by Gill Hands
Marx saw that the working day was divided into:
Necessary labour – the time the worker spends actually earning the amount paid in wages. In any society a worker would need to labour for a period of time in order to provide the food, clothing and shelter he requires. The amount of time this takes will vary according to the technology that is available to help him with his work.
Surplus labour – the time spent producing surplus value for the capitalist.
The capitalist can increase his surplus value by:
making the working day longer
increasing efficiency in the workplace so the worker covers the cost of his wages in a shorter time leaving more of the rest of the day available to produce surplus value.
Profit and the division of labour
The chief driving force in capitalism is profit. Not all the surplus value the capitalist gains from his workers is profit because he has had to pay for machinery, training, etc. The rate of profit the capitalist receives is variable and he is always looking for ways to improve it.
The capitalist system differs from past production methods by using a way of working called the division of labour. This is the use of mass production systems within the workplace so that a process is split into a number of repetitive tasks. Our old friend the cobbler would have taken the leather through every process until he finished with a pair of shoes. In a factory machines do the work in a number of different stages. One machine cuts the leather, one sews it, one shapes it, etc. This improves the capitalist’s profits:
One worker can do the work of several others. This will increase competition for jobs, so wages go down.
It makes the work simple and unskilled so there is no need for long apprenticeships or training.
Small-scale capitalists are put out of business because they cannot compete with the low prices of the large-scale manufacturers. They then have to join the workers.
However, this increased profit can only be gained in the short term. Once the capitalist’s more efficient and improved production methods have spread to other manufacturers there will be an abundance of his product on the market. This is known as over-production and competition in the marketplace will eventually reduce the price of his commodity.
The capitalist can solve his problem in the short term by:
exploiting old markets more efficiently, for example by advertising
opening up new markets, for example by exporting to other countries.
Marx noted that there is always a tendency for the rate of profit to fall. Increased competition is one of the main factors in this because the capitalist finds he has to invest increasing amounts of capital into his business.
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Insight
Following Marx’s model it was generally believed that all modern economic crises would be as the result of over-production, but the global recession that began in 2007 included factors such as banking, investments and housing markets.
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Capitalism in crisis
Marx believed that the capitalist structure of society would inevitably lead to crisis and internal contradictions would eventually lead to its downfall. The main problems that Marx predicted were:
Worker’s wages will tend to fall to subsistence level.
Profits will tend to fall.
Competition will lead to large companies swallowing up small ones; this would be opposed by growing numbers of workers.
More people will be forced into the working class.
The capitalist system will lead to greater divisions in society.
There will be more and more severe economic crises.
Capitalism will reduce workers to a degraded condition and these workers will eventually rise up in revolution and overthrow the system.
Falling wages and profits
Marx was convinced that capitalism was in crisis. Underpinning this belief was his faith in his dialectical analysis of the economy. He saw the whole of capitalism as inherently unstable because of the dialectical oppositions that make up its structure. If there was an economic ‘boom’ it was certain to be followed by a ‘bust’ or depression. He was also convinced that wages would become lower and lower until they reached subsistence level and that profits would keep falling because in capitalism the price of goods, and the profits made, are dependent to a great extent on the markets and on wages:
High wages for workers lead to high prices for commodities, therefore factory owners get low profits.
Low wages for workers mean that they are unable to buy enough goods and services to keep the economy viable and this leads to unemployment.
The economist John Maynard Keynes (1883–1946) made famous one of the internal paradoxes of capitalism that Marx had already pointed out. Each capitalist wants his workers to have low wages so that he can increase his profits, but he wants the workers who work for someone else to have high wages, so that they can buy his products. There is no way that this can happen in the real world and the contradictory desires of the capitalists are part of the dialectical paradox that makes the capitalist system unstable and can lead to recurring economic crises.
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Insight
Balancing these two opposing forces is an important factor in recovery after any economic crisis. Is it better to make wages higher to increase spending and risk inflation? Or should wages be kept low because of the pressures of global competition?
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Social labour
Another problem affecting profits in a capitalist society is that nobody decides who is going to make what. We saw that use-value is an important part of Marx’s economic theory. The products made have to be ‘useful’ for some human need. But they also have to be useful for some specific need, in a specific place: for example, if you are hungry you cannot eat a pair of shoes. In order for society to function we need all different kinds of commodities. If everyone decides to make shoes, for example, we will all go hungry. So societies need to have some way of regulating who makes what to ensure that enough of the right kinds of commodities are made.
