The life and teaching of Karl Marx Part 7

3. _Wages and Labour._

The worker appears to receive wages for his work. In reality he receives wages as the equivalent for the labour power expended by him, quite in accordance with the law of value, inasmuch as he receives by way of exchange as much means of sustenance as is usual and customary to replace the labour power he has expended, just as the working horse receives as much oats and hay as are necessary to maintain it capable of work.

The capitalist and the worker exchange certain quant.i.ties of commodities in proportions determined by economic laws (means of subsistence against a quant.i.ty of the commodity, labour power, of equal value, commodity for commodity, exchange value for exchange value).

As, therefore, the wages of labour signify a certain quant.i.ty of the means of subsistence, so they increase even if their money form remains unaltered with a fall in the price of the means of life, for the worker is then in the position, with his unaltered wage, to buy a greater quant.i.ty of the means of life. In the reverse case, if the prices of the means of life rise, the wages of labour fall, even if their money form remains the same as previously. This law of wages, formulated by Ricardo, was accepted by Marx, but he did not content himself with this acceptance. Ricardo regarded the capitalist world as the only possible and reasonable one, at least at the time when he wrote his "Principles," while Marx from the year 1843 adopted a critical att.i.tude towards it, and sought to negate it. Consequently, he investigated further, and expressed himself somewhat as follows:

The capitalist theoricians believed that the wages question was disposed of when it was settled by the law of value. We know, however, that every commodity possesses not only an exchange value, but also a use value, and is bought for the sake of the latter. The use value of the commodity labour power is distinguished in a very remarkable way from the use value of all other commodities.

The use or the employment of labour power creates exchange value, and can create much more exchange value than itself possesses.

The employer can make use of labour power so long that it not only creates its own exchange value (the value of the means of subsistence), but double this. To create the value of wages, the worker needs five or six hours daily, but he is obliged to produce for the capitalist during ten or twelve hours. If the worker were independent he would only produce during one half of the working day in order to receive his means of subsistence. This period of producing Marx called "necessary labour." As he is dependent on the capitalist, the worker must not only perform "necessary labour" but also surplus labour: the worker can generally only find employment under the conditions that, besides the time needed for himself, he also works a definite number of hours for the capitalist without payment. Or, as Marx says: "The fact that half a day's labour is necessary to keep the labourer alive during the 24 hours, does not in any way prevent him from working the whole day. Therefore, the value of labour power and the value which labour creates in the labour process are two entirely different magnitudes. And this difference in the two values was what the capitalist had in view when he was purchasing labour power. The circ.u.mstance that on the one hand the daily sustenance of labour power costs only half a day's labour, while on the other hand the very same labour power can work during a whole day; that consequently the value which its use during one day creates is double what he pays for that use, this circ.u.mstance is, without doubt, a piece of good luck for the buyer, but by no means an injury to the seller."

"No injury to the seller," which is quite correct from the standpoint of Ricardo, but not from that of Marx. He often calls surplus value "unpaid labour," and says, for example, "the capitalist appropriates one half of every day's labour without payment." In other words, he takes away something without return. This is a very distinct ethical judgment.

On the other hand, it is very important that in our consideration of the wages question we have come up against the Marxian doctrine of surplus value. For this doctrine is the cornerstone of the whole economic system of Marx.

4. _Surplus Value._

We have already noted that Marx followed the cla.s.sical economics in his treatment of the theory of value, but improved the definition of it, and brought it to bear on wages. In doing this he laid stress on the conflict between Capital and Labour.

The beginning of this dialectical process, so far as England was concerned, was the work of the anti-capitalistic critics, who uttered their protest about 1820, or three years after the appearance of Ricardo's work. They declared, according to Ricardo, labour is the source and the measure of value. And yet according to his opinion labour is nothing and capital everything.

This should be reversed: labour must be all, and capital nothing. This literature was contemporaneous with the emergence of the English revolutionary Labour movement, from which Chartism arose at a later date. Piercy Ravenstone (1821) called capital a metaphysical (airy, impalpable) ent.i.ty. Hodgskin (1827) called it a fetish, whereas they described labour as the economic reality. The expressions surplus-product and surplus-value were already known to this anti-capitalist school, with which Marx also connected himself when he set to work to elaborate his criticism of political economy.[7] But this literature supplied him with much less material for the construction of the theory of surplus value than the formulation of the theory of value of the cla.s.sical economy. Besides, while the English anti-capitalist critics, like Ravenstone, Gray, Hodgskin, and J.F. Bray merely condemned surplus value as immoral and as the source of all social wrongs, Marx used the theory of surplus value as the key to unlock the mechanism of the capitalist system and to reveal its workings, its tendencies, and its final destiny. This appears to be the real difference between the English anti-capitalist critics and Marx. In this matter he was obliged to perform most of the work himself. The question he put was no longer "What is the substance of wealth and how is it measured?" but "How is its growth and continual accretions to be explained?" Capital is that portion of wealth which is employed for the purpose of gain, of increase. Whence comes this gain, this increase? The answer is as follows:

All capital that is embarked on a productive undertaking consists of two parts: one part is expended on the technical means of production--on buildings, machines, tools, and raw materials, the other on wages. The first part Marx calls Constant Capital (c), the other part Variable Capital (v). The first is called constant, because it only adds to the commodities just as much value as it loses in the course of the productive process; it creates no fresh value: Marx also calls it the pa.s.sive portion. The outlay on wages is called variable capital because it undergoes an alteration in the process of production: it creates new additional value: Marx also called variable capital the active portion, for it creates surplus value (s).

This composition of capital of constant and variable parts Marx calls its organic composition. He calls it average or normal composition when the capital of a business is 80 per cent. constant and 20 per cent. variable. If the constant part is higher, and the variable part lower, he calls it capital of a high composition.

Capital of under 80 per cent. constant portion and over 20 per cent.

variable portion he calls capital of a lower composition. And rightly, because the higher the ladder of capitalist production is, the more costly and extensive are the machinery and factory buildings and the greater is the outlay on raw materials, whereas primitive businesses employ less machinery, cheaper workshops, but a relatively greater number of workers. The relation between (c) and (v) reveals at the same time the stage to which production has developed.

Thus, according to Marx, it is solely the variable capital which creates surplus value, or, as it is commonly expressed, profit. We have seen above, in the explanation of the nature of wages, why variable capital creates more value than it is paid for by the capitalist; the worker does indeed receive the exchange value of his labour power, but the use value of the labour power functions, we have a.s.sumed, twice as many hours as are necessary for its reproduction.

This surplus labour is embodied in surplus value. While the worker receives, let us say, a daily wage of three s.h.i.+llings, for the reproduction of which five hours of work suffice, his labour power will be used for ten hours. These five hours of surplus labour appear in the exchange value of the commodity, so that the value of the commodity is composed of the transferred portion of the constant capital, the outlay on wages, and the added surplus value. Immediately before the production process only constant and variable capital existed, or, in brief (c) and (v); after the completion of the production process, the commodity embodies constant and variable capital and also surplus value, or (c) and (v) and (s). This is the actual value of the commodity, (c) or, shortly expressed, c + v + s.

The relation between wages and surplus value, or between paid and unpaid labour, or, shortly, s/v, Marx calls the rate of surplus value: it expresses the degree of the exploitation of labour.

If wages amount to three s.h.i.+llings, which can be produced in five working hours, and if the worker works in the factory ten hours for these wages, so that he creates exchange value to the amount of six s.h.i.+llings, then the rate of surplus value is 100 per cent. The whole of the surplus value which arises in this manner in the process of production is called the ma.s.s of the surplus value, or shortly, m.s., that is to say, the individual rate of surplus value multiplied by the total number of workers engaged in an undertaking, or the total amount of wages.

5. _Profit._

The ma.s.s of surplus value appears to the capitalist in the shape of profit. Surplus value is a Marxian scientific term which exactly expresses the principle of profit. Profit is a commercial expression which describes surplus value as it appears in practical life as a subject of experience, i.e., empirically.

The distinction between the Marxian theoretical and the commercial empirical conception is, however, not so simple: it arises from the different conceptions of the influence of capital and labour in the economic process. Let us explain it more distinctly.

As is known, Marx divided the capital embarked in industrial enterprise into two parts: into constant (technical means of production) and variable (living labour power, wages). He a.s.sumed that only the living labour power (wage labour) creates surplus value, whilst the constant capital only adds its own value to the new products.

The capitalist divides his capital outlay otherwise: into fixed (buildings and machines) and circulating (raw materials and wages) capital. The fixed capital is only used up slowly and only pa.s.ses entirely into production during a series of years--let us say 15 years: thus of a fixed capital of 75,000, 5,000 would each year be consumed in the production of commodities, and written off in the balance sheet. On the other hand, the circulating capital (raw materials and wages) are wholly consumed in every period of production, and must be renewed at the beginning of a new period of production.

Suppose an industrial undertaking about to be started requires a capital expenditure of 105,000: 75,000 fixed capital (for buildings and machinery), 20,000 for raw materials, 10,000 for wages. For convenience sake, we will suppose that the period of production lasts a year, and that the rate of surplus value amounts to 100 per cent., that is, the labour power receives a payment of 10,000, and produces a value of 20,000. At the end of the year, the capitalist reckons an expenditure of 5,000 on account of fixed capital, and 30,000 of circulating capital: the commodities produced cost, therefore, a net outlay of 35,000. This is the cost price, without adding profit.

According to Marx, cost price signifies (c) and (v), therefore without (s), (surplus value).

