Wednesday, 09 December 2009
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Constant Capital and Variable Capital, and the Rate of Surplus-Value
(Summary of Marx’s Capital chapter 8 and 9)
Chapter 8: Constant and Variable Capital
Chapter 8 and 9 are somewhat technical compared to the previous chapters. In chapter 8, Marx distinguishes two types of capital within the sphere of production. They are constant capital and variable capital. Marx defines these two types of capitals as:
Constant capital: “the part of capital … which is turned into means of production, i.e. the raw material, the auxiliary material and the instruments of labour, does not undergo any quantitative alteration of value in the process of production. For this reason, I call it constant part of capital, or more briefly, constant capital.” (p. 317)
Variable capital: “that part of capital which is turned into labour-power does undergo an alteration of value in the process of production. It both reproduces the equivalent of its own value and produces an excess, a surplus-value, which may itself vary, and be more or less according to circumstances. This part of capital is continually being transformed from a constant into a variable magnitude. I therefore call it the variable part of capital, or more briefly, variable capital.” (p.317)
Although technical, this chapter embodies some important presuppositions in Marx’s theory. One particular emphasis is the role of constant capital in the process of value transfer. There is no such a distinction in bourgeoisie economics. Under bourgeoisie economics, labour and machine are considered as factors of production, and consequently are defined as costs of production. As we will soon discover, the distinction between constant and variable capitals under Marxian economic analysis is crucial, in that it enables us to derive the formula of rate of exploitation in contrast to rate of profit.
Under Marx’s formulation, the role of constant capital is nothing but tools for undergoing fixed value transfer in the production process. Constant capital involves raw materials and machines. Scoping in this way, there is a problem certain types of constant capital in which they disappear in the process of production (e.g. gas and electricity)? The answer to this questions lies in Marx’s discussion about past labour in chapter 7. Basically, though some types of constant capitals disappear in the production process, their value still carries on to the product. That is why Marx argues that value is immaterial but objective. It is immaterial in the sense that it can’t be seen directly or physically, yet it is objective in that the value carried on to the final product at the end of production process can be calculated scientifically.
Thus, whenever we input a new machine or a new portion of raw materials in the production process, immediately we have to consider the depreciation of the machine and raw materials, because the value embodied in the machine or raw materials will be transferred to the product. Here, Marx used the method of straight-line depreciation to calculate the rate of value transfer from particular constant capital to the final product in the production process within definite period of time.
However, we should bear in mind, under Marx’s formulation, constant capital does not create value; only variable capital creates value. And in the process of value transfer, Marx argued that workers do it free for the transfer of the value in the constant capital to product. If workers don’t do this, the value in the constant capital will be lost. In this way, what workers do is transfers value through productive consumption (consumed his labor-power and constant capital in way of producing product).
We should note that there is an important political implication under this formulation of value transfer process. As value in the constant capital will lose if workers don’t do the value transfer process, it actually enables workers a way to interrupt the continuity of production process. Workers can resist capitalist by way of withdrawing his or her own labour-power from the production process – i.e. having a strike; then capitalist have to face the consequences of losing value in the constant capital. In it, we can see that Marx tried to handle the accounting system from the workers’ perspective, allowing them to know what they are doing in the production process– workers are actually helping capitalists to preserve value in the constant capital; and in the time of strike, workers are actually preserving value in their own labour-power and at the same time making capitalists to lose value.
Now, we consider variable capital. By way of defining variable capital as capacity of adding value, Marx categorically distinguishes it from constant capital, and suggestes a version of “value-added theory”. To re-emphasis, only variable capital creates value and constant capital cannot be the source of value. Constant capital only transfers value. Variable capital is the workers’ labour-power being purchased by capitalists and being put in the production process. It is variable because it is increasing.
In the process when workers add additional value to the product, at a certain point the value they added to the product is equivalent to the value of their labour-power. Beyond that point, it generates surplus-value, i.e. in the end of the day,
Value of the product = Value of constant capital + Value of variable capital + Surplus-value
= c + v + s
Chapter 9: The Rate of Surplus-Value
Degree of Exploitation
After distinguishing constant and variable capitals, Marx suggests two formulae in chapter 9, namely: formulae for rate of exploitation and formulae for rate of profit. But before considering these two formulae, we consider the level of productivity in the first place:
c/v (level of productivity):
Remember that, in the end of chapter 7, we ask a question about the difference between highly productive workers and low productive workers, and how to measure the difference in terms of level of productivity between them. Therefore, we can measure the level of productivity by using the ratio of raw materials that a worker can process, i.e. c/v. The higher the ratio, the greater the level of productivity is. Highly productive workers will be moving a lot of c with low input of v.
s/v (rate of exploitation):
For measuring rate of exploitation, it is the ratio between surplus labour (s) over necessary labour (v) .
s/(c+v) (rate of profit):
For measuring rate of profit, it is the ratio between surplus labour (s) over total capital advanced (c+v).
From the formulae of rate of exploitation and rate of profit, we can immediately observe that s/v is higher than s/(c+v). What Marx is doing here is to set up an accounting system which goes beyond the way in which bourgeois’ calculation. Under bourgeois’ accounting system, they only have the formulae of rate of profit. It is expected because the only thing capitalists concern is how much profit they get. However, the formulae of rate of profit does not enable us to understand how much a worker is exploited in the production process. By suggesting the formulae of rate of exploitation, we can have a measure of degree of exploitation. Another important implication from these two formulae is that: you can have highly exploitative production but only have low rate of profit.
