The Economics of Capitalism
In present-day. capitalist society food, clothes, accommodation and all the other goods and services which people need are articles of commerce which are bought and sold. Money, as an object which can be exchanged for any other object, is a sort of claim on wealth that everybody must strive to obtain if they are to survive in a competitive. commercial society.
Apart from stealing and relying on charity. there are only two ways of obtaining money under capitalism. One is to be the owner or part-owner of some business; the other is to sell your ability to work to one of these businesses for a wage or salary. The vast majority of people fall into the second category since the ownership and control of the means and instruments for producing the things people need are concentrated in the hands of a relative handful, five per cent or less, of the population.
This monopoly exercised over the means of production is in fact the basis of the capitalist economic and social system. It means that the rest of us are obliged to go out on to the labour market and sell our mental and physical energies, precisely to some member or representative of the class which monopolises the means of production. Just as we obtain our access to money from wages or salaries, so the members of the employing class obtain their access to money as profits realised from the sale of articles they employ us to produce.
This division of society into employers and workers, into profit-takers and wage-earners, is so obvious a part of everyday life that many people overlook the completely different nature of these two sources of income. Wages and salaries are paid to us for the exercise of our mental and physical energies. They are a work income and the claim on wealth to which they give rise is a claim on wealth which the wage and salary earning class has itself created.
Profits, on the other hand, accrue to the members of the monopolising class, not as a result of any work they may or may not have performed but purely by virtue of the monopoly they exert over the means of production. Since this does not alter the fact that work on nature-given materials is the only source of wealth, the wealth which profits entitle their recipients to claim can also only be wealth created by those who do the actual work of production — the wage and salary earning class. In other words, the newly-created wealth of society, although exclusively produced by the working class, is divided into the wages and salaries paid to those who created it and the profits the owners receive from the sale of this wealth.
Profits are a non-work income arising out of the fact that the producing class in society are denied the full product of what they collectively produce. They are a sort of tribute levied by the class which monopolises the means of production on those who do the actual work of producing wealth, as a condition for allowing them to use the means of production to ensure the material survival of society.
How we are exploited
So the wages and salaries we are paid are less than the value of the wealth we create. This robbery by the profit-taking class of a part of the wealth we produce is not only quite legal but also takes place without infringing the basic economic law of the market that there should be an exchange of equal value for equal value.
What we sell to our employer is our ability to work, our mental and physical energies. which is not at all the same as our work — what we produce when we exercise these energies in the service of our employers. This distinction between work and ability to work is the key to understanding the process by which our class is legally robbed, exploited, under capitalism.
What we sell to our employer, then, is our ability to work. Like everything else under capitalism this is an object of commerce whose value on the market is ultimately determined by the amount of time needed to produce it from start to finish. Since our ability to work is produced when we consume the food, clothes and other goods and services which recreate the mental and physical energies we use up in working so many hours a day. or week, or month, for our employers, the time needed to produce this ability is in fact the same as that needed to produce these goods and services.
In other words, the price we can command on the labour market is the equivalent of the prices of the goods and services we must consume in order to keep ourselves fit to work. In paying us a wage or salary sufficient to buy these goods and services our employers are therefore paying us the full value of what we are selling them. We sell them so many hours or days or months of our ability to work and they pay us enough to buy the things we need to go on recreating it.
But, as in any exchange transaction, once a good has been paid for it belongs to the new owner to use as he or she pleases. So, once employers have paid us for our ability to work this belongs to them to use as they think fit. They are therefore fully entitled. in accordance with the laws of the market as incorporated into the laws of the land, to put us to work. And they do so. In their places of work. And on their materials. For the contracted period of time. The product of our work belongs to them, once again quite in accordance with the laws of the market. But we are able to produce in a day, a week or a month goods worth far more than the value of our own ability to work.
This extra or surplus value over and above what we are paid as wages and salaries goes not to us we’ve already been paid the full value of the mental and physical energies — but remains the property of the employer. This surplus, which employers obtain purely because they own the workplaces and the materials, is converted into a monetary profit when they sell the goods we have produced.
