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International Socialism, June 1975


John Ure

Marxist Economics: Part 1

The Nature of Capitalism


From International Socialism, No.79, June 1975, pp.33-37.
Transcribed & marked up by by Einde O’Callaghan for ETOL.


This is the first part of four articles by John Ure on the substance of Marxist economic theory. The subsequent articles will appear in the July/August, September and October issues of the Journal.

Exploitation and Class Control

WHEN THE products of the work of men and women are taken out of their hands, their collective hands, and used to dominate their lives, used to create machines of repression, to create and maintain inequalities, injustices, discriminations, then socialism can only exist as a subversive movement. This is true today both East and West. It is also true that since the appearance in human history a mere two hundred years ago of industrial production performed in large collectives (factories, offices, etc.) the real concrete possibilities of democratic collective control by human beings over their affairs have existed.

The imbalances of power which give one set of people the ability to live off the work of others, i.e. exploitation, and the consequent loss of control by the exploited over various aspects of their lives, especially the work aspect, i.e. alienation, have by no means been limited to capitalism. Nor has imperialism, the domination of one community of people by another. For this reason the history of these societies has been one of struggles and social conflicts. Marx talked in terms of classes. Since the first and foremost need of all human beings is the need to make a living, the first and foremost source of social power stems from control over the means of making a living – i.e. the means of production. So social groups were defined as classes by Marx according to their relation to the means of production, and the social conflicts which have been a constant feature of recorded history Marx saw as taking place within class structures. The Wars of the Roses, for example, may have seen the feudal aristocracy fighting between themselves (conflicts of interests within a class) but the same nobility soon closed ranks when faced with the threat of the Peasants’ Revolt (conflicts between classes). What is fundamentally different about capitalism is simply the nature of the classes involved and therefore the forms which exploitation, alienation and imperialism take.

For most people in the industrial nations standards of living have certainly risen over the last one hundred years. Technically we live in highly advanced societies which between them have sent men to the moon, can bounce colour television signals around the world off satellites, can transplant human body organs, and so on. But they are also societies of increasing strains and tensions in which the gap between the potential and the actual is growing. They have constructed great bureaucracies and administrative machines which patently fail to answer the real human needs, to eradicate poverty, disease, starvation, illiteracy, innumeracy, loneliness, anxiety, threats of global destruction by nuclear warfare. Instead these bureaucracies, be they State machines, private corporations, supra-national bodies, feed on their own growth, take on their own momentum, spend more and more resources on one particular aim: their own survival. Resources spent on arms, on police organisation, on state surveillance from the political to spying on social security claimants, on courts of law to convict and on institutions to intern, rise annually throughout the world as it becomes more and more expensive and necessary, in the eyes of the ruling classes, to maintain their own rule. For capitalism it is a necessary expenditure; for workers it is pure counterproductive waste. But workers are the ones who have to pay for the waste by increasing their productivity, by producing more for relatively less, who have seen two and three shift systems introduced, seen speeds increase to match the requirements of the new machinery which replaces workers, had to suffer the anti-social hours and the upheaval of moving home to find work, suffered the nervous exhaustion – and then the scrapheap of unemployment.

Exploitation and alienation go hand in hand in class societies, having reached new peaks under capitalism. It would of course be too simplistic to argue that all forms of alienation will disappear when exploitation has been ended, but at least the most basic of its roots, alienation from the means on which we all depend for our living, will no longer exist to feed it. The alienated ideas men have towards women, and many women have towards themselves, that people of different races hold towards one another, have all played significant roles in the development of capitalism, as they did in pre-capitalist societies. The ideological picture, in all its aspects, which is projected onto the mind’s screen, the totality of its alienated world view, is a critical part of the apparatus for maintaining class rule of any kind. To unravel the real nature of exploitation in capitalism is therefore an important part of the struggle against it. That is what Marxist economics is all about.

Surplus Product ...

FOR EXPLOITATION to be possible there must exist a surplus of production over the minimum necessary level of consumption of the producer. Without such a surplus there would be no margin available for others to live off. Without the minimum necessary level of consumption there would be no producers left to produce.

But the generation of surplus does not automatically imply an exploitative society. There would be people in a socialist society who would quite properly live off the work of others, such as the sick, the elderly, young children, and so forth. Exploitation implies not a conscious and willing consent to redistribute wealth and income but a lack of power by the majority to prevent it and a concentration of power by the minority to enforce it. And since, we have seen, the first and foremost source of power is control over the means of production, it follows that fundamentally exploitation is a class issue. What characterised pre-capitalist exploitative societies was that the ruling classes, although exercising their powers in many different ways, were essentially interested in the surplus in its physical form. The two outstanding uses to which the surpluses were put were those of luxurious living by the ruling classes, and the building of machines of repression which would safeguard their positions of privilege and domination. Temples, castles, palaces, armies of retainers, great estates, feasting, patronage of the arts, splendid livery and jewellery, hunting, tournaments and so on, absorbed the surpluses in those economically primitive societies in which the surpluses themselves were, by modern standards, small and highly dependent upon the vagaries of climate and crops.