Many neoclassical economists confused and wrongly criticize Marx’s formulae of rate of exploitation as if it is Marx’s formulae of rate of profit, by not incorporating the cost of raw materials and machines into calculation (see Steven Cheung ‘s Economic Explanation, vol. 1).
Senior’s “Last Hour”
In the second part of chapter 9, Marx tried to criticize one famous bourgeois economists at his time – Senior. Senior suggested that in the first 10 hours of working day, workers are going to reproduce for the means of production. i.e. Senior has no concept for “transfer” value in the production process. Then the next hour (i.e. the 11th hour) is to reproduce the workers, and then the “last hour” (i.e. the 12th hour) is the surplus. Therefore, under this “calculation”, Senior suggested that 12 hours working day was necessary, for if production process stops at after the 11th hour, surplus will disappear. And in Marx’s time, many capitalists used Senior’s argument to resist against the 10 hours working day movement. In this way, we see how bourgeois economics was used for the interests of capitalists. Marx ruthlessly criticizes Senior’s ridiculous calculation by exposing the logic that capitalists frequently resort to.
Another important point from Marx’s criticism to Senior’s “last hour” argument is the logic of capitalist control in the production process. Under capitalism, capitalists can’t have profit unless they can command workers’ time! It is all about time! Therefore it paves the pathway for Marx’s discussion in chapter 10 about the class struggle on worker’s “normal working day” from the 14th century to 19th century.
Monday, 07 December 2009
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The Labour Process and the Valorization Process
Kaxton Siu
(Summary of Chapter 7 of Marx’s Capital)
From chapter 7 onwards, we finally leave the “noisy sphere” – the sphere of circulation and go into the “hidden abode of production” – the labour process.
The first ten pages of this chapter about labour process is about its universal existence. Marx put it very clearly that “we shall, in the first place, have to consider the labour process independently of any specific social formation.” (p. 283) Caution should be taken not to read the first ten pages of this chapter as bourgeois categories. Under bourgeois categories, nature is separated from human, from culture and thus from society.
Labour Process: Natural or Social?
The first question Marx handles is: whether labour process is natural or social? In short, Marx’s answer is: both. We here have to think of labour process as a unity between man and nature. The unity in it can never be displaced. As Marx said,
“Labour is, first of all, a process between man and nature, a process by which man, through his own actions, mediates, regulates and controls the metabolism between himself and nature.” (p. 283)
And it is also a dialectic process:
“He [man] sets in motion the natural forces which belong to his own body, his arms, legs, hea and hands, in order to appropriate the material of nature in a form adapted to his own needs. Through this movement he acts upon external nature and changes it, and in this way he simultaneously changes his own nature.” (p.283)
In this way, human can’t change the world without changing around himself. Simultaneously human can’t change the world without changing himself too.
How human is different from other species?
The second question Marx handles is: How human as species-being is different from other species? To this question, Marx examined the character of human labour. He discovered that human labour is purposeful activities, in which purpose precedes the act. It is this mental moment which is crucially important in the labour process. Marx figuratively illustrate this by comparing “bees” and “architect”:
“What distinguishes the worst architect from the best of bees is that the architect builds the cell in his mind before he constructs it in wax.” (p. 284)
After emphasizing the purposeful nature of human labour, Marx then attacked some theorists in his time treating “work as play”. Marx attacked this by emphasizing that work needs “close attention”. And more profound implication to the close attentive nature of work means that human beings have to accept certain (self-) disciplines during work. And it is natural to the work process.
How labour process works?
The third question Marx dealt with is: how this labour process works? To approach this question, Marx first of all considered the “instrument of labour”. Through examining the instrument of labour, Marx told us that different human civilization epochs are the results of relationship between technological shifts and human relations, and are reflected in the history of tool makings:
“It is not what is made but how, and by what instruments of labour, that distinguishes different economic epochs. Instruments of labour not only apply a standard of the degree of development which human labour has attained, but they also indicate the social relations within which men work.” (p. 286).
On the other hand, Marx suggested that in the labour process, value is objectified into thing. Objectification is inevitable aspect of this process. With two concepts, instrument of labour and object of labour, Marx described how labour process works:
“In the labour process, therefore, man’s activity, via the instrument of labour, effects an alteration in the object of labour which was intended from the outset. The process is extinguished in the product. The product of the process is a use-value, a piece of nature material adapted to human needs by means of a change in its form. Labour has become bound up in its object: labour has been objectified, the object has been worked on. What on the side of the worker appeared in the form of unrest [Unruhe] now appears, on the sie of the product, in form of being [Sein], as a fixed, immobile characteristic. The work has spun, and the product is a spinning.” (p. 287)
After depicting how labour process works, Marx defines “both the instruments and the object of labour are means of production” (p. 287). On top of this, he also emphasized that “labour itself is productive labour.” (p.287)
How to understand past labour?
So long as all object in the labour process included past labour, how past is past? In this way, it is better to imagine a commodity, say a shirt. When you see a shirt in the market, of course you can imagine that this shirt is produced in a factory. In the production of this shirt, you can imagine that some labour has been expended to it, such as sewing. But imagine further. Before a garment worker sews, what he or she confronts is a piece of cloth. In this way, some past labour has already been expended into the piece of cloth, such as spinning. And this chain of past labour can go on and on. Here what Marx directs us is the understanding of such chains of past labour, in particular, for those past labour disappeared in the process of production, such as accessory – gas and electricity in the production process.