Marx called this social production and he pointed out that the capitalist system was unlike slave or feudal societies in this respect as there is no way of making sure this happens. To a great extent, in slave or feudal societies the slave owner or the landowner decided the distribution of labour. They decided what they wanted and who would make it so that it met their needs. In a feudal society, with rural industry, the families who made up the society further regulated the distribution of labour. Some members would grow grain, some would weave, some would make shoes and the labour would be distributed so that it was relevant to age, sex, the seasons of the year, etc. They would be producing commodities that they needed and that they had to provide specifically for those above them in the ruling classes.
Capitalism, however, is a system of generalized commodity production. Factories are specialized and tend to produce only one kind of product. No producer can meet all his needs from the products of his own factory so he has to sell them as commodities to other people. In this way commodity producers are interdependent on each other.
Because there is no system of regulating who makes what, apart from market forces, this can lead to problems:
It is not possible to tell if the products will be ‘useful’ until they go onto the market. The producer might not be able to sell them. In that case, according to Marx, the labour that has gone into such products is therefore not social labour because it has been wasted. The goods are of no use to society.
Manufacturers often compete for the same markets by making very similar products. The most successful will be those who can make them the most cheaply. Manufacturers can only do this effectively by increasing productivity and undercutting one another.
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Insight
In Western economies markets are usually left to find their own level, but certain types of large manufacturing industries may be encouraged by government gra
nts in order to avoid unemployment during an economic downturn.
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Manufacturers do not know whether or not their products will fill a social need in advance and can only determine this by trying to sell them. Because they are interdependent on each other and in competition at the same time this must lead to market fluctuations.
We saw earlier in the chapter that the price of commodities depends on the amount of ‘socially necessary’ labour time that goes into making them. In the marketplace of generalized commodity production it is difficult to see how much socially necessary labour time goes into making a product. To take the example used earlier, there is no easy way of telling that a fair rate of exchange of products is two barrels of fish to one pair of shoes. Competition between manufacturers and the way that surplus value is extracted means that labour has become abstract social labour and related to money. This is related to the ‘fetishism of commodities’, which is discussed in the next chapter.
Accumulation and crisis
We have seen that in a capitalist economy surplus value is acquired from the workers and becomes profit. This is not often used by the capitalist to buy another product but is invested in further production. So surplus value goes into producing more surplus value. Marx called this the accumulation of capital and he believed it became almost an obsession for the capitalist. He said the bourgeois class often denied themselves their own consumption in order to invest capital, but he did not believe they were misers, hoarding their wealth just for the sake of it. He believed they were cogs in the machine of competition for they had to reinvest or be overtaken by their rivals.
Marx realized that investment of capital is important to the growth of the economy; capitalists have to plough back parts of their profit into the economy otherwise it will stagnate. However, as the markets are not controlled in any way, if the capitalist cannot sell his product because there is no demand, or if supply exceeds demand, there will be a slump. In this case people do tend to hoard their money rather than reinvest it because profits become very low. This makes the slump even greater. Large amounts of commodities remain unsold and so the capitalist does not get a profit from his investment. This is a crisis of over-production, which Marx said was unique to capitalism. Under the feudal system economic crises were usually the result of not enough being produced, leading to famine.
Centralization of the economy
Because Marx saw the competition between rival capitalists as one of the main economic problems, he believed that the economy should be managed centrally:
Important industries should be centralized, only useful goods and services should be produced and over-production should stop.
Banks should be centralized. It is only in this way that society can be sure there are high levels of investment in the right kind of industries.
There should be controls on imports to help combat unemployment.
Marx believed that these measures could only work in the communist society that would inevitably come about as a result of inconsistencies within the capitalist system. Marx’s view was in contrast to the views of Adam Smith who had a laissez-faire attitude to the economy. He believed that there was some ‘invisible hand’ that guided the markets and that pursuit of individual interests in the free market tends to regulate the economy for the greater social good. He thought it is better to leave the economy to its own devices than use any interventionist policies. Naturally, bourgeois society tended to agree with his views.