The only compelling reason why any of the surplus had to be diverted from luxury living for the few was the threat of internal revolt or external attack. In its physical form the surplus could immediately satisfy the needs of the ruling classes. Marx referred to physical goods, be they man-made or the products of nature, as ‘use-values’ because their value in this form lay purely in the useful properties they possessed as means of making war or of eating or of making other goods, or whatever.

The rise of capitalism marked a qualitative change in the history of society because although, like other ruling classes before it, the capitalist class derived its power from the control it exercised over the means of making a living, the nature of those means was very different. Trade, commerce and industry opened up enormous possibilities for economic advance and since they were in the hands of many independent capitalists the only basis upon which this economic growth could take place was through the exchange of goods and services between different producers each specialising in his or her own field of work. It could hardly have been otherwise, but it did introduce a new factor into human affairs – namely competition between producers for markets, Only since the advent of large-scale manufacturing has it been possible to envisage a socialist society in which, while men and women specialise according to their abilities and desires, they also make collective decisions rationalising the distribution and usages of the scarce resources available to society. But the need to exchange, to sell, and the competition which this ensures, based upon the fact that there are many different capitals controlled by many different groups of capitalists, forces the capitalist class to behave economically quite differently from previous ruling classes.

Firstly, competition between capitals is simply competition for the division of the economic surplus. Capitals which fail to secure sufficient of the surplus will be bankrupted. Capitals which secure a large portion of the surplus will have funds to play with. Previous ruling classes dissipated their surpluses on high living. But the ability of a capital to compete for surplus is generally related directly to its economic efficiency. Historically, economic efficiency has far more often than not been associated with the size of capital. Machines replaced hand tools; full-time factory employment replaced cottage industries and part-time work; larger machines, larger workforces, larger factories replaced smaller. Inevitably this has meant that the total costs of production have risen, but total output has, at most times, risen at an even faster rate so that the cost per unit of output has actually fallen. This is known as ‘economies of scale’ and is the basis for the expansion of capital. But the commercial motive has always been the struggle for surplus. Marx analysed this struggle, describing how the surplus was ‘realised’ as profit by selling goods and services, known as ‘commodities’, on the market, and went on to show that growth in the total level of production and exchange in the economy was necessary to keep the system running.

... and Surplus Value

BECAUSE COMPETITION forces capitals to grow in order to survive, capitals have to secure their share of the surplus in a form which will enable them to reinvest. If all capitals produce goods which could be directly employed on expanding their own production then the form of the surplus would present no problem, but clearly a capital producing, say, rubber washers cannot use those washers to expand its output of washers. Only by purchasing more raw rubber from a capital making rubber can production be expanded. If there is direct exchange between the two capitals concerned, i.e. barter, again there would be no problem but this is exceptional. So a process of exchange has to take place with washers being sold and the money gained in this way being used to purchase the rubber. But that process can only occur if the value of the goods being exchanged is universally recognised and accepted by all parties. Unless the buyers of rubber washers and the seller agree on some common method of signifying the value of washers, exchange would be impossible. There has to be a general measure of the values which have to be exchanged. It is rather like a length which can be expressed as one yard or as 0.9 metres. It does not matter which method is used so long as the length to be measured is the same in everyone’s eyes. So exchange necessitates the valuation of goods and services, expressed in the shops as a ‘price’, which brings physical goods (use-values) which have very different properties and which satisfy very different desires and fulfil very different functions into an equivalence with each other. Marx called this equivalence ‘exchange-value’. Goods and services which enable capitals to realise a portion of the total surplus, are now expressed as ‘surplus value’. Money in this situation emerges as the universal form of expression of value.

Value is, in effect, the measurement by which capitals judge themselves in relation to other capitals. We have already seen how competition continuously pressurises capitals to grow. Economies of scale – i.e. falling costs per unit of output at greater levels of production capacity – give large capitals the advantage in the struggle for surplus value. In times of crisis the greater the resources available to a capital the more likely it is to weather the storm, even if it means running at a loss for some time. And when a capital looks like sinking, if it is of sufficient size and importance to the national economy the state will bail it out either with loans, grants or by nationalisation in order to keep the productive apparatus of workers, machines and materials together – a major development since the capitalism of Marx’s day. But what is important to stress is that in a competition it is always relative performance not absolute performance which counts. Similarly it is the relative size of capital and not its absolute size which matters. A spider is a monster to a fly, but food to a bird. GEC or British Leyland may be large relative to other British capitals but are really rather small compared with ITT or General Motors.