The importance to understand past labour is crucial to discern how much use-value can be carried on during the labour process. Here Marx distinguishes two types of consumptions – individual consumption vs. productive consumption. For individual consumption, “it uses up products as means of subsistence for the living individual.” (p. 290). In contrast, for productive consumption, use value of the object continues in the labour process.
Before going to examine the “capitalist” type of labour process, Marx gives us a summary of how labour process being a metabolic process between man and nature:
“The labour process … is purposeful activity aimed at the production of use-values. It is an appropriation of what exists in nature for the requirements of man. It is the universal condition for the metabolic interaction [Stoffwechsel] between man and nature, the everlasting nature-imposed condition of human existence, and it is therefore independent of every form of human existence, or rather it is common to all forms of society in which human beings live.” (p. 290)
The “capitalist” labour process
Having examined the labour process as universal category, then Marx examined its deviant type – the capitalist type of labour process. There are two characteristics of capitalist labour process Marx noted:
“First, the worker workers under the control of the capitalist to whom his labour belongs.” (p. 291)
“Secondly, the product is the property of the capitalist and not that of the worker, its immediate producer.” (p. 292)
The first characteristic is the contractual relationship between capitalist and worker. The second is the property relationship between capitalist and worker, and Marx further explains:
“For the instant he [worker] steps into the workshop, the use-value of his labour-power and therefore also its use, which is labour, belongs to the capitalist. By purchase of labour-power, the capitalist incorporates labour, as a living agent of fermentation, into the lifeless constituents of the product, which also belong to him.” (p. 292)
The Valorization Process
For capitalist, just use-value is not enough. Thus, in the second part of this chapter, Marx spells out that capitalist has two objectives:
“Our capitalist has two objectives: in the first place, he wants to produce a use-value which has exchange-value, i.e. an article destined to be sold, as commodity; and secondly he wants to produce a commodity greater in value than the sum of the values of the commodity used to produce it, namely the means of production and the labour-power he purchased with his good money on the open market. His aim is to produce not only a use-value, but a commodity; not only use-value, but value; and not just value, but also surplus-value.” (P. 293)
In this way, capitalist has specific roles in the labour process during which capitalist unites means of production and labour-power, and unites use-value and value (p. 293). And thus under capitalism labour process is intertwined with the process of creating value.
Thus, if value is created in the production process, how can we understand the value produced?
To approach this question, firstly, we have to consider all the past labour incorporated in the means of production. These past labour can be treated as if it were labour expended in an earlier stage (p. 294-295). But there should be a condition to it. These past labour has to be “socially necessary” (p. 297). However, the capitalist is not satisfied for what they deserved this way (p. 300-302):
“Our capitalist stares in astonishment. The value of the product is equal to the value of the capital advanced. The value advanced has not been valorized, no surplus-value has been created, and consequently money has not been transformed into capital.” (p. 297-298).
What capitalist in mind is surplus-value. Capitalist purchases labour-power, setting labour power to work. In the first six hours, labour-power realized to its equivalent. But in the next six hours, workers produce more value and this produces surplus-value.
Then, why don’t workers stop working after the first six hours? Marx’s answer is: first of all, capitalist wants workers to work 12 hours, not 6 hours; secondly, the way the realization of labour-power proceeds is very difficult for us to see when the point of realization reaches – it is very difficult for us to know at what particular point of time we do enough work for capitalist and capitalist do not exploit us.
Marx further explains:
“The owner of the money has paid the value of a day’s labour-power; he therefore has the use of it for a day, a day’s labour belongs to him. On the one hand the daily sustenance of labour-power costs only half a day’s labour, while on the other hand the very same labour-power can remain effective, can work, during a whole day, and consequently the value which its use during one day creates is double what the capitalist pays for that use; this circumstance is a piece of good luck for the buyer but by no means an injustice towards the seller.” (p. 301)
And thus, it is where inequality comes from and how class struggle comes into theme.
The Labour Process, The Process of Creating Value, and the Valorization Process
Having realized how capitalist produces surplus-value, then Marx tried to distinguish three types of processes in production process:
“If we compare the process of creating value with the process of valorization, we see that the latter is nothing but the continuation of the former beyond a definite point. If the process is not carried beyond the point where the value paid by the capitalist for the labour-power is replaced by an exact equivalent, it is simply a process of creating value; but if it is continued beyond that point, it becomes a process of valorization.” (p. 302)
He goes on to compare the process of creating value and the labour process:
“If we proceed further, and compare the process of creating value with the labour process, we find that the latter consists in the useful labour which produces use-values. Here the movement of production is viewed qualitatively, with regard to the particular kind of article produced, and in accordance with the purpose and content of the movement. But if it is viewed as a value-creating process the same labour process appears only quantitatively. Here it is a question merely of the time needed to do the work” (p. 302)
That means, what distinguishes the process of creating value and the labor process is whether one views it from a quantitative or qualitative angle.
What is Socially Necessary?
