“If the Amazon wasn’t being burned down for animal agriculture it’d be destroyed for logging or mining.” Yeah and if kids weren’t in Nike sweatshops they’d probably be in Adidas ones, that doesn’t make it okay and it doesn’t mean that you aren’t supporting these practices by putting money into the hands of those carrying them out. People dismiss these arguments of diminished responsibility in literally every other context, but when it comes to beefburgers you’re suddenly all convinced?
Summarized from Prof. Resnick’s Youtube Series (Lecture 18)
Continuing our analysis of the Business Cycle from last time, we should for a moment consider the workers’ side of things. Remember, the capitalists are trying to expand their mass of surplus (increase their profits) so they begin to expand the K* and λ, which in turn drives up the demand for labor-power and thus means workers can begin to demand higher wages. This means that now the workers are getting higher wages that is being seen as a Subsumed Class Payment from the capitalist's perspective. From the workers’ perspective, they are receiving an additional Subsumed Class Revenue, that is, they are getting paid more out of the surplus!
What will the workers do with their higher wages? Well they would go out into the consumer goods market (called the means of subsistence market sometimes) and buy more things. This would overall expand the consumer goods market, either prices would go up for things getting purchased more or further expansion of the market would take place.
Well this would actually be good news for the capitalists who are producing products for the consumer goods market! So while the increased cost that some capitalists have to pay to workers could lead to contraction, the increased revenue that other capitalists could make off of selling to the higher earning workers could lead to an expansion! So there’s two things going on, two different consequences of capitalist expansion. A contradiction! Two different kinds of overdetermining forces are occurring at the same time!
Again, from the workers’ perspective they receive their wages plus an additional subsumed class revenue being paid to them because the demand for the labor-power has gone up.
The workers could spend some of this extra subsumed class revenue in the consumer goods market, which, to the capitalists producing & selling that market will look like this. That is, the demand will have shifted, so now there will also here be a deviation that will increase the price from the value, and the capitalists will receive an extra amount of money. However, this will not be a subsumed class payment or revenue. Why? Because workers, by assumption, are individuals who do not appropriate surplus, if they did, that’d be communism. In capitalism, the workers produce the surplus, the capitalists appropriate the surplus. This means that when workers have to pay extra for something, it is not coming directly from the surplus, so it cannot be a subsumed class payment as that means it comes directly out of the surplus. Thus these capitalists selling in the consumer goods market & earning more are receiving a Non-Class Revenue.
So again, we can see that the workers are benefiting, the capitalists selling means of production are benefiting, and the capitalists selling consumer goods are benefiting. This capitalist expansion has caused some areas to benefit, but it has also caused the costs of things to go up in other areas. Workers wages/salaries are going up, the cost of means of production are going up, rents, credit, etc could also be rising.
So there’s extra cost AND extra benefit. So which outweighs which? Are they equal? Will the expansion continue or will we get a contraction? Well, the answer is we have no idea, nor does anybody else. You would have to be some kind of god to figure out this complexity. So we’re left with, we don’t know! It’s possible it could go either way! The costs could far outweigh the benefits and we get a contraction, but there’s no necessity for that. It could go the other way too! It could result in an expansion! They could be equal and nothing really changes in that regard. So capitalism leaves us with a radical degree of uncertainty! The whole system is incredibly fragile! Although everyone seems to believe in it, Marx has shown just how fragile it is. We could have expansion or decline or equilibrium at any moment!
John Maynard Keynes
After Marx, the man who really focused upon this problem was John Maynard Keynes (1883-1946). He was struck by the uncertainty haunting capitalism. In his great book, published in the 1930’s, The General Theory of Employment, Interest and Money (1936), he sets out an argument for how & why capitalism is fraught with uncertainty. At any moment, the capitalist, the people sitting on the boards of directors who are distributing their profits/surpluses, can decrease or expand their investment for a variety of different events or reasons at any time! Keynes would call these behaviors the investors’ animal spirits and would go on to describe how these animal spirits needed to be considered and affected in order to keep capitalism healthy, because if the animal spirits were low, capitalists would not reinvest enough of their surplus, and we would all get a bad recession. If the animal spirits were high, the capitalists would invest enough, and we could all get a powerful expansion!
For example, suppose that the capitalists were benefitting from a growing market, things are looking good. That very advantage & outlook could cause worry in them though. They’ve learned about the business cycle, and they know eventually a bust will come. So the people sitting on the board of directors are thinking about this, and it’s their job to be think about risk and prepare for it, so they start to hedge their bets. They don’t invest all of their surplus, they don’t hire more managers, rather they take a portion of that surplus & they purchase government bonds/securities. Well that need not be just one capitalist, as they all start to do that, the very worry about a bust coming could cause a bust as all the capitalists start to worry & change their behavior!
One of the things Keynes pointed out was that capitalists’ cut backs have a multiplier effect. If a capitalist doesn’t reinvest the surplus, that means someone will not be paid to do it. Well if someone doesn’t get paid, they also can’t spend that money on things, so a capitalist making that decision, in fact, affects many many other people, hence a multiplier effect.
On the other hand, euphoric capitalists could cause an expansion. Perhaps some new technology comes along, excites the capitalists, and they invest lots of money in this new technology, hire new workers and managers to help use this technology, and so forth. Well all of this investment and spending of the surplus could help to create an expansion because of the multiplier effect. Think of all the people they’re employing now who can spend their new income & the means of production capitalists who are having more of their new technology purchased.
