Marx Lectures: The Capital System Parts A and B

by Dr. Jan Garrett

II. Marx's Analysis of the Capital System (Critique of Political Economy)

A. The Production/Accumulation Cycle: Commentary on the ChartNew Section April 27, 2011

See the handout on the Capitalist Production/Accumulation Cycle.
1. Symbols on the Chart
M = money invested at the beginning of the cycle

C = commodities purchased by M, which consist of

L = labor-power, the ability of workers to produce
and MP = means of production, consisting of machinery and raw materials (or semi-finished products)
The value of C = the value of L and the value of MP, since L and MP are the commodities purchased by M.

. . . . P . . . . = the production process itself, the outcome of which is

C' = commodities whose value exceeds the value of C

M' = the money realized, under average conditions, through sale of C'

The production/accumulation cycle consists of several stages:
M - - - - > C = The purchase of C, i.e., labor-power and means of production.

. . . . P . . . .  = The production of C', involving the use of the machinery, raw-materials, and labor-power.

C' - - - - > M' = The sale of commodities resulting from the production cycle.

If M' is the money realized at the end of the production cycle, i.e., in the hands of the capitalist or his agents, it is also the starting point of the next production cycle. M (out of M') is used to replace labor power and used up means of production for the next cycle. But the increment, the difference between M' and M, is also available for investment; the capitalist can hire more workers and use a larger quantity of means of production in the next cycle. Under normal capitalist conditions, at the end of the next cycle, he will have an even greater mass of commodities, C", and, having sold them, an even greater quantity of money, M", available for reinvestment.

The cycle just keeps going—capital just keeps accumulating—until or unless, for some reason, it breaks down. The career of a successful capitalist— in Marx's description, the personification of capital—is essentially a lifetime of accumulation, and maintaining the rate of accumulation (the ratio of profit to invested capital that can be reinvested from year to year) at a high level is the aim of the capitalist as a capitalist.

But capital doesn't necessarily disappear with the death of individuals. It is potentially immortal, in the sense that it may continue to function with new personifications of capital, that is, the original capitalist's heirs or those to whom he or they sold their stocks, as long as the capital system survives. However, capital can be destroyed if, for instance, the machinery and raw materials in which it is embodied are destroyed in warfare or sabotage.

2. How is it that C', which is greater than C, is possible? How is it that C", which is greater than C', is possible? Marx explains this fact as follows.

The labor the worker adds to the raw materials or semifinished products, gives them greater value than they originally had. If he works with an average skill and intensity, he or she adds the same value to the commodities every hour he works.

After a certain amount of time, say, two hours, he will have added to the commodities the value of his labor-power, that is, the value of the wages he will receive for his day's work. But in fact he has contracted to work a full day for his day's wage, so in the next, say, six hours, he will add three times the value of his wages to the commodities produced. In sum, he will have added four times the value of his wages to the commodities produced, but only three quarters of that is new value.

The value of the commodities will also include the value of the raw materials consumed and the value of wear and tear on the machinery used. (The capitalist must put aside money from every production cycle to replace machinery that eventually no longer function plus the raw materials used up in that cycle.)

If we consider the value of the commodities produced minus the value the capitalist must put aside for machinery and raw materials, what is left is the contribution of the laborer. This is, as we noted, divided into two parts, the value that corresponds to the wages (L) and the value added by labor after the value of labor-power is reproduced in the commodities. The latter is called surplus value, because it is over and above the value put into the process at the beginning. In our example, there is a ratio of 3:1 (of surplus value to the value of labor-power). This ratio is called the rate of surplus value or the rate of exploitation.

What determines the value of labor-power is the mass of commodities the worker requires for survival, at a modest level of health and sanity, so that he or she can return to work the next day and produce yet another eight hours—not only the worker but also his or her children, since the next generation of workers has to be factored in.

Surplus value is the source of the capitalists' profits. The source of surplus value is the unpaid labor of the workers. From the capitalist perspective, Marx notes, there is no theft: the worker receives for [the use of] her labor-power an equivalent in [exchange-] value, i.e., enough for her subsistence and that of her offspring, considered as an average; but the use-value of labor power is unique: it can be used over a period of time greater than is required to reproduce itself. It reproduces itself, say, for two hours, but can be used for eight without totally exhausting itself.

3. Each stage of the cycle is potentially a point of conflict.
Consider M-C. By combining in unions and threatening to withhold labor-power, workers can affect the price of labor-power. By taking steps to expand the pool of unemployed, the employer (in possible collaboration with other employers or state officials) can put pressure on workers to accept lower wages, so that if the commodities produced sell for an unchanged price, he can make greater profits.

Moreover, by finding cheaper raw materials the capitalist can spend less at the beginning of the cycle and, if the commodities produced sell for an unchanged price, make greater profits.

Now consider P, the production process itself. Here the key is the division of the work day into necessary labor, the time needed to reproduce the value of the worker's wages, and surplus labor, the time that produces surplus value. This division, which is not announced by any overt event like the ringing of a bell, can be affected by increasing the intensity of labor, by pressuring workers to work harder or faster; or by the introduction of machinery that makes workers more productive, so that necessary labor is a shorter period and surplus labor longer. Lengthening the workday, say from eight to ten hours without an increase in pay, can have a similar effect. All these changes may expand surplus value, the source of capital's profits.

