Chris Harman

How Marxism Works

Capitalism – how the system began

One of the most ludicrous arguments you hear is that things could not be different to the way they are now. Yet things were different. And not on some distant part of the globe, but in this country, not so long ago. A mere 250 years ago people would have regarded you as a lunatic if you had described to them the world we live in now, with its huge cities, its great factories, its aeroplanes, its space expeditions – even its railway systems were beyond the bounds of their imagination.

For they lived in a society which was overwhelmingly rural, in which most people had never travelled ten miles outside their local village, in which the pattern of life was determined, as it had been for thousands of years, by the alternation of the seasons.

But already, 700 or 800 years ago, a development had begun which was eventually to challenge this whole system of society. Groups of craftsmen and traders began to establish themselves in towns, not giving their services for nothing to some lord as the rest of the population did, but exchanging products with various lords and serfs for foodstuffs. Increasingly they used precious metals as a measure of that exchange. It was not a big step to seeing in every act of exchange an opportunity to get a little extra of the precious metal, to make a profit.

At first the towns could only survive by playing one lord off against another. But as the skills of their craftsmen improved, they created more wealth, and they grew in influence. The ‘burghers’, the ‘bourgeois’ or the ‘middle classes’ began as a class within the feudal society of the Middle Ages. But they obtained their riches in a quite different way to the feudal lords who dominated that society.

A feudal lord lived directly off the agricultural produce he was able to force his serfs to produce on his land. He used his personal power to make them do this, without having to pay them. By contrast the wealthier classes in the towns lived off the proceeds of selling non-agricultural goods. They paid workers wages to produce these for them, by the day or week.

These workers, often escaped serfs, were ‘free’ to come and go as they liked – once they had finished the work for which they had been paid. The ‘only’ compulsion on them to work was that they would starve if they did not find employment with someone. The rich could only grow richer because rather than starve, the ‘free’ worker would accept less money for his work than the goods he produced were worth.

We will return to this point later. For the present what matters is that the middle class burghers and the feudal lords got their wealth from quite different sources. This led them to want society organised in different ways.

The feudal lord’s ideal was a society in which he had absolute power in his own lands, unbound by written laws, with no intrusion from any outside body, with his serfs unable to flee. He wanted things to stay as in the days of his father and grandfather, with everyone accepting the social station into which they were born.

The newly rich bourgeoisie necessarily saw things differently. They wanted restraints on the power of individual lords or kings to interfere with their trade or steal their wealth.

They dreamed of achieving this through a fixed body of written laws, to be drawn up and enforced by their own chosen representatives. They wanted to free the poorer classes from serfdom, so that they could work (and increase the burghers’ profits) in the towns.

As for themselves, their fathers and grandfathers had often been under the thumb of feudal lords, and they certainly did not want that to continue.

In a word, they wanted to revolutionise society. Their clashes with the old order were not only economic, but also ideological and political. Ideological chiefly meant religious, in an illiterate society where the chief source of general ideas about society was church preaching.

Since the medieval church was run by bishops and abbots who were feudal lords in their own right, it propagated pro-feudal views. attacking as ‘sinful’ many of the practices of the urban bourgeoisie.

So in Germany, Holland, Britain and France in the 16th and 17th centuries the middle classes rallied to a religion of their own: Protestantism – a religious ideology that preached thrift, sobriety, hard work (especially for the workers!) and the independence of the middle class congregation from the power of bishops and abbots.

The middle class created a God in their image, in opposition to the God of the Middle Ages.

Today we are told at school or on television about the great religious wars and civil wars of that period as if they were just about religious differences, as if people were daft enough to fight and die merely because they disagreed over the role of the blood and body of Christ in the Holy Communion. But much more was at stake – the clash between two completely different forms of society, based upon two different ways of organising the production of wealth.

In Britain the bourgeoisie won. Horrific as it must seem to our present ruling class, their ancestors consecrated their power by cutting off a king’s head, justifying the act with the rantings of Old Testament prophets.

But elsewhere the first round went to feudalism. In France and Germany the Protestant bourgeois revolutionaries were wiped out after bitter civil wars (although a feudal version of Protestantism survived as the religion of northern Germany). The bourgeoisie had to wait two centuries and more before enjoying success, in second round that began without religious clothing in 1789 Paris.