The economy is continually being overdetermined by the ideas of the capitalists of what’s going to happen in the future. This then affects how they distribute their surplus. And this is a fundamental part of Marx’s criticism of capitalism. All of these decision that have huge affects all over society are being made by a tiny group of people. Just the board of directors of various firms. These tiny groups of people make decisions that affect all of us, and we get no say in it. And on top of that, the things that influence the decisions they make are incredibly fragile. On a whim of worrying about the future, they could cut back thousands of people’s employment, or worse!
Summarized from Prof. Resnick’s Youtube Series (Lecture 17)
This time, we will discuss what are some consequences of capitalist expansion. And Marx will argue that capitalist expansion, in and of itself, carries the seeds of a possibility of contraction (recession), and then the contraction carries the seeds of a possibility of an expansion. So what we end up with is the Business Cycle!
So in addition to class exploitation, Marx also critiques the up’s and down’s of capitalism, or as Engels would later call it, the anarchy of production. Let’s begin be reviewing how capitalist expansion can be characterized by an expansion of capital accumulation (K*) plus all the other expansions that capitalist enterprises engage in (λ).
So the capitalists will get their surplus and use it to accumulate more productive workers, as well as, more managers & credit from banks & Research and Development & rents & so forth. They will expand both their machines (means of production), labor-power, and everything else. Then the question is, what might be some consequences of this?
First, we should examine the market impact of this. One of the conditions of existence of surplus-value in capitalism is markets, so we want to ask what the impact of all this expansion will be on the markets. First, we’ll look at the labor-power market (labor market), second we’ll look at the means of production market. Using standard economic analysis of supply & demand, we can draw both of these markets. We’ll chart the price versus the supply & demand in both.
So we have the supply & demand of these two inputs into capitalist production. Marx spends some time in Vol. III examining supplies & demands of a variety of different markets. He is well aware of the supply/demand analysis that is critical to nearly all economic analysis.
So what happens when K* expands? The demand for labor-power will shift to the right in our graph. There will be more employment for workers as the capitalists seek to expand their production. This will also cause an increase in the price of labor-power in the labor market. This will cause the price of labor-power to deviate above the value of labor-power, which we have defined as the total value of labor-power divided by the number of workers and the hours that each works, so the value-wage per labor-hour.
So we can see that there are two worlds being discussed here: the market world with supply, demand, & prices versus the value world. Remember that these two world overdetermine each other, because everything overdetermines everything else! These two worlds complexly shape one another, but analytically, just for the moment, let’s keep them distinct so that we can discuss each of them separately and then how they shape one another.
So we have an increase in the price of labor-power because of a change in the labor market caused in turn by a change in capital accumulation. Thus capitalists want to hire more workers (both productive & unproductive laborers), which caused the change in the labor market. So we have a change in the price of labor-power, but we can assume that the value is unchanged. Why can we do that? Because the value of labor-power is the bundle of consumer goods necessary to reproduce the workers (and their labor-power), so the V is really the means of subsistence. Well by assumption (and assumption only), we’re saying this hasn’t changed.
What is the cause of this value though? Well it’s the socially necessary abstract labor time to produce the consumer goods to reproduce the labor-power, and just for now, we are going to assume that it isn’t changing. It could change, and it probably should change, but just for the sake of this analysis, the productivity of abstract labor doesn’t change, thus the quantum of social labor required to produce the consumer goods is unchanged, and hence the value per labor-hour is also unchanged. Finally we shall see that the price is still going up, so there is a deviation between the price and the value!
By the same logic, the demand for the means of production has shifted to the right in our graph, and thus the price of the C goods have risen. If we recall that prices are always a unit value and thus the price of C goods is the value of C goods divided by the number of C goods produced, which remains unchanged, thus we can assume there’s no change in the socially necessary abstract labor time to produce these C goods in the means of production industry, whilst at the same time, the increase in demand for the means of production means a higher price for the means of production. So here too we have a deviation from the value & price.
So, as a result of this expansion, K* & λ that are rising have in turn caused an impact on these two major markets (there could be impact elsewhere, but for now we are focusing our analysis here) which is generally a rise in prices of labor-power and means of production. So what’s the consequence of the rise in prices of these two important markets?
If we start with the labor market, we see that workers get a higher price of labor-power which capitalists have to pay. So we see that workers are now getting some extra, a premium. But capitalists can’t get this extra from nowhere, so it must come from the surplus! Capitalists have to start giving more of the surplus to the workers! There is now a new subsumed class payment that the capitalists have to pay in order to stay in business & maintain access to labor-power! The workers have entered a favored position! Again, this new price is a deviation from the value of labor-power compared to its socially necessary abstract labor time value.
Thus we see an extra cost to the capitalists & an extra revenue to the workers. By the same logic, we have a price of the means of production that the capitalists have to pay at a premium from before. If the capitalists want to continue to have access to the means of production, they have to pay out an extra cost to other capitalists. Because the demand for means of production has risen, the price has risen, and thus those capitalists buying the means of production will have to pay out extra surplus (more subsumed class payments) to those capitalists who are selling the means of production.
Thus, we have seen a market phenomenon where capitalist expansion has increased costs to expanding capitalists. These are internal contradictions to capitalism! This is not some outside force acting upon the market, it is a capitalist contradiction.