Before ending this chapter, Marx tried to define what is by meant of “socially necessary”. In fact, one of the major differences between Marx and Ricardo’s labour theory of value lies in the concept of “socially necessary labour time”. In Ricardo’s labour theory of value, there is no such a concept of “socially necessary”. It is Marx’s discovery. For Marx, three conditions must be met to mean “socially necessary”:
“First, the labour-power must be functioning under normal conditions …
“A further condition is that labour-power itself must be of normal effectiveness. It must be expended with the average amount of exertion and the usual degree of intensity…
“[Capitalist] has bought the use of the labour-power for a definite period, and he insists on his rights. He has no intention of being robbed. Lastly – and for this purpose our friend has a penal code of his own – all wasteful consumption of raw material or instruments of labour is strictly forbidden” (p. 303)
Here what Marx directs our attention to the “intensity” and “rights of capitalists”.
But more important is that Marx directs us to note that: if we know the difference between labour as (1) producing utilities and (2) creating value, we will discover that there is a distinction between two aspects of the production process:
“The production process, considered as the unity of the labour process and the process of creating value, is the process of production of commodities;
“considered as the unity of the labour process and the process of valorization, it is the capitalist process of production, or the capitalist form of the production of commodities.” (p. 304)
In this way, we should distinguish “capitalist form of production” from “particular form of capitalist production”, which unites process of valorization and the labour process. And because of this particular form of capitalist production, the evolution of the labour process then becomes important in maintaining this unity, not simply that of production’s sake.
Skill labour vs unskill labour?
In the last two pages of this chapter, Marx touches tangentially on the topic of skill and unskill labour (in the footnote). This initiates a big debates that is yet to be resolved in Marxian tradition, and also somehow led to the split of the first International. In the time of Marx, Pouhdon said that women’s work is unskill labour. But what Marx only touched on here is to raise the question of: how to account for highly productive labour? Marx didn’t answer this question. He only dismissed it by assuming that “the labour of the worker employed by the capitalist is average simple labour.” (p. 306)
Thursday, 12 November 2009
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The Sale and Purchase of Labour-Power
(Summary of Marx’s Capital Vol. 1 Chapter 6)
Kaxton Siu
Labour-power as special commodity
In the last chapter, Marx arrived at the conclusion that surplus-value cannot be generated within the process of circulation. Therefore, in the beginning of this chapter, Marx suggested two impossible situations in which surplus-value cannot take place:
1. The source of surplus-value cannot be located when we only consider the value change in money form itself: “The change in value of the money which has to be transformed into capital cannot take place in the money itself, since in its function as means of purchase and payment it does no more than realize the price of the commodity it buys or pays for, … it petrifies into a mass of value of constant magnitude.” (p. 270)
2. The source of surplus-value also cannot be located in the moment of re-sale of commodity (the C-M’ moment): “Just as little can this change originate in the second act of circulation, the resale of the commodity, for this act merely converts the commodity from its natural form into its money-form.” (p. 270)
Immediately following this, Marx suggested that the only possible situation that surplus-value can be located is in the moment of purchase of commodity (i.e. the M-C moment).
“The change must therefore take place in the commodity which is bought in the first act of circulation, M-C…”(p.270)
And Marx was also clear that the creation of surplus-value cannot be possible in the realization of the value of commodity itself [this is the first situation described above], it has to do with the use-value of the commodity purchased:
“… but not in its value, for it is equivalents which are being exchanged, and the commodity is paid for at its full value. The change can therefore originate only in the actual use-value of the commodity, i.e. in its consumption.” (p.270)
Marx said that in this act of purchase, capitalist is lucky to find a very special commodity in the market. This special commodity during which it is consumed can create surplus-value. This special commodity is called, “labour-power”:
“In order to extract value out of the consumption of a commodity, our friend the money-owner must be lucky enough to find within the sphere of circulation, on the market, a commodity whose use-value possesses the peculiar property of being a source of value, whose actual consumption is therefore itself an objectification of labour, hence a creation of value. The possessor of money does find such a special commodity on the market: the capacity for labour, in other words labour-power.” (p. 270)
Labour, Labour-power, Labourer
Here, we need to make several important distinctions for three terms: “labour”, “labour-power”, and “labourer”.
The word of “labour” has two-fold meaning: (1) activity of realization of labour-power in the process of production; (2) the person who denotes to be the seller of labour-power. Labour-power denotes human being’s, as living and flexible organism, capacity of work in production process. It is Marx’s contribution to distinguish the concepts of “labour” and “labour-power”, and such contribution later triggered a wide range of studies in labour process in the twentieth century. It also provides Marxist economist these two analytical tools in launching critical attacks to the classical and neo-classical economic schools for collapsing the two concepts (labour and labour-power) into one. Therefore, to further distinguish the two-fold meaning of “labour”, the word “labourer” is used to denote the seller of labour-power. Therefore, to sum up:
Labour: activity of realization of labour-power in the process of production;
Labourer: seller of labour-power;
Labour-power: “the aggregate of those mental and physical capabilities existing in the physical form, the living personality, of a human being, capabilities which he sets in motion whenever he produces a use-value of any kind.” (p. 270)
Marx’s Strategy of Analysis
It is worthwhile to not Marx’s strategy of analysis in this chapter. In chapter 5, Marx considered the situations when the principle of equivalent exchange holds and violates (the case of cheating in form of non-equivalent exchange). However, in this chapter, Marx pursued his analysis by only considering the situation that the principle of equivalent exchange holds, i.e. no cheating is involved in the world of exchange.