Exploitation and surplus value

In slave and feudal societies the upper classes had to have legal controls over the mass of the working population. Otherwise those who worked for the feudal lord or the slave owner would have run away, leaving the privileged class with no one to labour for it.

But the capitalist does not, usually, need such legal controls over the person of the worker. He doesn’t need to own him or her, provided he ensures that the worker who refuses to work for the capitalist will starve. Instead of owning the worker, the capitalist can prosper providing he owns and controls the worker’s source of livelihood – the machines and factories.

The material necessities of life are produced by the labour of human beings. But that labour is next to useless without tools to cultivate the land and to process naturally occurring materials. The tools can vary enormously – from simple agricultural implements such as ploughs and hoes to the complicated machines you find in modern automated factories. But without the tools even the most highly skilled worker is unable to produce the things needed for physical survival.

It is the development of these tools – usually referred to as ‘the means of production’ – that separates modern human beings from our distant ancestors of the Stone Age. Capitalism is based on the ownership of these means of production by a few people. In Britain today, for instance, 1 percent of the population owns 84 percent of the stocks and shares in industry. In their hands is concentrated effective control over the vast majority of the means of production – the machines, the factories, the oil fields, the best agricultural land. The mass of the population can only get a livelihood if the capitalists allow them to work at and with those means of production. This gives the capitalists immense power to exploit the labour of other people – even though in the eyes of the law ‘all men are equal’.

It took some centuries for the capitalists to build up their monopoly control over the means of production. In this country, for instance, the parliaments of the 17th and 18th centuries had first to pass a succession of Enclosure Acts, which drove peasants away from their own means of production, the land which they had cultivated for centuries. The land became the property of a section of the capitalist class and the mass of the rural population were forced to sell their labour to capitalists or starve.

Once capitalism had achieved this monopoly of the means of production, it could afford to let the mass of the population enjoy apparent freedom and equality of political rights with the capitalists. For however ‘free’ the workers were, they still had to work for a living.

Pro-capitalist economists have a simple explanation of what then happens. They say that by paying wages the capitalist buys the labour of the worker. He must pay a fair price for it. Otherwise the worker will go and work for someone else. The capitalist gives a ‘fair day’s wage’. In return the worker should give a ‘fair day’s work’.

How then do they explain profit? This, they claim, is a ‘reward’ to the capitalist for his ‘sacrifice’ in allowing the means of production (his capital) to be put to use. It is an argument that can hardly convince any worker who gives it a moment’s thought.

Take a company that announces a ‘net rate of profit’ of 10 percent. It is saying that if the cost of all the machinery, factories and so on that it owns is £100 million, then it is left with £10 million profit after paying the wages, raw material costs and the cost of replacing the machinery that wears out in a year.

You don’t have to be a genius to see that after ten years the company will have made a total profit of £100 million – the full cost of its original investment.

If it is ‘sacrifice’ that is being rewarded, then surely after the first ten years all profits should cease. For by then the capitalists have been paid back completely for the money they put in in the first place. In fact, however, the capitalist is twice as wealthy as before. He owns his original investment and the accumulated profits.

The workers, in the meantime, have sacrificed most of their life’s energy to working eight hours a day, 48 weeks a year, in the factory. Are they twice as well off at the end of that time as at the beginning? You bet your boots they’re not. Even if a worker saves assiduously, he or she won’t be able to buy much more than a colour television set, a cheap central heating system or a second hand car. The worker will never raise the money to buy the factory he or she works in.

The ‘fair day’s work for a fair day’s pay’ has multiplied the capital of the capitalist, while leaving the worker with no capital and no choice but to go on working for roughly the same wage. The ‘equal rights’ of the capitalist and the worker have increased inequality.

One of Karl Marx’s great discoveries was the explanation for this apparent anomaly. There is no mechanism that forces a capitalist to pay his workers the full value of the work they do. A worker employed, for example, in the engineering industry today might create £400 of new output a week. But that does not mean he or she will be paid this sum. In 99 cases out of 100, they will get paid considerably less.

The alternative they have to working is to go hungry (or live on the miserable sums handed out by the social security). So they demand not the full value of what they produce, but rather just enough to give them a more or less acceptable living standard. The worker is paid only enough to get him to put all his efforts, all his capacity for work (what Marx called his labour power) at the disposal of the capitalist each day.