So what impact do these extra costs have? Well remember, capitalists get a surplus, and they have to spend it on K* and λ, otherwise written as the Subsumed Class Payment of variable and constant capital, and they must also pay for everything else (managers, landlords, etc.). But now they have two new ones: the premium being paid to workers & the premium being paid to other capitalists (the market consequent of expansion). The payment made to workers is represented as the price of labor minus the value (the deviation) times the number of labor-hours worked. The premium to capitalists is the price minus the unit cost (the deviation) times all the means of production purchased.
Well, if we assume that most other things are unchanged (esp. an unchanged expropriation from the workers), we should notice that the surplus-value will now be at an inequality. The surplus-value available will be less than all the demands being put upon it, as the market change increases the right side of the equation. Remember this is all just a result of a very natural capitalist expansion. This is not an external effect.
Marx then argues, while there’s no necessity for it if something else changes, but this inequality is a sign of crisis for the capitalists, because the demands on the surplus are greater than the surplus. There’s a variety of possibilities that could arise there. The workers could be pressured to increase the surplus-value they make, for example. In Vol. I, Marx focuses on the resolution of the cost of capital falling, that is K* or capital accumulation diminishing to solve the crisis. That is to say, the very rising costs make it more difficult for the capitalists to expand, so they deal with it by purchasing less of labor-power and means of production. Of course, anything else could be changed in the equation to resolve the crisis, but Marx focuses on the first term of the equation to note that this capitalist expansion has carried the seeds for a capitalist recession.
This could of course also be, and probably will also, affect the other subsumed class payments, so we will in general see a rise of prices (managers, rents, credit, etc.). This general rise in prices will eventually induce what? A cut back. A recession.
The cut back that Marx focuses on is the cut back on constant and variable capital. Well if the capitalists cut back from buying so much constant or variable capital, won’t that come back to affect the markets we were focusing on before, labor & means of production? Won’t the demand for labor-power & means of production start to fall back, and thus, the price of them will start to fall again? That is exactly what Marx argues will happen. He argues that the two markets will shift back.
But what happens when the demand shifts back? Well, with the labor market, we will have an excess supply of people: unemployment. The means of production will also have an excess supply of products that no one will be buying! The prices will fall for both of these. Marx calls this unemployment the reserve army of the unemployed. Another internal contradiction! This excess is all simply because of capitalism.
The point of the reserve army of the unemployed is 1), it pushes down the price of labor-power to correct the disequilibrium in the situation, 2), it disciplines the workers so they will accept a lower price of labor-power, otherwise they will be replaced with someone who is unemployed. Thus the reserve army of the unemployed pushes down the price.
In the means of production market, the excess supply will push down the prices. Thus, if we put it all together, expansion causes a crisis because of rising input prices, and that crisis serves to correct the crisis by diminishing demands for labor-power & means of production, and thus pushing down the prices. In a bizarre way, the crisis sets in motion the forces in society which correct the crisis. The expansion creates a contraction, but the very contraction will solve the problem that brought it about by bidding down prices. So Marx gives an argument here for how business cycles result internally within capitalism. You don’t have to look outside for external events. In fact, the contraction will set the stage for the next expansion! We are caught in a loop!
Of course, a multitude of other things could intervene and cause variations of this, but Marx has, for analytical reasons, assumed things are stable to highlight one part, one possibility. Marx will next time argue that this contraction need not occur. It is not strictly necessary if some other things intervene. Capitalism may have the potential to create downturns, but they need not happen. It is quite possible for the supply of labor power to shift to the right, that is the demand increases as well as the supply, so the price itself doesn't rise.
The changes in the labor-power market are crucial to understand so many economic stories! Not to mention all the innumerable other changes that can vary the effects and outcomes.
Summarized from Prof. Resnick’s Youtube Series (Lecture 16)
Let us examine the four major ways that the surplus value can change in capitalism. Marx himself devoted hundreds of pages to these topics, but let us give a brief overview of how a capitalist can acquire more surplus value (profits) in the development of capitalism.
1. Absolute Surplus Value
The capitalist can acquire more surplus-value by paying the workers the same amount per day (V) but getting them to work more hours in that day.
By extending the length of the work day, but paying the same total amount, the capitalists are getting a greater living labor or an extended use-value from labor; they are getting more products to sell for the same amount paid! So Absolute Surplus Value is an example of rising exploitation (SV/V). So if the employer can convince a worker to stay longer than normal, but not pay overtime, then this is an example of Absolute Surplus Value.
Thus, the capitalists have an interest in extending the length of the workday, but the workers have an interest in not doing this! If anything, the workers want a shorter work day for the same amount of money. If the capitalists succeed in extending the work day, it is the workers who experience the extra wear-and-tear. So we can see how capitalists’ and workers’ interests are going in opposite directions, but they are equivalent in the market; they both have equal rights in the marketplace.
Marx is going to argue that between equal rights, force is going to decide who will win out, thus in capitalism we expect one of the first struggles to be over the work day, and indeed historically we see this happen, and we see workers win. Nearly every industrial society implemented some laws about the maximum length of the work day and work week.
If all else were equal, we would expect the rate of profit thus to fall, but it doesn’t. Instead we see the rate of profit goes up because the capitalists have engaged in the other three ways of increasing surplus-value.
2. Increasing Employment
The capitalists can acquire more surplus-value by increasing the number of employees but keeping the rate of exploitation the same.
We can re-examine the formula for surplus-value and note that overall for a capitalist, the surplus-value will be equal to the rate of exploitation times the wage times the number of laborers times the hours they work. Thus if we increase the number of laborers while the rest remains constant, the surplus-value will increase!