In point of fact, Marx tried to lay an immanent critique to the classical political economy. For classical political economy, there is an assumption held that if society is run under perfectly functioning market, everyone in society will be better off, and perfectly functioning market assumes equivalent exchange. Therefore, for the sake of argument, Marx assumed equivalent exchange. But Marx’s purpose was to argue against the “everyone will be better off” conclusion that held by classical political economy. Instead, Marx would like to show that it is only the capitalist class will be better off at the expense of the working class.
Workers “Free in the Double Sense”
With the new conceptual tool – labour-power – at hand, Marx tried to locate the conditions in which labour-power becomes commodity. And the conditions are famously captured in the sentence that “Workers must be free in the double sense”.
1. Workers free in the first sense: In order for worker to sell his commodity labour-power, workers must not be slave. In this sense, worker is free to sell his labour-power in the market at his disposal. As Marx put it,
“In order that its possessor may sell it as a commodity, he must have it at his disposal, he must be the free proprietor of his own labour-capacity, hence of his person.” (p. 271)
2. Workers free in the second sense: apart from labour-power, worker has no other commodity (raw materials and instruments of labour, etc.) to sell. In this sense, worker is free from possessing other commodities. As Marx put it,
“The possessor of labour-power, instead of being able to sell commodities in which his labour has been objectified, must rather be compelled to offer for sale as a commodity that very labour-power which exists only in his living body.” (p. 272)
In summary, Marx said:
“For the transformation of money into capital, therefore, the owner of money must find the free worker available on the commodity-market; and this worker must be free in the double sense that as a free individual he can dispose of his labour-power as his own commodity, and that, on the other hand, he has no other commodity for sale, i.e. he is rid of them, he is free of all the objects needed for the realization of his labour-power.” (p. 272-273)
In fact, the conditions identified by Marx implicitly suggest one form of alienation of labour as essential conditions for development of capitalism. In the process of selling labour-power to capitalists, workers firstly experience an objectification of his mental and physical capacity. Through this objectification, workers’ physical and mental capacity is objectified in form of commodity labour-power, and thus sellable to capitalists.
Historical Conditions of Labour-Power (Wage-labour, and thus Capitalism)
Having learned the essential conditions of turning labour-power into commodity – by allowing workers to be free in the double sense, Marx suggested a very interesting historical account on the transition from pre-capitalist mode of production to capitalist mode of production. Marx argued that the separation of owners of money or commodities (capitalists) vis-à-vis owners of labour-power (workers) is never “natural” and is not the “social basis common to all human history”. Most importantly, he argued that “it is clearly the result of a past historical development, the product of many economic revolutions, of extinction of a whole series of older formations of social production.” (p. 273)
Then one immediately asks: what are the definite historical conditions of labor-power? Marx answered it clearly – separation of immediate means of subsistence to workers:
“In order to become a commodity, the product must cease to be produced as the immediate means of subsistence of the producer himself. Had we gone further, and inquired under what circumstances all, or even the majority of products take the form of commodities, we should have found that this only happens on the basis of one particular mode of production, the capitalist one.” (p. 273)
Marx hence told us that the understanding of “labour” is different in pre-capitalist and capitalist modes of production. Only in capitalist mode of production can we find “labour-power” being found in market as commodity. And in accomplishing so, the workers have to cut off from immediate means of subsistence. For example, in feudalist society, in which peasant may work in time half for his landlord while another half for himself. In this way, peasant is not separated from the immediate means of subsistence. However, in capitalist mode of production, workers no longer can reproduce themselves by producing food from the land they cultivate. They have to sell their “labour-power” to capitalists to earn wage for reproducing themselves.
To insist the above condition as essential feature of capitalist mode of production, Marx reminds us that even there exists money and commodities in the circulation process, the mode of production is not necessary capitalistic. Therefore, market can exist in form of barter system, but market is not equal to capitalism:
“The appearance of products as commodities requires a level of development of the division of labour within society such that the separation of use-value from exchange-value, a separation which first begins with barter, has already been completed. But such a degree of development is common to many economic formations of society, within the most diverse historical characteristics.” (p. 273)
“The historical conditions of its existence are by no means given with the mere circulation of money and commodities. It arises only when the owner of the means of production and subsistence finds the free worker available, on the market, as the seller of his own labour-power. And this one historical pre-condition comprises a world’s history. Capital, therefore, announces from the outset a new epoch in the process of social production.” (p. 273)
The Value of Labour-power
After considering the historical preconditions of capitalism, Marx went on to consider the “value of labour-power”. Marx noted that the value of labour-power is dependent upon how many commodities necessary for workers to reproduce themselves. As workers have to live, there needs a series of commodities for workers to live. Then the subsequent question is: how many commodities necessary for workers to live?
To this question, Marx also noted that part of it has to do with nature of labour. As Marx said, “In the course of this activity, i.e. labour, a definite quantity of human muscle, nerve, brain, etc. is expended, and these things have to be replaced. Since more is expended, more must be received.” (p.274-275). But Marx also alleged that the value of labour-power depends not only on how much physical attributes workers expended. It depends also on the level of civilization of a country. And value of labour power various from place to place and from time to time:
“The number and extent of his so-called necessary requirements, as also the manner in which they are satisfied, are themselves products of history, and depend therefore to a great extent on the level of civilization attained by a country; in particular they depend on the conditions in which, and consequently on the habits and expectations with which, the class of free workers has been formed. In contrast, therefore, with the case of other commodities, the determination of the value of labour-power contains a historical and moral element. Nevertheless, in a given country at a given period, the average amount of the means of subsistence necessary for the worker is a known datum. “ (p. 275).
