+).
Capitalist exploitation occurs as a result of the normal operation of market forces. Capitalism is an economic system of capital accumulation out of profits. This is its dynamic. Profits are made by competing firms which, in order to remain competitive, have to re-invest most of them in new, more productive machinery and equipment. The result is the accumulation of a greater and greater stock of productive equipment used to make profits or capital. Capitalism is the system of capital accumulation and is derived from the surplus value produced by the class of wage workers. It is the workers who produce the wealth, and the capitalists who make their profits from our unpaid labour.
Market capacity is inherently unpredictable. If too many goods are produced for a market and they remain unsold, a crisis and recession may occur with reduced production, increased unemployment, bankruptcies, and large scale writing-off of capital values. Despite the many attempts that have been made, no theory of economic management has ever been able to predict or control the anarchic conditions of the market system. This is rule by market forces which serve minority interests and which generate the insecurities, crises and conflicts that shape the way we live. The fact that we have great powers of production that cannot be organised and fully used for the benefit of all people has devastating consequences and is at the root of most social problems. In this way, the capitalist system places the production of goods and services, on which the quality of all our lives depends, outside the direct control of society. Capitalism cannot produce primarily to satisfy human needs as production is always geared to meeting market demand at a profit. This means that production is restricted to what people can pay for. But what people can pay for and what they want are two different things, so the profit system acts as a fetter on production and a barrier to a society of abundance. Wherever wealth is produced for sale on a market—wherever, that is, there is commodity-production—economic forces are unleashed which come to dominate production and orient it away from satisfying people’s needs. The operation of these laws means that production is not subject to human control, with the result that it is not human values that are paramount in society, but market values, commercial values, the cash nexus.
But the picture of capitalism is still not complete.
Capitalist investors want to end up with more money than they started out with, but why? Is it just to live in luxury and consume? It is possible to envisage such an economy on paper. Marx did, and called it “simple reproduction”, but only as a stage in the development of his argument. By “simple reproduction” he meant that the stock of means of production was simply reproduced from year to year at its previously existing level; all of the profits (all of M+ less M) would be used to maintain a privileged, exploiting class in luxury. As a result the M in M-C-M+ would always remain the same and the circuit keep on repeating itself unchanged. This of course is not how capitalism operates. Profits are capitalised, i.e. reinvested in production, so that production, the stock of means of production, and the amount of capital, all tend to increase over time. The economic circuit is thus money-commodities-more money-more commodities, even more money (M-C-M+-C+-M++). In order to make more money, money must be transformed into capital.
This is not the conscious choice of the capitalists. It is something that is imposed on them as a condition for not losing their original investment. Competition with other capitalists forces them to reinvest as much of their profits as they can afford to in keeping their means and methods of production up to date. They cannot act contrary to the inner nature of capitalism which requires the constant accumulation of capital and the opening of new markets throughout the world. And it cannot avoid that increasing productivity of labour which means more production for less expenditure of labour.
Libertarians claim we as workers enter a fee contract and “no one is forced to do anything.” – But what planet are they on. The working class is forced each and every day into wage slavery or does money in capitalism grow on trees and all people need to do it pluck it from the branches to pay for food clothing and shelter. No, we are, collectively, compelled under the threat of poverty to sell our capacity to work – our labour power – in order to get access to those things
In 1855, Frederick Douglas, a former slave, wrote:
“The difference between the white slave, and the black slave, is this: the latter belongs to ONE slave-holder, and the former belongs to ALL the slave-holders, collectively. The white slave has taken from his, by indirection, what the black slave had taken from him, directly, and without ceremony. Both are plundered, and by the same plunderers”.
He understood, why can’t others?
The modern slave-owner has no such interest in his slaves. He neither purchases nor owns them. He merely buys so much labour-power – physical energy – just as he buys electric power for his plant. The worker represents to him merely a machine capable of developing a given quantity of labour-power. When he does not need labour-power he simply refrains from buying any. Wage slavery is the most satisfactory form of slavery that has ever come into existence, from the point of view of the masters. It gives them all the slaves they require and relieves them of all responsibility in the matter of their housing, feeding and clothing.
Instead of the pressures that force people to sell their working skills to an employer, people in socialism will work as a voluntary expression of their relationship with others. Needs will replace the drive for profits and the dictates of the market in deciding what must be done. Instead of the authoritarian control imposed by boards of directors and their corporate managers, production units will be run democratically by the people working in them. Instead of the state and its government of people, in socialism, people will contribute to the decisions made democratically by the community. Wage slavery will be overthrown and labour-power cease to be a commodity. The workers, being the owners of the means of production, will also be the owners of the wealth produced, each individually enjoying what they have collectively produced.