SV=SV * V * w * ℓ * h
Overall, this is fairly intuitive. The profit of a capitalist will depend on how much profit they make from each employee (rate of exploitation), how much they’re paid, how many are being paid, and how many hours are being worked. Each of these can change of course, but for now we are keeping all constant except for the number of employees (ℓ). We could also examine the relationship to the index of mechanization or intensity of labor. For an in-depth example, watch Prof. Resnick here.
Thus we see that if the capitalist employs more people while everything else remains the same, their profit will go up. Marx continues on in his argument to show that if you hold everything constant except for the growth of employment, you get the rate of growth of employment is exactly equal to the rate of growth of costs which is also exactly equal to the rate of growth of surplus. To quote Marx on the importance of this equality, “A theory of capital accumulation is a theory of employment growth.” And as a growth of profits as well.
ℓ* = K* = SV*
3. Relative Surplus Value
The capitalists can acquire more surplus-value by paying the workers less while the workers keep producing the same amount.
Remember that over the course of a work day, the workers will produce a certain total value (V + SV), but they will only receive a portion of the value produced in wages (V). So if the capitalists can get away with paying the workers less but having them work the same number of hours & produce the same output, the capitalists will have succeeded in increasing the surplus-value. A common example of this would be hiring on new employees for less than the former employees.
Note that in this example, we have kept the hours worked (h) as constant and only decreased the wage, which affects (SV/V) & w. The rate of exploitation has risen!
4. Increasing Intensity
The capitalist can acquire more surplus-value by increasing the intensity of labor.
If the same number of workers, working the same number of hours, produce more output in a workday, they will have increased the surplus-value. The workers will be working faster, hence why it’s sometimes called a speed-up. The workers will have produced more products for the capitalists to sell on the market, so the capitalist will receive more surplus-value.
Summarized from Prof. Resnick’s Youtube Series (Lecture 15)
Let’s continue to develop our interesting equations starting with a quick review of what we learned from last time.
C + V + SV = W
Last time we used the values of $2 for C (value of means of production), $1 for V (value of labor-power), and $1 for SV (surplus-value, profit), thus the total is $4 of value. In hours, that is 4 hours, 2 hours, and 2 hours respectively, for a total of 8 hours. Remember that every single commodity produced in capitalism contains exploitation as Marx showed last time. (This is very different than what other economic theories will tell you!)
Also, remember that the value of labor-power (the worker gets $1 in our example) is used by the worker to purchase means of subsistence, consumer goods to reproduce their own life and thus reproduce their labor-power. So as the worker gets paid, they use that money to buy commodities and that wage is all they can use to buy anything. Of course, what exactly the worker uses their wage to buy will be socially determined. Someone living in a big city might purchase an apartment & a monthly bus fare, whereas someone in a rural area will rent a trailer home & pay for a car & gas.
Also remember that the marketplace is a place of equivalent exchange, so when the worker goes to the market to purchase those consumer goods, they are in fact trading hours of their own life, through their wage, for the hours it took to produce the commodity. The worker cannot simply go to the market and exploit or gain more than they were paid.
Indices
The first equation that we will discuss is called the rate of exploitation, which is the relationship of the surplus-value (SV) over the value of labor-power (V).
SV / V = rate of exploitation
For our example, this would be $1 over $1, so 100% would be our rate of exploitation. We could also call this the relationship of unpaid labor over paid labor. Thus we have an index of the rate of exploitation, and we can chart how it changes over time. Thus we can analyze how much the worker has produced overall, and how much of it they actually get paid for. The ratio is directly measuring how much of their own labor they are getting paid.
Next, we have the index of mechanization (also called the composition of capital) which is the total value of the means of production (C) over the total cost of production including labor (C+V). In our example, it would be $2 over ($2 + $1), so 66.7%. It’s called the rate of mechanization because the bigger the ratio, the larger of the total cost that is formed by the means of production (C) thus meaning that more technology goes into something than just labor-power. It shows more spending on machines & tools than on labor. The higher the index, the more mechanized the society. In capitalism, we expect this rate to rise, because in capitalism technology comes to play a leading role.
C / (C+V) = mechanization
The final equation shows us the returns on capital. The rate of profit is the ratio of surplus value (SV) over the total capital that must be expended, the total cost of production (C+V). In our example, it’s $1 over $3, so 33.3%.
SV / (C+V) = r
If the capitalist is successful, the costs the capitalist is putting in should be contributing to a bigger and bigger surplus value thus causing the rate of profit to be increasing, hence a successful capitalist! We can say the rate of return is rising, in this case.
These three are Marx’s 3 famous indices. We can use the work of famous American Marxist, Paul Sweezy, to combine all of them into one formula that will be particularly useful in analyzing capitalism.
Expanding the indices
If we start with r, which is surplus divided by capital, we can divide the numerator and denominator by the value of labor-power, which we can rewrite as follows, and then if we add C and subtract C (thus equaling zero), we can arrive at our formula. Thus we can see that we have the rate of exploitation in relationship with the rate of mechanization that was derived from, and is equal to, our rate of profit. (for a more thorough examination of the algebra, watch Prof. Resnick)
r = (SV/V)(1 - C(C+V))
This implies two things:
A rise in the rate of exploitation implies an increase in the rate of profit. If r goes up, so does (SV / V)
A rise in the index of mechanization implies a fall in the rate of profit, due to the negative sign.