This account of value of labour-power reminds us the critical debate in contemporary society – the setting of poverty level. In different countries, we encounter different standards of poverty (e.g. the one in U.S. is different from the one in China). In different period of time, we have different standards too (e.g. imagine in the 1960s, we can’t have cell phone to be included in the basket of commodities which defines poverty level.
Even so, Marx said it is not enough. Apart from the labourer’s own reproduction, we also need to consider their children – i.e. the reproduction of working class. There fore “special education or training” is needed for reproducing working class in definite quality (with definite skills).
In short, the value of labour-power is socially determined. The value of labour-power is fixed by the value of commodities which is necessary to reproduce workers at a given standard of living in a given time of a given place. And implication to this determination is that: value of labour-power is sensitive to value of commodities. Therefore, if values of commodities fall, the value of labour-powr also falls.
Peculiar Nature of Labour-power
But even the value of labour-power is fixed (socially), Marx also noted that there is a peculiar nature of labour-power as a commodity. The situation exactly arises in the purchase of labour-power by capitalists – capitalists pay after workers done their work. In this way, laborer is advancing their labour for the capitalists in the hope that they can get it back in the end of the day. There is a time lag between “the alienation of labour-power and its real manifestation.” (p. 277) Therefore, in the purchase of labour-power, labourer always extends credit to capitalists. This can be a week or a month, depending on wage being paid according to the agreement between capitalist and workers. One can immediately think of the situation of wage arrears happened in many developing countries.
“The Hidden Abode of Production”
Before ending this chapter, Marx examined two serious blunders if one (like classical political economists) only considers the process of circulation without giving enough attention to the process of production.
Firstly, Marx told us that capitalist and worker are engaging in different circuits of process of circulations. For capitalists, their circuit is M-C-M whereas for workers, their circuit is C-M-C. Therefore, to understand how surplus-value come from, we have to get out of circulation, but go to “the hidden abode of production” (p.279).
Secondly, it is interesting that Marx ends this chapter by revisiting the concepts of Freedom, Equality, Property and Bentham under bourgeois framework of rights. Here, Marx argued that the entire framework of bourgeois rights concerns only with market relations. Definitions of these rights pertain in the sphere of circulation. But Marx emphasized that all these concepts of rights failed to extend to the sphere of production. And bourgeois constitutionality has nothing to do with work on production and factories. Every time when states try to legislate to regulate production inside factory, capitalists get outraged! And in the subsequent part (part III of vol. 1) Marx described how capitalists went mad in history to resist the regulation inside factory.
Tuesday, 10 November 2009
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Contradictions in the General Formula
(Summary of Marx’s Capital Vol. 1 Chapter 5)
Kaxton Siu
Situation 1: Equivalent Exchange
At the beginning of this chapter, Marx continued to ask “Where does surplus-value come from?” At first, Marx considered the law of supply and demand set up by the classical political economy. In doing so, Marx considered the situation in which supply equals demand:
“The vulgar economists have practically no inkling of the nature of value; hence, whenever they wish to consider the phenomenon in its purity, after their fashion, they assume that supply and demand equal, i.e. that they cease to have any effect at all.” (P.260)
“’Where equality exists there is no gain.’ It is true that commodities may be sold at prices which diverge from their values, but this divergence appears as an infringement of the laws governing the exchange of commodities. In its pure form, the exchange of commodities is an exchange of equivalents, and thus it is not a method of increasing value.” (p. 261)
Therefore, Marx argued that when supply equals demand, meaning that there are exchange of equivalents and exchange of value, there is no increase in value. Hence, there is no possibility for surplus-value to emerge under equivalent exchange principle.
Situation 2A: Exchange of Non-equivalents at Societal Level (Marx’s Attack on Malthus’ Class Theory and Effectual Demand Theory)
After considering the case of exchange of equivalents, where the formation of surplus-value does not take place, Marx considered the second case – an exchange of non-equivalents. However, as Marx argued, once we consider the possibility that there could be an exchange of non-equivalents, we have to confront the situation in which “a class of buyers who do not sell, i.e. a class of consumers who do not produce” (p. 264). And this situation was suggested by Thomas Malthus, who argued that there should be a separate class in society who are distinct from the capitalist class and the working class. Under Malthus’ formulation, this special class is the landlord class, a class having extra money to spend on. Malthus argued that the capitalist class and the working class could not have extra money to spend on because the capitalist class has to put money into investment while the working class is so poor that they have no extra money to save. Malthus further argued that in order for the society to have enough “effectual demand”, the landlord class is necessary to exist.
However, Marx, by quoting Ricardo, laid a critique to Malthus’ theory of class by “economically glorifies this class of simple buyers or consumers.” (p. 265, note 16). Marx argued that this situation of creating surplus-value is impossible:
“The money with which such a class is constantly making purchases must constantly flow into its coffers without any exchange, gratis, whether by might or by right, from the pockets of the commodity-owners themselves. To sell commodities at more than their value to such a class is only to get back again, by swindling, a part of the money previously handed over for nothing. … That is not the way to get rich or to create surplus-value.” (p. 264-265)
Situation 2B: Exchange of Non-equivalents at Individual Level
After criticizing Malthus, Marx put forth another situation in which confines to exchange of non-equivalents at individual level. However, Marx argued that this situation is also impossible. Although some individuals can gain more by selling commodities dearer to others, yet these “individual gains” will be leveled off. Hence, there can be no aggregate surplus in society.