From the capitalist’s point of view, providing the workers are paid enough to keep them fit for work and to bring up their children as a new generation of workers, then they are being paid a fair amount for their labour power. But the amount of wealth needed to keep workers fit for work is considerably less than the amount of wealth they can produce once working – the value of their labour power is considerably less than the value created by their labour.

The difference goes into the pocket of the capitalist. Marx called it ‘surplus value’.

The self expansion of capital

If you read the writing of apologists for the present system, you will soon notice that they share a strange belief. Money, according to them, has a magical property. It can grow like a plant or animal.

When a capitalist puts his money in a bank he expects it to increase in amount. When he invests it in the shares of ICI or Unilever he expects to be rewarded by offshoots of fresh money every year, in the form of dividend payments. Kari Marx noted this phenomenon, which he called the ‘self expansion of capital’, and set out to explain it. As we saw previously, his explanation began not with money, but with labour and the means of production. In present society, those with enough wealth can buy control of the means of production. They can then force everyone else to sell to them the labour needed to work the means of production. The secret of the ‘self expansion of capital’, of the miraculous capacity of money to grow for those who have plenty of it, lies in the buying and selling of this labour.

Let’s take the example of a worker, who we’ll call Jack, who gets a job with an employer. Sir Browning Browne. The work Jack can do in eight hours will create an additional amount of wealth – worth perhaps £48. But Jack will be willing to work for much less than this, since the alternative is social security. The efforts of pro-capitalist MPs, such as the obnoxious Tory Peter Lilley, ensure that he will only get £12 a day on social security to keep himself and his family. They explain that to give more would be to ‘destroy the incentive to work’.

If Jack wants to get more than £12 a day he has to sell his ability to work, his labour power, even if he is offered much less than the £48 worth of wealth he can create in eight hours. He will be willing to work for, perhaps, the average wage, £28 a day. The difference, £20 a day, goes into the pocket of Sir Browning. It is Sir Browning’s surplus value.

Because he had enough wealth to buy control of the means of production in the first place, Sir Browning Browne can guarantee growing richer by £20 a day for every worker he employs. His money keeps growing, his capital expanding, not because of some law of nature, but because his control of the means of production allows him to get someone else’s labour on the cheap.

Of course, Sir Browning does not necessarily have all the £20 to himself – he may rent the factory or the land, he may have borrowed some of his initial wealth from other members of the ruling class. They demand in return a cut of the surplus value. So perhaps he forks out £10 to them as rent, interest and dividend payments, leaving himself with only £10 profit.

Those who live off dividends have probably never seen Jack in their lives. Nevertheless, it was not the mystical power of pound coins that gave them their income, but the all too physical sweat of Jack. The dividend, the interest payments and the profit all came out of the surplus value.

What decides how much Jack gets for his work? The employer will try to pay as little as possible. But in practice there are limits below which he cannot go. Some of these limits are physical – it is no good giving workers such miserable wages that they suffer from malnutrition and are unable to put any effort into their work. They also have to be able to travel to and from work, to have somewhere they can rest at night, so that they do not fall asleep over the machines.

From this point of view it is worth even paying for what the workers think of as ‘little luxuries’ – like a few pints in the evening, the television, the occasional holiday. These all make the worker more refreshed and capable of doing more work. They all serve to replenish his labour power. It is an important fact that where wages are ‘held too low’ the productivity of labour falls.

The capitalist has to worry about something else as well. His firm will be in business for many years, long after the present set of workers have died out. The firm will require the labour of their children. So they have to pay the workers enough to bring up their children. They also have to ensure that the state provides these children with certain skills (such as reading and writing) through the educational system.

In practice, something else matters as well – what the worker thinks is a ‘decent wage’. A worker who gets paid considerably less than this may well neglect his work, not worrying about losing his job since he thinks it is ‘useless’.

All these elements that determine his wage have one thing in common. They all go towards making sure he has the life energy, the labour power, that the capitalist buys by the hour. The workers are paid the cost of keeping themselves and their families alive and fit for work.

In present capitalist society, one further point has to be noted. Huge amounts of wealth are spent on such things as police forces and weapons. These are used in the interests of the capitalist class by the state. In effect, they belong to the capitalist class, although they are run by the state. The value which is spent on them belongs to the capitalists, not the workers. It too is part of the surplus value.

Surplus value = profit + rent + interest + spending on the police, army and so on.


Last updated on 26 January 2010