So notice how the profit rate can go in two different directions! As the rate of exploitation rises, profit increases, but as mechanization occurs, which we expect in capitalism, that same profit rate will fall.
This helps lead us to the two main messages of capitalism. The first is that capitalism, and all the commodities it produces, has exploitation associated with it (like we discussed earlier). The second is that capitalism has a business cycle associated with it, which we will now focus on.
Business Cycle
What happens depending on the rise & fall of the rate of profit? Recall that the rate of profit is surplus-value over the cost of production, but what do the capitalists do with their surplus? The workers, of course, go out and buy means of subsistence (their conditions of existence), and the capitalists distribute the surplus to secure their own conditions of existence. They make all kinds of subsumed class payments so that they can survive, reproduce, and prosper. We can divide the subsumed class payments into two kinds of broad categories: distribution for capital accumulation (purchasing new tools & machines, hiring new productive laborers) and all the payments for managers, rents, financing, R&D, etc. (this is denoted by the prime below).
ΔC refers to the capitalist purchasing of additional means of production, like what you hear about all the time, investment. They invest in new plants & equipment–means of production! The ΔV is the expansion in employment in productive labor (that is labor that can be productive of surplus). All of the other expenditures are captured by Subsumed Class Payments Prime that encapsulated all of the unproductive labor(ers).
We can rewrite this equation as much simpler, calling the productive labor K* & the unproductive labor λ. So we have a formula that the capitalists get a return on their capital, r, and they go out and spend it on K* (they spend more on machines, productive labor, etc.) & λ, which they spend more on managers, R&D, unproductive labor, etc.
r = K* + λ
If the rate of profit falls, then one or both of these must also fall. Which means that the possibility of a recession has arrived, maybe even a depression! A falling rate of profit means that there will be a decrease in the demand for labor-power and the means of production. If K* falls, the demand for productive labor will fall, and if λ falls, the demand for unproductive labor will fall. If the demands for those two different labor-powers are falling, employment is going to fall! Wages & salaries are going to fall, the demand for consumer goods will fall, and BOOM! You have a recession!
So, a falling rate of profit may imply a recession, but a rising rate of profit may imply an expansion of the economy. So Marx has related the rise & fall of the rate of profit to recession & expansions and thus to the business cycle.
If we put this all together, in terms of these indices, a rising rate of exploitation (a bad thing) will give us a rising rate of profit and the possibility of expansion (more jobs, higher wages = a good thing). So you can really see the dialectic here, the contradictions, the connection of all things! A rising index of mechanization (a good thing because we have more wealth, machines, etc in society) is connected to a falling rate of profit (a recession = a bad thing)! Marx has begun to illuminate for us the myriad of contradictions that exist in capitalism!
Is it possible to have all of these connected? Could a rise in the index of mechanization instead produce a rise in the rate of exploitation and thus not produce a recession? Of course! All things are complexly connected, so everything is affecting everything else. This is the kind of complexity that we, and Marx will begin to examine next.
Summarized from Prof. Resnick’s Youtube Series (Lecture 14)
To continue to develop the Marxian Value Theory, we should recall that Marx treats the realm of exchange, the market, as a place of equivalent exchange. Value is simply redistributed from buyer to seller. Thus, value is not created in exchange. In our example, we have someone who has $4, which is 8 hours of abstract labor because each dollar takes two abstract labor hours. So, the person can go out and buy an apple, let’s say. But if no surplus-value is produced in the market, then where does it come from? Marx theorizes that a new commodity that is consumed outside the realm of the market must be producing this surplus-value.
Marx calls this new commodity that has the potential to create new value, labor-power. Labor-power is a commodity that is bought and sold in capitalism and like any commodity has a use-value and an exchange-value. All commodities have both values and are produced by labor. The difference between labor-power’s exchange and use value are crucial to understanding Capital, Vol. I. And this difference, as we shall see, is the source of surplus-value.
A capitalist society has individuals who can sell this commodity labor-power. Labor-power is the capacity of a human being to work using their muscles & brain & so forth. It is the ability to labor! Capitalism is the first kind of society where people have the freedom to buy and sell this commodity of their labor-power. Serfdom & slavery do not allow people to buy & sell their labor-power.
The seller of labor-power alienates the use-value of labor-power and in return receives the exchange value. The capitalists are the ones buying this labor-power, and they are giving the seller a wage in exchange. What exactly does the buyer of labor-power get? They get the use-value, which is the actual labor performed and whatever it has produced!
Remember that the market is a social sphere, like we said before, the exchange-value is a social relationship; it depends on other people. But the use-value is a private thing. The buyer has some demand or some desire for the use-value. So the buyer has a private relationship to this thing they acquire, and Marxian Theory is, in a sense, a way to reveal what is going on in this private sphere.
What is going on there is that the buyer is getting more than they paid for the commodity of labor-power! This is where the surplus-value comes from.
The Worth of a Commodity
One of Marx’s most famous equations shows us the worth of a commodity. For anyone to make a product and sell it in the market, they need two inputs, means of production (raw materials, tools, etc.) & labor-power. Marx calls the means of production, C for constant capital. This is the value of the non-labor inputs to produce the particular product. These inputs are used up to produce the commodity.
Marx calls labor-power V, for variable capital. The surplus-value is then called SV. If we add them all up, we get the total worth, W. We can note that the total value added by the worker is variable capital plus the surplus-value, which is the use-value of labor-power. If you recall from before, this is also the living labor, while the constant capital is the embodied labor.