After considering both the situation of equivalent and non-equivalent exchanges, Marx concluded:
“However much we twist and turn, the final conclusion remains the same. If equivalents are exchanged, no surplus-value results, and if non-equivalents are exchanged, we still have no surplus-value. Circulation, or the exchange of commodities, creates no value.” (p. 266).
Merchants’ Capital and Usurers’ Capital
As Marx had concluded surplus-value cannot take place in circulation, a question is raised: How about merchants’ capital, which is emerged out from circulation in the form M-C-M’ by buying in order to sell dearer?
To this, Marx said that, for surplus-value can’t be found from the hands of sellers and buyers under non-equivalent exchanges, merchant “parasitically inserts himself between them [buyer and seller of commodities].” (p.267) in order to generate surplus. And this is a mere act of frauds and cheating.
Besides merchants’ capital, Marx argued that equivalent exchange also doesn’t apply to usurers’ capital in which comes out from the form M-M’. Marx argued that this way of generating surplus by exchanging money for more money is “incompatible with the nature of money”. To sum up, the ways the surplus generated under merchants’ capital and usurers’ capital violate the law of equivalent exchange.
More importantly, Marx told us that historically merchants’ capital and usurers’ capital (or interest-bearing capital) appear before the modern form of capital – industrial capital. In the 16th century, merchants’ capital and usurers’ capital are crucial to dissolute pre-capitalist form of society. At that time, as Marx showed, merchants’ capital and usurers’ capital are not observed to the law of exchange and thus are badly reputed as “cheating”. However, as capitalism develops, at some point of time when industrial capital becomes the primary form of capital in society, industrial capital needs merchants’ capital and usurers’ capital to expand itself. In doing so, the capitalist system tries to discipline merchants’ capital and usurers’ capital, and thus transform the nature of merchants’ capital and usurers’ capital.
Nonetheless, today, the following questions are still open to debate:
1. to what degree does the capitalist system successfully discipline merchants’ capital and interest-bearing capital? (try to think of the Asian Financial Crisis in 1997 and the sub-prime crisis in 2008)
2. to what degree does industrial capital still the primary form of capital in society?
Tuesday, 03 November 2009
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The General Formula of Capital
The General Formula of Capital
(Summary of Chapter 4 of Marx’s Capital)
Kaxton Siu
Introduction
Marx analyzed the exchange process in the previous chapters by starting from the barter system, i.e. the commodity—commodity exchange (C-C). But for market to function, money mediates in the exchange process (the C-M-C process). According to Marx, in this particular process, everyone is happy. It is so for three reasons: first, there is equivalent exchange in value; second, one can exchange things with different qualities to satisfy social needs, apply for orange, shirt for shoes, etc.; third, what interests people in this process is the use-value, the usefulness of commodities.
However, as capitalism develops, it turns out to be the M-C-M process, where money becomes an end in itself. But as Marx repeatedly alleged, the circulatory process M-C-M would be:
“Absurd and empty if the intention were, by using this roundabout route, to exchange two equal sums of money, £100 for £100.” (p. 248)
Because of the “absurdity” and “emptiness”, there must be an added component to the end of this circulatory process -- ∆M, the surplus value. And hence the process should be: M-C-M+∆M.
But one may immediately puzzle: where does this ∆M come from? The puzzle is legitimate in the sense that, in appearance, for equivalent exchange to establish, the two opposite ends of the M-C process and the C-M process should have the same value. Thus where does the ∆M component come from? The answer lies in the fact Marx exposed in chapter 4 to chapter 6 in Capital that there is one special commodity capable of producing more value within this circulatory process, and this commodity is called “labour-power”.
Money is NOT Capital
Marx set off this chapter by tracing the historical origins of capitalism – the argument in which is later taken up by world-system theorists, e.g. Immanuel Wallenstein, who suggest that capitalism starts in the sixteenth century in Europe and then spread around the world:
“The circulation of commodities is the starting-point of capital. The production of commodities and their circulation in its developed form, namely trade, form the historic presuppositions under which capital arises. World trade and the world market date from the sixteenth century, and from then on the modern history of capital starts to unfold.” (p.247)
After that, Marx went on to pinpoint that historically capital “first confronts landed property in the form of money; in the form of monetary wealth, merchants’ capital and usurers’ capital.” (p. 247). Here Marx, by mentioning two forms of capitals (merchants’ capital and usurers’ capital), wanted to demystify the common misconception that “money is capital”. But Marx did not go further to refute this misconception by elaborating an historical argument. Instead, he detailed it logically.
To Marx, the following two questions are fundamentally different:
(a) How much money is there in the society?
(b) How much capital is there in the society?
They are fundamentally different because money is not capital. Money is capital used in certain way. As Marx put it, “Money has to be transformed into capital by definite process.” (p. 247). And capital is created by social decision on some part somewhere in a particular way – the M-C-M+∆M way.