Wage slavery has become the only option for the majority to sustain itself. The capitalist system was created through acts of theft and murder. This reality is continually defended by theories of the ideal capitalist model claiming as you do to be a return to “economic justice”, which actually only seeks to legitimise the capitalist’s source of wealth and power – the exploitation of labour for the extraction of profit. It is hypocrisy.
Many libertarians and mutualists argue that ” wage isn’t slavery when free and just conditions exist.” Ah, if only that were the case. Workers sell their labour power to capitalist enterprises for a wage. As a commodity, labour-power has an exchange value and a use-value, like all other commodities. Its exchange value is equal to the sum total of the exchange values of all those commodities necessary to produce and reproduce the labour-power of the worker and his or her family. The use-value of labour-power is its value-creating capacity which capitalist enterprises buy and put to work as labour. However, labour-power is unlike other commodities in that it creates value. During a given period it can produce more than is needed to maintain the worker during the same period. The surplus-value produced is the difference between the exchange value of labour-power and the use-value of the labour extracted by the capitalists. In capitalism, however, the wage-worker is a “free” agent. No master holds him as a chattel, nor feudal lord as serf. This modern worker is free and independent: he has choices. He can dispose of his services to this or that capitalist owner, or he can withhold them. But this freedom is ephemeral. He must sell his working ability to someone or another employer or face starvation. In a capitalist society, workers have the option of finding a job or facing abject poverty and/or starvation. Little wonder, then, that people “voluntarily” sell their labour and “consent” to authoritarian structures! They have little option to do otherwise. So, within the labour market workers can and do seek out the best working conditions possible, but that does not mean that the final contract agreed is “freely” accepted and not due to the force of circumstances, that both parties have equal bargaining power when drawing up the contract or that the freedom of both parties is ensured. His slavery is cloaked under the guise of wage-labour.
When the worker has found an employer he receives in return for his labour a price known as wages which represent on the average what is necessary for his sustenance so that he can reproduce the energy to go on working, and also produce progeny to replace him when his working days are over. During the working day the worker produces wealth equivalent to that for which he is paid wages, but this does not require all the time of the working day. In providing for his own keep he has also produced a surplus and this surplus belongs to the employer. This may eventually be split into profit to the manufacturer, rent to the landlord, and interest on capital invested by a financier. As capitalism develops the time in which the worker produces his own keep decreases while the surplus accruing to the capitalist increases. During this development the productivity of labour increases at an accelerating tempo: The worker continually produces more with less.
So when a man sells his labour-power a number of hours for a certain wage, the amount of necessaries to produce his wages is always smaller than the amount of labour which the employer receives from him, the difference between what the worker receives as wages and what his labour-power produces during his working time, constitutes the sole source of unearned income, i.e., capitalist profits. So profits exist because the worker sells themselves to the capitalist, who then owns their activity and, therefore, tries to control them like a machine.
Wage levels will vary with “the respective power of the combatants” as Marx puts it and in the long run this will determine the value of labour-power and the necessaries of life. From the point of view of wage labour, wage levels and the value of labour-power depends on the balance of class forces, on what workers can actually get from their employers. As wages are also regulated by the relation of supply and demand, a surplus of labour-power (the unemployed) is necessary to prevent wages from swallowing up all profit. Therefore the unemployed army is a vital necessity to capitalist production, and there can be no solution under capitalism.
It would be wrong to confuse exploitation with low wages. It does not matter if real wages do go up or not. The absolute level of those wages is irrelevant to the creation and appropriation of value and surplus-value. Labour is exploited because labour produces the whole of the value created in any process of production but gets only part of it back. On average workers sell their labour-power at a “fair” market price and still exploitation occurs. As sellers of a commodity (labour-power), they do not receive its full worth i.e. what they actually produce. Nor do they have a say in how the surplus value produced by their labour gets used.
The worker goes into the labour market as an article of merchandise, and his wages, that is, his price, is determined like that of any other article of merchandise, by the cost of production (i.e. the social labour necessary), and this is the case of the worker is represented by the cost of subsistence.
He understood, why can’t others?
The modern slave-owner has no such interest in his slaves. He neither purchases nor owns them. He merely buys so much labour-power – physical energy – just as he buys electric power for his plant. The worker represents to him merely a machine capable of developing a given quantity of labour-power. When he does not need labour-power he simply refrains from buying any. Wage slavery is the most satisfactory form of slavery that has ever come into existence, from the point of view of the masters. It gives them all the slaves they require and relieves them of all responsibility in the matter of their housing, feeding and clothing.