Today the state itself is a major instrument for encouraging the growth in the size of capitals, so that British capitals can compete more effectively with French, German, American or Japanese capitals. Active encouragement is given in ailing industries to amalgamations and mergers, to the rationalisation of production within a few large plants, as opposed to the spread of production among numerous small and medium size plants. This is all part and parcel of the division of surplus value between capitals. On the one hand private capitals have extended their scale and scope of operation to encompass every aspect of production from the extraction of raw materials through to the marketing of the final product (vertical expansion) and have widened the range of their products across different markets (horizontal expansion) so that more and more of the surplus value produced comes under their direct control without having to compete for it on the market. On the other hand the state filters through its hands surplus value by means of taxation, and redistributes it directly to favoured key capitals by means of government contracts with fixed and guaranteed profits, government grants, loans and subsidies, tax allowances, etc. The importance of the old market mechanism, the buying and selling of commodities, the competition by price as the main means of dividing the total surplus value is diminishing. In its place come attempts at capitalist planning, attempts to replace chaos by order. This is not the result of enlightenment on the part of governments or their economic and industrial advisers but the result of the structural changes that the growth of capital itself has brought about. Realisation by the state that it must actively intervene to promote the interests of British capital or American capital is a consequence, not a cause – although not all sections of the capitalist class necessarily fully appreciate it yet, or necessarily stand to gain by it. But whatever orderly chaos can be achieved within the national capital, internationally competition between capitals increases in intensity. So much is at stake in the world struggle for world surplus value, the units of national capitals are so large and so armed to the teeth with everything ranging from tariff policies to nuclear missiles, that at one and the same time nation states have to seek international agreements to contain mutual suspicions and hostilities, and promote the antagonistic interests of their own capitals. A truly explosive situation.

Men and Women as Commodities

WE HAVE seen so far that exploitation involves the production of a surplus, and that capitalism requires this surplus to take the form of surplus value in order that the expansion of capital can take place. The surplus in precapitalist societies consisted of the work done over and above the consumption of the producer, to which we now ought to add the replacement of seed, tools worn out, etc. because these determine the productivity of the producer. This surplus, which comprises of physical goods and services, could be termed surplus product. In a capitalist economy surplus product is transformed into surplus value. To understand how this occurs is to understand the mechanics of capitalism.

The first necessary step in the process of the growth of capitalism was to divide or alienate the worker from his or her work in such a way that the most productive techniques could be applied to the job allowing for the greatest expansion of capital. Extracting tribute from the peasant or taxing the artisan still left intact the old methods or modes of production, still left the peasant owning his own land and the artisan owning his own tools. By undermining the independent basis of making a living, by driving the peasants off the land through economic or physical force, by undercutting the artisans, the growth of industrial capitalism forged a working class who had no way to live by except selling its ability to work, its labour-power. The division of labour, factory production and markets grew side by side, feeding on each other. But human beings were, in the process, reduced to the status of mere commodities, for sale to any capital willing to buy, and like all commodities human beings possessed two characteristics: a use-value associated with their physical and mental make-up, and an exchange-value or price which they would fetch from selling their labour-power. (Strictly speaking it is labour power which is a commodity, not the worker as such – Ed.)

A commodity – i.e. a good or service produced for sale – which serves no useful function, which has no use to human beings, will never find a willing buyer ready to pay a price for it, to exchange an equivalent value for it. Unless a commodity possesses some kind of usefulness it cannot function as a commodity at all. Human beings as workers, as the source of labour-power, possess a unique usefulness to capital because they are the source of surplus labour which appears as surplus value in a capitalist economy. Everything which enters the production process is the product of human effort both mental and physical. The products of nature such as coal, for example, have to be prospected, physically dug up, transported, etc. before they are of any use to society whatsoever. Similarly, machinery which can run without human attendance is nevertheless the product of human labour expended in the past, labour which is embodied in it – or dead labour as Marx sometimes referred to it.

Labour as a Source of Value

AS MARXISTS we are concerned to understand the underlying realities of capitalist economy. We have therefore to start with the labour process, with human beings collectively as producers of their own lives, their own society, their own history. We then have to recognise that capitalism is a particular form of human society in which one class owns and controls the means of production while the other major class, the working class, is reduced to the status of sellers of labour-power in order to facilitate the maximum production of exchange values, which in turn facilitates the maximum growth of capital itself. Capital then is an expression of a particular class control, but one that is in perpetual motion as capitals compete with one another, compelling each to grow. This in turn necessitates the exploitation of working people to take the form of the production of values and surplus values. The only common social factor in this whole circuit of social activity is human labour. For that reason Marxists talk of labour as the source of value.