But the capitalist knows that the manufactured commodities represent a greater value than the cost price. According to Marx, the surplus value amounts to 10,000 (as the variable capital of 10,000 creates surplus value at the rate of 100 per cent.); but the capitalist adds to the cost price a profit which includes the gains of the enterprise and interest on the capital outlay. If the capitalist were alone in the market, his profit might suck up the whole of the surplus value of 10,000; but he has to reckon with compet.i.tion and the state of the market. The cost price, plus profit, is the production price as established by the capitalist. But according to Marx, that is, in pure theory, the production price is equal to the cost price, plus surplus value. There is thus a quant.i.tative distinction--a difference in the amount of money--between the theoretical and practical production price, as well as a qualitative distinction between the notions of the capitalist and Marx respecting the source of profit. The capitalist believes that profit is the result of the portion of capital which he has put into the process of production, combined with his own commercial ability. On the other hand, Marx a.s.serts that the capitalist can only extract a profit because the wage workers (the living labour power) create a surplus value in the process of production for which they receive no payment.

We a.s.sumed that the surplus value amounted to 100 per cent. measured with variable capital, and that 10,000 expended on wages produced 20,000. The annual balance sheet, however, would show the percentage of profit to the total outlay. Consequently, we must spread the 10,000 surplus value over the 35,000 which have been expended. The surplus value of an undertaking spread over the total capital (c) Marx calls the rate of profit, or shortly, s/c = 10000/35000 = 28.58 per cent.

As a rule, the capitalist cannot sell under cost price without becoming bankrupt, but he can quite easily sell under the production price, and mostly does so. In the example already given, his rate of profit amounts to over 28 per cent. According to the degree of compet.i.tion, or by reason of other circ.u.mstances which we will examine in the next chapter, he can content himself with a rate of profit of 10, 15, or 20 per cent., which will serve him partly as an income and partly be expended in the development of his enterprise. The 28 per cent. profit generally forms a circle within which he fixes his manufactured price. Under favourable circ.u.mstances he can add the whole 28 per cent, to the price; under less favourable, only 20, 15, or 10 per cent. Accordingly, several portions of surplus value remain in the commodities which are not yet realised. What happens to them?

The remaining portions of profit or of surplus value fall to the large or small traders who are interposed between producer and consumer, or go in the form of interest to the banking inst.i.tutions, in the event of the capitalist operating with borrowed money. As the profit is only realised in the process of circulation (in commerce and exchange) and there divided amongst the various economic cla.s.ses and sections, most people believe that profit arises in commercial transactions. They do not know that the price of a commodity can only be increased in trade because its manufactured price was fixed below its price of production or its value, that is, because the commodities contain surplus value which is only gradually realised in the process of circulation.

The social significance of this doctrine is far-reaching. If it is correct, then all the social sections which are not engaged as manual and brain workers in the process of production, or in the transport of raw material, lead a parasitical life and consume the surplus value which is squeezed by the capitalist cla.s.s out of the proletariat and appropriated without payment.

Quite otherwise are capitalist ideas. According to them, profit is the result both of the spirit of the enterprise and the ability of the capitalist, added to that portion of the capital which is put into the process of production: the machines and buildings and raw materials which are used up, and the labour power, all of which are bought at their proper exchange value. It is only fit and proper that the trader and moneylender should receive a portion of the profit so created, for they a.s.sist in realising the exchange value by bringing the commodities to the consumer, and thus rendering possible the process of production.

Surplus value or profit? Labour or Capital? Behind this question lurks the great cla.s.s struggle of the modern social order. No wonder the Marxian doctrine of value and surplus value was the occasion for an extensive controversy, in which the famous problem of the average rate of profit played a great part.

6. _The Average Rate of Profit._

According to Marx's doctrine of value and surplus value only variable capital creates fresh value and surplus value. An industrial undertaking of a lower organic composition, which thus employs much variable capital and little constant capital, must consequently create a greater surplus value or more profit than an industrial undertaking of higher composition which may employ the same total capital, but composed of greater constant and smaller variable portions than the former. Let us take two industrial capitals of 35,000 each. One expends 15,000 on the constant elements (machinery, raw materials) and 20,000 on the variable element (wages of labour).

The other shows 20,000 constant part and 15,000 variable part. With an equal rate of surplus value--100 per cent.--the first capital would produce 20,000 surplus value (profit) and the other only 15,000 profit. Experience shows, however, that equal amounts of capital--in spite of temporary differences in profits--tend to produce equal profits. From this, it would appear that it is actually the capital expended and not the labour employed which determines the magnitude of the surplus value (profit), that the concrete results of the capitalist process of production do not confirm the Marxian theory of value, that the facts directly contradict the theory. It was Marx himself who drew attention to this problem. After he had constructed his theory of surplus value in the form of a scientific law, he continued: "This law clearly contradicts all experience based on appearance. Everyone knows that a cotton spinner, who, reckoning the percentage on the whole of his applied capital, employs much constant capital and little variable capital, does not, on account of this, pocket less profit or surplus value than a baker, who relatively sets in motion much variable and little constant capital."