Was Marx right about the economy?
There is no doubt that capitalism has gone through repeated crises since it began. There was the ‘Long Depression’ in the 1870s and 1880s, and the Great Depression of the 1930s affected most of the capitalist world, increasing fears that a worldwide communist revolution was about to begin. After a relative boom period there was a series of crises beginning in the 1970s, largely as a result of fluctuations in the price of oil. At the beginning of the twenty-first century there was a world economic boom, followed by a global financial crisis beginning in 2007. More crises are predicted, but how much these are a result of the dialectic flaws inherent in capitalism is open to debate.
Modern neo-classical economists, such as those academics who follow the ideas of the Chicago School, would argue that boom and bust in the economy are just a part of the natural cycle of the economy. They reject the idea of dialectical instability and believe that market economies are inherently stable if left to their own devices. They believe that government intervention is the cause of depressions. They do not agree with Marx’s labour theory of value, believing that value is a subjective thing that varies for different people and even for the same person at different times. They also believe that Marx’s view of the economy was over-simplified and that no economic system is ever a purely capitalist one in which one group holds the means of production and one group provides the labour. They disagree with the assertion that labour is the only source of value in the economy and the only way of making a profit. They also assert that it was not market forces that caused the world financial crisis in 2007 but de-regulation of banking services and dishonest dealing in world financial markets, allied to a downturn in the US housing markets. Radical Marxists view these arguments with suspicion and say that as the present dominant view of the economic system in the West is a neo-classical one, stressing free enterprise, then it is in the interests of economists to support a system that benefits them. They also believe that although the cause of the 2007 global financial crisis was laid at the door of world banks and financiers it was only a short-term cause. The real cause is the inherent weakness of capitalism itself.
There is also much debate about whether profits and wages have fallen in the way that Marx predicted. In real terms, most people in the West are better off than they were in Marx’s time, and incomes are said to be evening out. Even in developing countries there seems to be evidence of improvements in infant mortality rates and production of food supplies, which are used as indicators of poverty. Rather than the majority of people being forced into the working classes, the gap between rich and poor is being filled by a larger and wealthier middle class, but rich and poor still exist.
Marx never finished his work on the economy. Volume 1 of Das Kapital was the only volume he completed so he did not really have time to formulate his theories properly before his death. Because Marx’s views changed throughout his lifetime, there is a lot of discussion about which of his writings should be taken into account when stating his view of the economy. Marx’s theories can be used selectively to support different arguments. For example, a government that wishes to intervene in the economy could select those parts of his work where intervention is stressed and other writings ignored. Some Marxists also believe that the dialectic view of the economy has been over-stressed by previous writers because it was over-emphasized by Engels and by communist leaders who wanted to gain control over the economy.
The predictions that Marx made about the economy have not all come about: profits do not tend to fall, worker’s wages have improved in real terms and the majority of people are much better off than they were in Marx’s day. For the majority of people in society, class divisions have become less distinct. Where communists have come to power through revolutions their economies have suffered just as many economic crises as capitalist countries, although for different reasons. However, we have seen the takeover of smaller companies by larger ones and several depressions in the economy with periods of high unemployment, so Marx was not totally wrong, and although economists try to predict the future of the economy, they cannot really know what will happen next.
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THINGS TO REMEMBER
Marx explained his economic theory in Das Kapital. It is also explained in Wage-labour and Capital and in Value, Price and Profit.
The capitalist economy needs costly machinery to produce goods. Only those who can afford to invest capital in the economy can profit from it.
All production un
der capitalism is the production of commodities.
Human labour power becomes a commodity under capitalism.
Marx believed workers are exploited by capitalism but they are not aware of it.
Commodities have two types of value: use-value and exchange-value.
The rate at which commodities are exchanged against each other depends on the amount of labour that has gone into making them.
In a capitalist society, money is used as an indirect way of exchanging goods. Not all money is capital. Capital is money to which surplus value accrues.
Capitalists gain surplus value from their workers by paying them a fixed amount for their labour power regardless of the profit they gain.
Surplus value can be increased by lengthening the working day or increasing productivity.
Not all surplus value is profit.
Division of labour increases profit in the short term.
Profits fall in the long term due to over-production and increased competition, which leads to increasing investment.