If labour is the source of value, hours of work must be the measure of value. We must remember that competition ensures that when an improvement in techniques takes place it quickly spreads in modern capitalist economies, so strictly speaking we should say that the labour involved is using the ‘average’ level of technical skills and methods available to society to do the job or work. Marx therefore referred to socially-necessary labour as being the measure of value. Differences in skills and types of work are reduced to homogeneous units of ‘abstract’ labour or ‘labour in general’ in the same way that capital, in order to expand, abstracts from the concrete or physical nature of goods and services (use-values) reducing them all to values. The principle is simple enough. All the consumed goods and services are themselves die result of labour, living and dead. Workers of higher skills will therefore have consumed greater amounts of socially-necessary labour and accordingly both the value of their labour-power (wages) and the use-value of their labour (work) to capital will be enhanced. In practice, when management wish to calculate what the productivity of a section of a factory is they take an average of the whole shop floor since the sweeper-up is just as necessary to the total productive effort as is the machinist or the pattern-maker. In this way heterogeneous concrete labour is homogenised as abstract units of socially-necessary labour.

The assertion of the key role of labour is not a technical one – it is the point of departure for Marx and Marxists. There is absolutely no technical reason why value should not be measured in whatever units an economist may like to dream up, and of course in the shops the ‘values’ placed upon goods and services appear in the form of ‘prices’ measured in pounds and pence. But the relevance, the importance of ascribing all economic values to human labour is that it is the only approach which does not mystify straightforward issues of class control, exploitation and alienation. It is also an approach which draws attention to a trend which Marx thought to be a basic tendency in capitalism, namely the increasing difficulty of squeezing more and more surplus out of labour when, at the same time, the size of capital was growing ever larger. This is the tendency for the rate of profit to fall, the expectation that it would prove increasingly difficult to increase the generation of surplus-value sufficiently to cover the rapidly rising costs of large-scale production. It is, in short, an approach which, by analysing the contradictions inherent in a capitalist economy, exposes the nonsense of mere technical solution to what are social conflicts calling for social solutions.

Apparently workers get paid fully for all hours they work. Apparently prices in the shops, measured in pounds and pence and not in terms of labour units, are simply determined by supply and demand. How does capitalism transform values, measured in terms of socially-necessary labour, into prices measured in terms of money? Again the issue is not primarily a technical one. It really boils down to the issue of how in practice capitals divide up between themselves the sum total of surplus-value.

Values and Prices

IF IT WERE purely a technical question then values could easily be transformed into prices simply by making a monetary unit equivalent to a unit of socially-necessary labour. If, for example, one hour of socially-necessary labour was required to produce one ounce of gold and gold had no other use than as a unit of exchange (money) then the transformation would be simple. It does not matter in principle that (in practice) the supply of money is very much more complicated than that, but what does matter is that prices are one of the factors alongside quantities of goods actually sold and costs of production which go to determine profits. And profits are the market form of surplus-value, the form of surplus-value realisation most common to the mature capitals of Marx’s day – i.e. before the advent of massive direct intervention by the state which effectively cuts out much of the market mechanism.

Marx approached the question by first making what he knew was an unrealistic assumption – to be dropped later – that would isolate the key factors involved. He assumed that no monopolies existed, that there were many equally competitive buyers and sellers, in a phrase, that there existed ‘pure’ competition. In such a pure capitalist economy all goods would exchange (command a price) exactly according to their values – i.e. exactly according to the socially-necessary labour embodies in them. This was the ‘law of value’.

This enabled Marx to assume that the price a capitalist got for a product would exactly match its value, and that therefore the profit embodied in that price would exactly match the surplus-value embodied in the product. That the ‘value of production’ would equal the ‘price of production’. Marx reduced the ‘value’ and ‘price’ of production into three component parts.

The value of production consisted of two inputs into the production process – constant (c) and variable (v) capital – and a value created in the production process itself over and above (c) and (v), namely, surplus-value (s). Constant capital (c) consists of all non-labour inputs (e.g. machines, raw materials, buildings, etc.). They are of constant value as fixed by the socially-necessary labour that went into their own production. They cannot pass into the product they are making more value than this. Raw materials will pass their value into the products almost instantaneously, whereas machinery will do so only over a long period of time (what accountants call ‘depreciation’).