How, then, can the equal rate of profit in the case of capitals of different organic composition be harmonised with the theory of surplus value?

Marx concedes that equal capital sums whose organic parts are unequally employed give an equal rate of profit, although the volumes of surplus value created are different. Two capital sums of 50,000 each, one of which, for example, represents 40,000 constant and 10,000 variable capital, and with a rate of surplus value of 100 per cent. gives 10,000 surplus value, while the other is composed of 10,000 constant and 40,000 variable capital, and with an equal rate of surplus value gives an amount of 40,000 surplus value, will nevertheless yield an equal rate of profit, although theoretically they would be unequal if the rate of surplus value directly determined the rate of profit. In the first case, the rate of profit would amount to 20 per cent. and in the second to 80 per cent. In reality both undertakings yield an equal rate of profit.

How is this explained, according to Marx? By means of compet.i.tion, the different rates of profit are levelled to a general rate of profit, which is the average of all the various rates of profit. Thus the capitalists do not realise the surplus value as it is created in any particular factory, but in the form of average rate of profit as it is produced by the operations of the total capital of society. The average rate of profit may be lower or higher than the individual rate of profit, for the "various capitalists," as Marx explains, "so far as profits are concerned, are so many stockholders in a stock company in which the shares of profits are uniformly divided for every 100 shares of capital, so that profits differ in the case of the individual capitalists only according to the amount of capital invested by each of them in the social enterprise, according to his investment in social production as a whole, according to his shares."

While thus the individual rates of profit do not proportionately coincide with the rates of surplus value, i.e., while the degree of exploitation of the worker in the individual factory, and the volume of surplus value thus individually created, do not directly determine the individual rate of profit, it is the total ma.s.s of social surplus value which is the source of the average rate of profit. If the ma.s.s of the surplus value be large, the average rate of profit will also be great. Marx says: "It is here just the same as with average rate of interest which a usurer makes who lends out various portions of his capital at different rates of interest. The level of his average rate depends entirely on how much of his capital he has lent at each of the different rates of interest." The higher the various individual rates of interest, the higher will be the average rate of interest at which his capital has been put out.

The individual price of production signifies, therefore, cost price plus the average rate of profit, and not plus surplus value: it does not necessarily correspond with the total amount of the constant and variable portions of capital employed in an individual enterprise, plus the ma.s.s of the surplus value: the prices and magnitudes of value of commodities are not manifestly equal, as Marx has often pointed out. Of course, the total profits of the capitalist cla.s.s coincide with the total surplus value extracted from the working cla.s.s, provided, of course, that the supply of commodities corresponds with the social needs.

Thus the law of surplus value, in spite of all deviations and refractions, holds good in the last resort. "In theory," observes Marx, "it is a.s.sumed that the laws of the capitalist mode of production develop freely. In reality, there is always only an approximation."

And the more capitalist production develops, the greater will be the degree of approximation in particular cases, for the progress of Capitalism signifies a continuous increase of constant capital, a more mechanical character being given to industrial processes, and a reduction of variable capital to the necessary minimum, so that the differences in the organic composition of capitalist undertakings become less, thus bringing the average rate of profit and the rate of surplus value nearer to each other.

This indirect and difficult method of realising profits involves the fact that the capitalist does not distinctly observe the exploitation of wage labour practised by him, but he believes that the profit is owing to his own commercial ability.

This difficult section of the outlines of the economic doctrines of Marx can be most fitly concluded by quoting the comprehensive observations of Marx himself upon this subject, which he gives at the end of his book.--("Capital" (German), Vol. III., 2, pp. 355-6.)

"In a capitalist society, this surplus value or this surplus product (leaving aside accidental fluctuations in its distribution and considering only the regulating law of these fluctuations) is divided among the capitalists as a dividend in proportion to the percentage of the total social capital held by each. In this shape the surplus value appears as the average profit, which in its turn is separated into profits of enterprise and interest, and which in this way may fall into the hands of different kinds of capitalists. Just as the active capitalist squeezes surplus labour, and with it surplus value in the form of profit out of the worker, so the landlord in his turn squeezes a portion of this surplus value from the capitalist in the shape of rent. Hence when speaking of profit as that portion of surplus value which falls to the share of capital, we mean average profit....

Profits of capital (profits of enterprise plus interest) and ground rent are merely particular const.i.tuents of surplus value.... If added together, these parts form the sum of the social surplus value. A large part of profits is immediately transformed into capital." In this way, capital grows, or, as Marx says, acc.u.mulates.

7. _Surplus Value as Social Driving Force._