C + V + SV = W
Why does Marx contrast variable capital with constant capital? Well, because Marx is calling attention to how the value of labor-power varies in value. The constant capital merely adds its value to the end product, but labor always adds more value than it is purchased for! So Marx has shown here that the source of new value arises outside of exchange in the consumption of the particular commodity, labor-power.
Marx, seeing that the laborer has produced more value than they were paid, proactively calls this unpaid labor. We can see this demonstrated if we examine a worker and how they spend their day. If they are paid $2 but produce $4 over the course of their work day, then they have effectively spent half of the day working for free! They have more than covered for what their labor costs and have provided even more value to the capitalist! The capitalist has acquired the $4, the use-value, while only giving up $2, the exchange-value. This is the source of profits in capitalism.
Intensity vs. Wage
There is one more equation we should examine. If we add the variable capital & the surplus-value and divide by the time worked, we will arrive at some rate per the unit of time.
Intensity: (V + S) / h = rate
This rate can be calculated over the entire work day, per hour, or any time frame. If we compare it with just the paid labor, that is the variable capital divided by the time worked, we can compare the paid and unpaid labor.
V / h=wage
Marx calls them the intensity (of exploitation or labor) and the wage per hour, respectively, and these will become hugely important as we move forward.
Summarized from Prof. Resnick’s Youtube Series (Lecture 13)
Continuing to discuss Capital, Vol. 1, let’s talk about money. Marx defines money as a universal equivalent. It is a commodity chosen by society to be universally equivalent to all other commodities. So it’s a way to facilitate exchange. All the other commodities can express their value in this one particular commodity which is chosen by society. So the use-value is precisely its exchange value.
Since the source of exchange-value is abstract labor (established from before) then when one has command over money, one has command over abstract labor, because money is the representation of abstract labor. So to accumulate money is to accumulate command over abstract labor.
Lots of societies have chosen lots of different commodities to be the equivalent exchange, but, arbitrarily, let's choose gold. So all the other commodities can be sold for gold. Suppose also that it takes 2 hours to produce an ounce of gold. So then in the Marxian Abstract Labor Theory of Value, an ounce of gold has a value of 2. Let’s recall from a previous example that an apple has a value of 8, and a shirt has a value of 4.
If we take the value of a shirt and divide it by the value of an ounce of gold, we get a value of 2. Doing the same for an apple gives us a value of 4.
Notice that gold is always in the denominator–that’s what a universal equivalent means, it is a common denominator! Suppose that this society decides that to facilitate exchange, it establishes a mint & prints gold coins, such that 1 coin is equal to 1 ounce. We can call this a dollar.
So the price of an apple would become $4 or 4 coins. The price of the shirt is $2 or 2 coins! So we get an interesting equation from the question of how much money do we need? How many dollars should we produce from our mint? Well we could simply add up our demand for exchange-value by adding up all the commodities produced times their value.
So we would have $4 + $2, so we need $6 worth of coins produced! Obviously this is extremely simple, but it shows the basic process. And we can say the demand for money is $6. The state has to supply $6 to finance the transactions of this society. So we have a new condition of existence of this capitalist economy. The mint has to supply enough money!
Marx calls this “money as a medium of exchange.” In order to carry forward the exchange in a society, the commodities are sold for money (M) and that money is used to purchase other commodities (C).
C-M-C
C-M-C refers to starting out with a use-value (a commodity, whatever it is), then you sell it for money (you alienate it), and you use the money to buy some other commodity and you acquire that new use-value! So you’re not selling apples to buy apples, you're selling apples to acquire money to buy all the other commodities you might need, like a shirt. Money is thus a medium of exchange.
Marx also talks about another medium of exchange. We’ve already seen the usefulness of money, but next he introduces something a little bit different.
M-C-M'
Here a person starts with some amount of money, a certain amount of command over abstract labor. Then they use the money to buy some commodity, then they sell the commodity for more money than they started with. So the assumption here is that M’ > M.
Again, you start with money, but you end up with even more, so you end up with even more command over abstract labor! This is thus very different from C-M-C. Here the use-value of money is its exchange-value, and we’ve ended up with more exchange-value. A person has in some way expanded their value! There’s been a self-expansion of value / money. Marx calls this self-expansion of value, Capital. So Capital refers to a process where one has successfully expanded their value by engaging in M-C-M’. So a capitalist personifies this self-expansion of value! So a successful capitalist has expanded their value.
You can measure their success by taking the different between what they started and ended with divided by what they started with. Using this index, we get a rate of expansion! It is the change in money over the original amount of money. So if we start with $100 & end with $110, we would end up with 10 over 100 & an increase of 10%!
In the expansion phases of capitalism, this rate is positive and increasing. In the contraction phase of capitalism, the rate is negative and decreasing.
Different Kinds of Capitalists
Marx discusses 3 different kinds of capitalists that engage in M-C-M’ but in 3 different ways. With all of these, they are successful if they can expand their capital.
Finance Capitalists - individuals who start with money and lend it out with an interest attached so they get back more money at the end. They’re not really buying or selling or producing anything.
M-M'
Merchant Capitalists - individuals who buy a commodity, at a wholesale price, and sell that commodity, at a retail price, and thus expand their capital by having the retail be higher than the wholesale, that is buy low, sell high.
M-C-M'
Industrial Capitalists - individuals who buy labor-power & means of production, combine them, and then sell them for a profit.