Instead of the pressures that force people to sell their working skills to an employer, people in socialism will work as a voluntary expression of their relationship with others. Needs will replace the drive for profits and the dictates of the market in deciding what must be done. Instead of the authoritarian control imposed by boards of directors and their corporate managers, production units will be run democratically by the people working in them. Instead of the state and its government of people, in socialism, people will contribute to the decisions made democratically by the community. Wage slavery will be overthrown and labour-power cease to be a commodity. The workers, being the owners of the means of production, will also be the owners of the wealth produced, each individually enjoying what they have collectively produced.
Wage slavery has become the only option for the majority to sustain itself. The capitalist system was created through acts of theft and murder. This reality is continually defended by theories of the ideal capitalist model claiming as you do to be a return to “economic justice”, which actually only seeks to legitimise the capitalist’s source of wealth and power – the exploitation of labour for the extraction of profit. It is hypocrisy.
Many libertarians and mutualists argue that ” wage isn’t slavery when free and just conditions exist.” Ah, if only that were the case. Workers sell their labour power to capitalist enterprises for a wage. As a commodity, labour-power has an exchange value and a use-value, like all other commodities. Its exchange value is equal to the sum total of the exchange values of all those commodities necessary to produce and reproduce the labour-power of the worker and his or her family. The use-value of labour-power is its value-creating capacity which capitalist enterprises buy and put to work as labour. However, labour-power is unlike other commodities in that it creates value. During a given period it can produce more than is needed to maintain the worker during the same period. The surplus-value produced is the difference between the exchange value of labour-power and the use-value of the labour extracted by the capitalists. In capitalism, however, the wage-worker is a “free” agent. No master holds him as a chattel, nor feudal lord as serf. This modern worker is free and independent: he has choices. He can dispose of his services to this or that capitalist owner, or he can withhold them. But this freedom is ephemeral. He must sell his working ability to someone or another employer or face starvation. In a capitalist society, workers have the option of finding a job or facing abject poverty and/or starvation. Little wonder, then, that people “voluntarily” sell their labour and “consent” to authoritarian structures! They have little option to do otherwise. So, within the labour market workers can and do seek out the best working conditions possible, but that does not mean that the final contract agreed is “freely” accepted and not due to the force of circumstances, that both parties have equal bargaining power when drawing up the contract or that the freedom of both parties is ensured. His slavery is cloaked under the guise of wage-labour.
When the worker has found an employer he receives in return for his labour a price known as wages which represent on the average what is necessary for his sustenance so that he can reproduce the energy to go on working, and also produce progeny to replace him when his working days are over. During the working day the worker produces wealth equivalent to that for which he is paid wages, but this does not require all the time of the working day. In providing for his own keep he has also produced a surplus and this surplus belongs to the employer. This may eventually be split into profit to the manufacturer, rent to the landlord, and interest on capital invested by a financier. As capitalism develops the time in which the worker produces his own keep decreases while the surplus accruing to the capitalist increases. During this development the productivity of labour increases at an accelerating tempo: The worker continually produces more with less.
So when a man sells his labour-power a number of hours for a certain wage, the amount of necessaries to produce his wages is always smaller than the amount of labour which the employer receives from him, the difference between what the worker receives as wages and what his labour-power produces during his working time, constitutes the sole source of unearned income, i.e., capitalist profits. So profits exist because the worker sells themselves to the capitalist, who then owns their activity and, therefore, tries to control them like a machine.
Wage levels will vary with “the respective power of the combatants” as Marx puts it and in the long run this will determine the value of labour-power and the necessaries of life. From the point of view of wage labour, wage levels and the value of labour-power depends on the balance of class forces, on what workers can actually get from their employers. As wages are also regulated by the relation of supply and demand, a surplus of labour-power (the unemployed) is necessary to prevent wages from swallowing up all profit. Therefore the unemployed army is a vital necessity to capitalist production, and there can be no solution under capitalism.
It would be wrong to confuse exploitation with low wages. It does not matter if real wages do go up or not. The absolute level of those wages is irrelevant to the creation and appropriation of value and surplus-value. Labour is exploited because labour produces the whole of the value created in any process of production but gets only part of it back. On average workers sell their labour-power at a “fair” market price and still exploitation occurs. As sellers of a commodity (labour-power), they do not receive its full worth i.e. what they actually produce. Nor do they have a say in how the surplus value produced by their labour gets used.
The worker goes into the labour market as an article of merchandise, and his wages, that is, his price, is determined like that of any other article of merchandise, by the cost of production (i.e. the social labour necessary), and this is the case of the worker is represented by the cost of subsistence.
The price of labour-power fluctuates by the operation of supply and demand. There are generally more workers in the market than are actually required by the employers, and this fact serves to keep wages from rising for any length of time above the cost of subsistence. Moreover, machinery and scientific applications are ever tending to render labourers superfluous, with a consequent overstocking of the labour market, a decrease of wages, and an increase in the number of the unemployed. Under these conditions, relative poverty is necessarily the lot of the working-class.