In contrast to the C-M-C process, which has qualitative difference between two poles, now “the process M-C-M does not therefore owe its content to any qualitative difference between its extremes, for they are both money, but solely to quantitative changes.” (p. 251) Because of this “quantitative changes”, Marx defined one of the most important Marxian economic categories, surplus-value:
“The complete form of this process is therefore M-C-M’, where M’ = M + ∆M, i.e. the original sum advanced plus an increment. This increment or excess over the original value I call ‘surplus-value’” (p. 251)
Capital: process, value-in-motion
As Marx put it, in the M-C-M process, “the money is not spent, it is merely advanced.” (p.249) The difference between two words, “spent” and “advanced”, should not be ignored here. Marx acidly described how money is advanced by the way in which one “releases the money, but only with the cunning intention of getting it back again.” (p. 249).
But if one asks “What is capital?”, Marx would answer: capital is process, value-in-motion. As Marx defined,
“The value originally advanced, therefore, not only remains intact while in circulation, but increases its magnitude, adds to itself a surplus-value, or is valorized. And this movement coverts it into capital.” (p. 252)
Thus capital is a movement and a process. Not only capital is a process. Marx also reminded us, as he did in chapter 3, the “limitless” character of capital:
“The simple circulation of commodities [C-M-C] —selling in order to buy – is a means to a final goal which lies outside circulation, namely the appropriation of use-values, the satisfaction of needs. As against this, the circulation of money as capital [M-C-M] is an end in itself, for the valorization of value takes place only within this constantly renewed movement. The movement of capital is therefore limitless.” (p. 253).
Therefore, if one asks what is “socially necessary” for capitalism, the answer is: the limitless growth for surplus-value. Therefore, that is why bourgeois economists technically define economic recession as the decline of real GDP for two consecutive quarters.
In order for capitalist system’s limitless growth to sustain, the role of capital is important. Here we see that the role of capital, personified as “capitalist”, is to fulfill the limitless drive for surplus-value enrichment:
“ As the conscious bearer of this movement, the possessor of money becomes a capitalist. His person, or rather his pocket, is the point from which the money starts, and to which it returns. The objective content of the circulation we have been discussing … is his subjective purpose, and it is only in so far as the appropriation of ever more wealth in the abstract is the sole driving force behind his operations that he functions as a capitalist, i.e. as capital personified and endowed with consciousness and a will.” (p. 254).
Marx continued to argue that capitalists’ immediate aim is never on use-value or the profit on any single transaction. “His aim is rather the unceasing movement of profit-making.” (p. 254). He also contrast capitalist with miser (a person who hoards wealth and spends as little as possible):
“The boundless drive for enrichment, this passionate chase after value, is common to the capitalist and the miser; but while the miser is merely a capitalist gone mad, the capitalist is a rational miser. The ceaseless augmentation of value, which the miser seeks to attain by saving his money from circulation, is achieved by the more acute capitalist by means of throwing his money again and again into circulation.” (p. 254-255)
Physical and Objectified Forms of Capital: Money-form and Commodity-form
As long as capital is value-in-motion, it is legitimate to ask what are the physical and objectified forms of capital. In other words, what forms of capital can we see or touch? In fact, as implicated in the M-C-M process, the physical and objectified forms of capital are money and commodity. Thus, we speak of money-form and commodity-form of capital. As Marx described:
“It [Capital] is constantly changing from one form into the other, without becoming lost in this movement; it thus becomes transformed into an automatic subject. … We reach the following elucidation: capital is money, capital is commodities. In truth, however, value is here the subject [the independently acting agent] of a process” (p. 255)
Apart from the changing forms of capital in the movement, here “value” is the “subject of the process” is important here. It implies that it is value drives capitalists to follow the M-C-M process.
After this important clarification, Marx made a joke to point out the non-sense perception held by many people about capital:
“For the movement in the course of which it adds surplus-value is its own movement, its valorization is therefore self-valorization. By virtue of being value, it has acquired the occult [mystical] ability to add value to itself. It brings forth living offspring, or at least lays golden eggs.” (p. 255)
In fact, Marx wanted to criticize those people who think, “Money can add value to itself”. Marx used the “golden eggs” analogy to describe this “occult ability”. In fact, this so-called “occult ability” is no more than just “commodity fetishism”! But this kind of commodity fetishism is still prevalent in our present day society. For example, in the course of privatizing social security, e.g. MPF system in Hong Kong, it is not only the government, but also the subscribers to the system indeed think that: by investing money into the system today, the money will grow itself and in the day of our retirement, we can get MORE money from our pension fund accounts to sustain our post-retirement lives.
In so far as capital has commodity-form and money-form, we come to the question: which form should we use to measure the valorized value? To this question, Marx argued that it is the money-form that is appropriated:
“Value requires above all an independent form by means of which its identity with itself may be asserted. Only in the shape of money does it possess this form. Money therefore forms the starting-point and the conclusion of every valorization process. It was £100, and now it is £110, etc. But the money itself is only one of the two forms of value.” (p. 255-256)
It is also logical to dismiss the use of commodity-form to measure the valorized value. One cannot know how much value a commodity has before going to the market. Think it this way: I got a commodity. I don’t know how much it worth. The only way I know is to bring it to the market. And only when I get to the market do I know I get the surplus-value.
In the end of this chapter, Marx argued that there can be a lot of different forms of capital too, say merchants’ capital and industrial capital, etc. But they all fall on the general process, the M-C-M+∆M process.
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