In all cases, if they’re successful, there’s a general expansion of capital, so the title of Marx’s book is referring to, in general, these different kinds of capitalists. But we have to remember that ‘capitalist’ refers to different ways of expanding value. So just like how the idea of a working class is problematic, because it combines together productive and unproductive labor, the capitalist class is also problematic in Marxian Theory because it conflates different ways of expanding value.
There are productive capitalists, the industrial capitalists, and unproductive capitalists, merchants & finance, just like the productive and unproductive working class. Indeed, there could be conflict between tje different kinds of capitalists!
For example, one of the biggest capitalist entities in the entire world is Wal-Mart. They are merchant capitalists. They buy commodities from industrial capitalists for a wholesale price & sell them on to consumers at a higher price, the retail price. Wal-Mart is interested in keeping the wholesale price low, which is the opposite of what the industrial capitalist wants because that is their selling price, which they want to be high! Thus Wal-Mart can squeeze the industrial capitalists and a struggle could ensue. If Wal-Mart continually lowers its retail price for the consumers, it puts evermore pressure on the industrial capitalists, because Wal-Mart wants to maintain its margin for profits.
Thus we can see that just saying ‘capitalist’ doesn’t provide the whole picture. Different capitalists are employing their capital in different ways and making money/profits in many different ways.
Summarized from Prof. Resnick’s Youtube Series (Lecture 12)
Let’s examine a bit more carefully this notion of abstract labor that we’ve talked about. Suppose it takes four hours of abstract labor to produce an apple & suppose it takes 4 hours to produce a shirt. The four hours is the social requirement to produce them. And that social requirement is overdetermined by everything. Now, we’re talking about the relative value of these commodities, the value of an apple relative to the value of a shirt, and we’ve established that the common substance for both is abstract labor of four hours.
Suppose that producing an apple now consumes some additional fertilizer that also costs 4 hours. Marx calls the normal labor that goes into a thing as living labor and the labor already held a material input as embodied labor. So we have a new input for this apple such that it now takes 4 hours of living labor & four hours of embodied labor to produce 1 apple. The value has gone up to 8 abstract labor hours!
Living Labor + Embodied Labor = Value (Abstract Labor Theory of Value)
Marx generalizes this and says that the value of a commodity is equal to 2 parts, the living labor required to produce it plus the labor already embodied in the inputs of the commodity. So our apple is now worth 8 hours, from 1 shirt to 2!
Marx also observes that a change in the socially necessary abstract labor time to produce a commodity is a change in value! For example, if it takes fewer hours to produce anything, then the value of that particular thing goes down. Conversely, if it takes more hours, the value goes up! If it's easy to make something, it costs less in the marketplace.
So we can measure this by looking at how many socially necessary labor hours are required per use-value (thing) produced. And if we take the reciprocal of that, we get the productivity of our abstract labor time! We can see that whenever the socially necessary labor time goes down, productivity will go up.
Marx claims that in capitalism, it unleashes the forces of production (the capital, the technology, the machines, etc.), which causes a steady rise in the productivity of labor, which is fantastic! Capitalism is progressive in the sense of giving us more and more wealth for the labor that we have in society! Look at U.S. agriculture, it is by far one of the most productive sectors, especially when looking over a long-period of time, we see how capitalism has increased so dramatically the productivity of labor. Productivity increases are really down to the revolutionary techniques employed.
But by this logic, the socially necessary abstract labor time to produce wheat & corn and such has fallen dramatically as well! Which is true! So we get the rise of productivity of labor on one hand & the fall in the socially necessary abstract labor time. Remember this is a different way to say the same thing. Marx is gonna argue that this rise in productivity or fall in needed social labor, is tied to, is connected to the business cycle. The argument is that the ups & downs of the business cycle, the possibility of a recession, is connected to a rise in the productivity of labor.
This is a contradiction! An ironic twist in capitalism! On the one hand, capitalism gives us a steady rise in productivity which is a wonderful thing, but on the other hand, it also gives us the terrible possibility of a business cycle that can devastate societies.
Two Kinds of Labor
The next step is to talk about 2 different kinds of labor. Marx uses two different adjectives. But we have to be careful about how we interpret this! Both kinds of labor occur in capitalism.
Productive Labor - that labor which is productive of surplus-value
Unproductive Labor - that labor which is not productive of surplus-value
The adjectives, productive & unproductive, have absolutely nothing to do with the kinds of labor performed or their importance to society. That’s a mistake! Productive & unproductive have only to do with surplus-value. This is an important aspect of Marxian theory so let’s consider it further.
In the labor process, how do we distinguish productive from unproductive? If we paint a house, which do we consider that? The answer is clear: we don’t know. One can’t deduce from the labor process itself! (Recall how this is connected to our Hegelian Logic, we can’t deduce anything from the thing itself, we have to connect it to all the other things!) If we consider the labor process in itself and alone, it’s meaningless. You have to introduce other, non-labor processes in order to be able to answer the question about if that labor is productive or unproductive. So don’t forget to always answer with “I don’t know,” and to then interrogate the process and examine the other process in order to be able to answer.
So let’s consider the relationship between employer & employee and connect other processes! In this relationship there will be some labor process occurring, which is an economic process. For an example from today, a fast growing sector is police protection/guarding. So there’s a firm that produces protection of houses, factories, stadiums, etc. There’s a labor process that occurs by the employee which is a specific concrete labor that is policing. There is a certain amount of productivity & thus some amount of protection ‘wealth’ that is produced. So if the employee engages in 8 hours of policing, and we assume this is a capitalist mode of production, then we also have the exchange process between employer & employee!