Profits arise from employers selling their products, not above their value but at their value, as measured by the time needed to produce them until they are put on the market. including the time we needed to spend on them at the stage of their production in which we were involved. Profits are created by our unpaid work during the process of production; they are only realised, that is converted into money, on the market.
Another way of explaining this, is to see the whole of the wage and salary earning class, irrespective of whether we are engaged in manual or white-collar work, exercising our ability to work collectively, as a sort of collective worker employed by the employing class as a whole. During a part of the time that we work we are reproducing the value of what we need to keep all the members of our class in working order, and for this we are paid wages and salaries and various state benefits. The rest of the time we are working unpaid, to produce the surplus value which the employing class appropriate as profits and later share out in various ways among their hangers-on in the rest of the privileged class.
In this way it can be clearly seen that only a part and not the whole of the wealth we create in any given period, say a year, comes back to us as wages and salaries, the other part being the profits of the class who monopolise the means of production.
The fact that production under capitalism involves the legalised robbery of the producing class by the class that owns and controls the means of production means that an irreconcilable class struggle is built in the system. The interests of the two classes are quite irreconcilable because the one class lives off the unpaid labour of the other and as long as such a situation lasts we, as the exploited class, have an interest in struggling to mitigate, and eventually to abolish, our exploitation.
The owning class, on the other hand, have an interest not only in maintaining and increasing the amount they rob us of but also in seeing that we don’t wage the class struggle in an organised or conscious way. This is why the role of the established institutions of present-day society — the schools, universities, churches, newspapers. radio and television — is to try to keep us in ignorance of capitalism’s class nature and of the legalised robbery on which it is based. One of the major tasks of any government is in fact to try to prevent the class struggle breaking out and. when it does, to contain it by discrediting the section of our class concerned or, if need be, employing the coercive force at their disposal. But with the experience of the prostitute press and the flying anti-pickets during the miners’ strike fresh in our minds, there is no need to labour this point.
The Iron Law of profits
As a matter of fact, the monopolising class could not pay us more than what we need to recreate our mental and physical energies. even if they wanted to. They have no choice in the matter since they — or, increasingly since the middle of the nineteenth century, their paid managerial or governmental representatives — are compelled by the very workings of capitalism as an economic system to try to maximise the amount of surplus value extracted from our class.
In this sense the aim of production under capitalism is not so much to provide a privileged income for the monopolising class as the impersonal accumulation of more and more capital. The operation of market forces obliges businesses to reinvest as much as possible of the profits they make in the installation of new. more up-to-date and productive machines and methods of production as a means of staying competitive. This is the price they have to pay if they wish to remain in the struggle for profits. Failure to do so means either ruin or absorption by some other business. Those in charge of capitalist businesses are thus compelled to give priority to profit-making and capital accumulation, even over their own consumption.
This is why the Labour Party, supported by a section of the trade union movement, was mistaken in imagining that, to end exploitation and re-direct production towards the satisfaction of needs, it was sufficient to eject private capitalists from the management and control of particular industries. as nationalisation was supposed to do. But although the nationalisation of an industry did mean the exclusion of its former private owners from any say in the running of that industry, in no case has this resulted either in the end of the legalised robbery of those working in it or in that industry producing for use rather than for profit.
Trade unions are useful and necessary to wage and salary earners as long as capitalism lasts, but what we achieve through them is severely limited. Their activity is essentially defensive, resisting the downward pressures on our working conditions and living standards that are continually exerted by employers. In periods of slump like the present the most they can do is to brake the downward trend, while in periods of boom they cannot do much more than push up our wages and salaries in accordance with the state of supply and demand on the labour market.
The plain fact is that, as long as capitalism lasts, we are not going to receive more than what we need to keep ourselves in working order and our jobs are going to depend on the profitability or otherwise of the industries in which we work. Neither trade union action nor reformist political action can alter this basic fact of capitalist economic life. Capitalism just cannot be reformed by Labour governments, nor pressurised by militant trade union action, into working other than as a profit-making system in the interest of the profit-taking class.