The end of the cycle, represented by C'-M' in the occurrence of the cycle diagrammed on the chart, is key to understanding the problems of capitalism. If the market for a given commodity is glutted, so that more commodities have been produced than can easily find buyers, the capitalist is faced with a crisis of "realizing" profits. He cannot achieve the money form of the value of C', and therefore cannot move onto the next cycle with an even greater mass of capital at work.

This is especially a problem in the monopoly or oligopoly phase of modern capitalism: capitalism is so successful in producing commodities that, other things equal, it produces more commodities that it can sell.

The story of capitalism in the 20th and 21st century is in large part the story of novel attempts to resolve this problem. One way is by convincing consumers by means of advertising that they need to buy more commodities than they would otherwise buy, and that they can afford those commodities even if they must go into debt to pay for them. Another way is by convincing governments --or politicians who control governments, or the public who vote for politicians--to purchase the equipment of warfare and the skills of soldiers, logistical staff, and other personnel required to support military activity. The result, if successful, is the consumption of commodities (destructively, for the most part) that would otherwise not be bought, and the government demand for more such commodities.

B. Terms for Marx's Analysis of the Capital System

commodity - an object that is intended to be exchanged with something of equal (exchange) value; typically, it is produced with that intention.

use-value - the specific human purposes to which an object, which may or may not be a commodity, can be put; the use-value of a product varies with the concrete qualities of the object, which can be quite complex.

exchange-value - the exchange value of a commodity relates to "how much it is worth" in relation to other commodities or to money. Exchange-value is a quantitative issue. One commodity's exchange value will be greater, lesser, or equal in relation to another. The term "value" is technically distinct from "exchange-value," but for most purposes, we can regard "value" as equivalent in meaning to "exchange-value" in the Marxist analysis of capitalism.

concrete labor - the specific labor activities required to produce an object with use-value.

abstract labor - what determines the exchange-value of a commodity; it is the quantitative measure of labor, which is what determines the value of a product.

socially necessary labor time - another term for the abstract labor embodied in a product. This term emphasizes that value is determined by the quantity of labor, measured in time, required on average under given social and technological conditions, for the production of the commodity.

labor-power - the worker's capacity to labor, say, for a day. Insofar as it is "sold" to an employer, which is of course typical under capitalism, it is a commodity; it has an exchange-value (see [value of] wages); it also has a use-value, which the capitalist controls once he has "purchased" it —namely, to recreate its own value (the wages) and produce a surplus value over the course of, say, a day.

(value of) wages - value of the commodities the worker requires for subsistence, i.e., the socially necessary labor time embodied in what the worker needs to survive and raise his or her family at a subsistence level, i.e., to recreate ("reproduce") labor-power, his own and that of his family.

surplus labor - under capitalism, this term designates the labor, measured in time, that the worker performs for the capitalist in, say, a day, after having added value to his products equivalent to the value of his wages. Surplus labor is the source of surplus value.

necessary labor - (not to be confused with socially necessary labor time). The labor added to the product in the part of the work period (e.g., day) in which the worker recreates the value of his or her wages for that period. (Should be understood in relation to surplus labor. Necessary labor + Surplus labor = total labor added to the product during the work period in question.

surplus value - what the labor of the worker adds to the commodities he or she helps to produce in a given unit of time (say, a day or week or year) over and above what she receives as wages. The total s.v. produced by labor under capitalism in a given period is the source of profit, rent, interest, and taxes

rate of surplus value (rate of exploitation) - the ratio of the surplus value produced by a worker in, say, a day, to the value of her wages. (This rate tends to rise with the growth of the productive forces, i.e., technology. The impulse of capital is to increase the rate of s.v.; this can happen with or without the monetary decrease of wages and is even compatible with a modest increase in wages.

realization of surplus value - the transformation of commodities into money by means of exchange, so that the capitalist can accumulate profits (after having replaced the investment in wages, raw materials, and depreciation of machinery that was absorbed into the commodities, and paid his rent, taxes, etc.)

(It is not enough for the capitalist that his workers have produced a mass of commodities and added surplus value to them in the process; the capitalist must also be able to sell them in order to complete the cycle that began with his investment of capital in machines, raw materials, and labor. Only then will he be a (for the time being) successful capitalist working with a greater mass of capital.)

profit - the portion of realized surplus value that a capitalist gets to keep after deductions for rent, interest on borrowed capital, and taxes.

variable capital - the capital investment a capitalist is making in wages

constant capital - the capital investment in raw materials and machinery

wear and tear on machinery - the cause of loss of value from machines in use (so that eventually they will have to be replaced); this value is typically incorporated in the commodities being produced and capitalists normally recover it when they sell their commodities

price - on average, price is determined by the capital absorbed into a commodity during the production process (raw materials, wear and tear and machinery, wages of workers) plus the quantity of profit determined by the average rate of profit for the industry.

(the individual capitalist's) rate of profit - the total profit realized after the sale of the commodities produced in the capitalist's factory divided by total capital investment (constant capital plus variable capital)