Variable capital (v) consists of labour costs or wages. The difference between the value of the work done, and the value of wages and materials used up, is surplus-value (s) or unpaid labour. It may take a worker the equivalent of five hours work to create sufficient value to pay for his or her own wages. This value is incorporated in the products he or she makes alongside the value passed into these products from the constant capital used up. But the length of the working day is, say eight hours and the conditions of employment demand that the worker therefore works for a further three hours creating surplus-value. This is not of course shown on the wages slip. According to that pay is for the full eight hours. But according to the law of value wages really do represent the value of labour-power (the worker’s necessary standard of living to keep him or her useful to capital). So ‘a fair day’s pay for a fair day’s work’ is still a prescription for exploitation in a capitalist society.

The value of production consists of constant capital plus variable capital plus surplus-value (c + v + s). The price of production consists of the same three elements but measured in pounds and pence (or any other convenient monetary unit) rather than in terms of socially-necessary labour – and it is around the prices of production that actual supply and demand market prices fluctuate. After constant and variable capital costs have been covered by the price what remains is surplus-value, now called profit (p). So the price of production consists of c + v + p. And on the strict assumption of the law of value c + v + s = c + v + p. So surplus value equals profit.

Struggle for Surplus Value

IN PRACTICE the real world of capitalism is not that pure, on the contrary it is a world dominated by two outstanding factors of conflict which continuously threaten capitalist stability. One is the competition between capitals for surplus value. The other is the class conflict between labour and capital over the extraction of surplus value – i.e. exploitation.

We have already seen how the struggle for surplus value generally goes hand in hand with the growth in size and strength of individual capitals. In this struggle each capital is attempting to reduce costs relative to rival capitals, keep one step ahead in technology, etc, and thereby grab a larger share of the market. This process of growth has been most closely associated with mechanisation, the introduction of automation, and generally the reduction of the workforce relative to the amount of machinery, plant and other equipment employed by capital. In other words the proportion of c:v has risen, as Marx foresaw as a tendency bound to happen (a rising ‘organic composition of capital’). No longer, therefore, will values of production (c + v + s) equal prices of production (c + v + p) for individual capitals. Those capitals most successful in claiming surplus value from the market will be those able to charge prices above values, while the less successful capitals will have to accept market prices below values.

The growth in the size of capital, and with it the rising organic composition of capital or what Marx called the domination of dead labour over living, presents capitalism with its most serious long-run economic problem: namely the tendency for the rate of profit to fall. Unless the cost of (non-value producing) constant capital falls for some reason (e.g. a cheap source of imports, or rapid technological advance in the making of cheaper machinery) capitals are faced with die problem of spreading profits more thinly over rising costs. The only alternative way to reverse the decline in the rate of profit (p') is to increase the surplus value produced per worker (the rate of exploitation, s/v). The rate of profit (p') is calculated, in value terms, by dividing total surplus value (s) by total costs (c + v), so that p' = s/(c + v). If the organic composition of capital rises, if c rises relative to v, then the rate of exploitation must rise, s relative to v, by at least the same proportion if the rate of profit (p') is not to fall. So the struggle between capitals for surplus value brings with it not only periods of rapid technological advance but also the constant threat of a profits crisis within the capitalist system. And the key to capitalism’s survival rests, therefore, upon its ability to intensify the exploitation of human labour.

Workers’ Response

THE TWO great contradictions of capitalism arise from die competition between capitals on die one hand, and the class conflict on die other.

Only as a result of struggle, often hard and bitter, have certain areas of control over the conditions of employment been grasped by organised workers. Where special skills have been important, workers’ control has commonly spread to issues of demarcation, entry qualifications and the like. In the post-war period of relatively full employment, piece-work prices have often passed from management control to workers’ control or at least dual control. Strong shop floor organisation has gained control over safety regulations, the speeds of the assembly line, manning schedules. Bitter struggles have taken place as management in the car industry has tried to reimpose control over wages by replacing piece-work with measured-day work. Workers have increasingly challenged the right of management to declare redundancies or close-down altogether. To head off challenges to control, schemes for workers’ participation, workers’ directors, and partial ‘opening of the books’ are now commonly canvassed. Managements look to the trade union machines to keep control away from the shop floor in return for enlarged areas of ‘official’ and ‘responsible’ bargaining and consultation procedures.

But the final areas of control are left untouched. The decisions which effect the whole of society, such as what to produce, how much to produce, when and where to produce it, and how to use and distribute it are the decisions which affect the total resources of the economy, and the lifestyle and opportunities of everyone within society. Control over these resources and decisions, that is workers’ management of the economy, is the socialist alternative to capitalism.

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