We also have an exchange process in which the person sells their capacity to work and gets a wage in exchange. Let’s say they get $75. So they receive the value of their labor-power at $75. Unlike slavery or serfdom, people are free to sell their labor-power and receive a wage in capitalism. Suppose there’s another exchange process. Notice how the first process, the wage, is an input from the employer's perspective. But the employer is also engaged in another process, selling the police protection on the market. And suppose that the use-value that the police protection is sold for, its exchange value is $100. So the firm sells the police protection & realizes a $100 of value. This is the third economic process we’ve covered.
Let’s add one more. The fourth process is the capitalist fundamental class process. Here the worker goes to work, produces $100 of value, gets paid $75, and hence there is a surplus-value of $25. And say the worker worked for 8 hours. The use-value is the 8 hours of policing and the employer gets this. So after 6 hours, the worker will have produced $75 & receive that in their wage, but then will keep working for another 2 hours and give all of that value to the employer.
Remember that in the exchange of a market, the buyer gets the use-value & the seller gets the exchange-value. So the employer gets the use-value, the $100 worth of police protection as that’s what the worker produced, but the employee only gets the exchange-value, as that’s the wage or $75. So the worker has produced $100 of value. The buyer of the labor-power acquires all of that, but only gives back $75 to the employee. Thus we’re left with a surplus of $25 that the capitalist gets to keep. So let’s conclude.
You have productive labor here! In this particular case, the laborers are productive because they produced $25 of surplus! We have a capitalist commodity! Why? Because a piece of wealth is being produced for exchange. And we have abstract labor and so forth. So we have an example in which we can say that the labor that occurs is productive because the capitalist fundamental class process is present and we can say there’s a commodity because something is produced for exchange.
So what if we only change the fourth process? What if instead of the capitalist fundamental class process, it’s the ancient class process? In the ancient class process, a single individual both produces & appropriates a surplus themselves. While in capitalism, the employee produces the surplus, but the employer gets the surplus. In the ancient, they are the same person. Everything is thus the same, but the same person gets the surplus. Well in this case, we no longer have a capitalist commodity, we have an ancient commodity. And, while Marx doesn’t say this, we could say that it is productive of ancient surplus value, but Marx normally reserves productive/unproductive for capitalism.
For this exercise, we have a different kind of commodity and abstract labor. That of the ancient, not the capitalist. So we can’t deduce the kind of commodity present in society from just looking at the exchange process itself. You have to connect that exchange process to the class process, just like our Hegelian Logic initially instructed us to do.
Let’s try another example, consider a feudal class process. Here, the serf produces 6 hours of protection (necessary labor) on their little plot of land that they receive from the lord, but is required to spend 2 hours of surplus labor providing protection for the lord’s land. That’s part of the obligation of the serf in exchange for their plot of land. Well, there’s no commodity production here as there’s no exchange-value being produced, especially since there’s no money trading hands. But we still have class exploitation! It’s a different form of class exploitation, but it is still there. It’s not a commodity because there’s no market and there’s no exchange-value, but there is still class exploitation.
Thus we can see clearly that we can’t deduce anything about a product or service without connecting it to the other processes occurring. If we only look at the labor process, we cannot understand what kind of commodity it is or the kind of exploitation.
Unproductive Labor
For our final example, let’s examine what unproductive labor would look like. Remember the labor process is common to all of these examples, it doesn’t change, it’s only the surrounding processes that determine the kind of labor that we have.
Just like before the worker sells their labor-power for $75, so we have this exchange process on the input side. However, in this example, nothing is produced for sale; the worker goes and produces the policing, but they simply guard something for the employer. There is no commodity that is being produced and sold by this employer. That is, the police protection produced is not for sale, so no exchange-value is present. There’s no fundamental class process either because there is no wealth being produced for sale, thus allowing for surplus value. But if nothing is being produced for sale, we have to ask the question where does this $75 come from? Well the answer is that the employer is taking the $75 from the surplus value from another source.
Perhaps the capitalist owns an automobile company. They produce cars and there is some surplus value that is generated through some productive labor. But suppose the employer needs guards for their factory & merchandise. Hence, the capitalist has some condition of existence that has to be secured, protection. So the capitalist takes some surplus produced by those automobile workers and uses it to pay a different laborer for protection through the $75, but this is unproductive because it’s not for sale and has no surplus-value.
Remember our equations from previous lessons, some portion of the surplus-value is given over to the Subsumed Class Process on the other side of the equation, which are the conditions of existence for each other. The guards need the automobile workers, and the automobile workers need the guards to protect the merch! Not to mention all the other payments going out for the process!
The productive laborers who produce the automobiles produce some surplus that the capitalist acquires, and they use some portion of it to distribute and pay the guards. Thus ensuring their condition of existence. In this nuanced analysis, Marx is saying that these guards are unproductive labor, they are necessary for production but they don’t produce any surplus. Hence, the surplus from the productive laborers, some portion, must go to the guards.’
So in this kind of logic, the notion of working class becomes problematic because it’s mixing two different kinds of labor. The productive and unproductive. For a union, they should be very sensitive to the two different kinds of labor because the unproductive laborers live off the surplus being produced by the productive laborers. So if the unproductive laborers wanted a higher wage, it could come at the expense of the productive laborers. We would have a contradiction, a possible antagonism, because the union represents two different kinds of laborers.
