This introduction to Marxist economics was written in the early 1970s simply “as notes for comrades” to stimulate interest in this field of Marxism. We are republishing it to make it available for the new generation of youth awakening to Marxism for the first time. It is very condensed. Consequently, readers are advised to also read it in conjunction with the first part of Why you should be a Socialist by John Strachey, The Living Thoughts of Karl Marx with an introduction by Trotsky – a condensed version of Volume One of Capital in Marx’s own words without the polemics (You can get it from public libraries), Wage, Labour and Capital, Value, Price and Profit and, of course, Capital and other works of Marx, Engels and Lenin.
The Production of Commodities
Lenin often remarked that the great achievement of Marx was to see economics as a relationship between people and not just between things. It is the great task of Marxist Economics to lay bare the fundamental exploitation of class by class which lies behind the appearance of capitalist society and is masked by bourgeois political economy.
For if we look at modern capitalism we see at first only blind, accidental and contradictory movements of commodities on the market. The bourgeoisie and their theoretical representatives being themselves slaves to these movements, are incapable of transcending them. It is the proudest boast of bourgeois economics that it can photograph and record these transient and superficial developments. The capitalist learns to value everything in market terms. Paul Getty is said to be ‘worth’ a billion, workers become so many ‘hands’. Only Marxism, because it is from the outset a critical and revolutionary theory, is capable of grasping the real relations, the rise and destruction of capitalism.
The mainspring of historical progress is the development of the productive forces. First men have to fill their bellies before turning their minds to government, culture, morality and religion. Secondly any given form of society such as slavery or feudalism based on production develops its own form of government, culture, morality and religion which disintegrates as the basis of that form of society is swept away by the development of production.
The development of the productive forces is essentially a development of the productivity of labour which both results from and causes a development of the social division of labour. It also causes the development of society into classes and is now preparing the conditions for the abolition of class society.
For if we consider mankind in its early beginnings production was so low that there was no possibility of an idle class developing. It was only with the development of a surplus over and above what was needed to maintain the labouring population that class society was developed. In other words every form of class society divides the social product into labour necessary to maintain the toilers and surplus labour. The surplus is maintained by the ruling class seizing the means of production as private property, guarded by the state of the ruling class. In slave society the means of production was the slaves themselves. In feudal times it was the land. Here the relation of exploitation stood out clearly – the serf would work three days on his own land and three days on his master’s.
Labour is the key concept of economics. Even where the social division of labour is undeveloped, under conditions of barter, unless a smith exchanges products costing an equal quantity of labour with a potter he will find that he has exchanged the labour of twelve months for the labour of six months and his family will starve.
As the social division of labour advances production for direct consumption or for barter is replaced by production of commodities exchanged on the market for money which can then be used to buy further commodities. Money itself is a value, that is a product of a definite quantity of labour which acts as a universal equivalent. First cattle or wheat played this role because they could be exchanged anywhere, then gold became the commodity in terms of which all others were valued.
Labour is the only thing all commodities have in common, and is therefore the measure of their value. Certainly all commodities must also be useful to someone or they would never be sold, but their utility can never determine their value. On the other hand it is only socially necessary labour under given conditions which determines value. It usually takes three hours to make a yard of cotton, a manufacturer with backward production techniques cannot charge twice as much because it takes him twice as long. The ebb and flow of price levels stabilises around an axis which covers production costs and a certain rate of profit. Production costs are all ultimately reducible to labour costs. If a producer is making less than the average rate of profit in any sector he will withdraw his capital until the rate of profit is stabilised throughout the economy.
Capitalist production is a production of commodities when labour power itself becomes a commodity. The capitalist class have a monopoly of the means of production as private property, forcing the workers to work for them or starve. The problem arises in a system in a system of formally free and equal exchanges, how the surplus on which the ruling class thrives, and exists. It is no answer to say that everyone sells dearer than he buys for in that case everyone’s gains would be balanced out by losses. The source of surplus value must be sought in production itself. If we look at the labour process, what is the value of Labour? How can labour, itself the measure of value, be valued? It is not the labour but the worker’s labour power which the capitalist pays for. This labour power is valued exactly the same as all other commodities are valued – in terms of the labour necessary to maintain and reproduce the worker and his family. Why does the capitalist buy labour power? Its useful quality is that it alone can produce more value than it costs.
The search for more and more surplus value, more and more unpaid labour of the working class is not simply an impulse inside the individual capitalists brains. It is a coercive law forced on them by competition relentless and unstoppable in its development.
How can the capitalists gain more? If wages are paid by the day he can increase the hours of labour. This is absolute surplus value. But if the hours are fixed he can only cheapen the price of labour-power, so reducing the number of hours the worker works to reproduce his own wages and increasing the hours of surplus value,
This relative surplus value is gained in a roundabout way. Each capitalist tries to steal a march on his competitors by increasing the productivity of labour at his command. He introduces machinery for one reason only, because he can by improving efficiency reduce unit costs and improve profitability. By selling his commodity cheaper than the average but dearer than its individual value he can secure a juicy surplus profit. Unfortunately for him his competitors will be forced to retool and his profits will again slump to the average. The long term effect though, is that insofar as his commodity enters into the value of labour power, this value will be progressively reduced.
Capitalism cannot exist without continually revolutionising the means of production. The introduction of more and more machinery together with an expanded scale of production means inevitably a tendency to concentration and centralisation of capital.
Why does capitalism inevitably tend to crisis? Most crises of capitalism are crises of overproduction – idle men confront idle machines precisely because they have produced too much. Crises in pre-capitalist society were caused by the opposite shortage of grain or other agricultural produce by Act of God.
Since the capitalists produce only for profit, it follows that capitalist crisis is a crisis of profitability. Too much is produced only in relation to maintaining the existing level of profitability. The ebb and flow of capital (according to profitability) creates an average rate of profit. The general tendency of capitalist production is towards a higher organic composition of capital, that is towards a higher proportion of machinery and raw materials employed per man. But although machinery makes human labour productive, only labour produces surplus value. There is therefore an inevitable tendency for the rate of profit to fall.
Of course the capitalist may offset this in many ways, as for example, by increasing production of relative surplus value. But these counteracting tendencies can never overbear the tendency for profit rates to fall, breaking out again and again in crises of overproduction of capital.
A crisis in any one sector of the capitalist economy can radiate throughout the system. A cotton producer, for example, unable to sell his product, cannot realise his initial outlay. But he will have invariably bought machinery, and coal on credit and these capitalists too will be forced to restrict production finding themselves unpaid. By laying off workers, still further capitalists will be unable to sell their consumer goods and so the vicious cycle continues.
But the slaughter of the value of capital achieved by the crisis, lays the basis for a further period of boom, which in turn reproduces the fundamental contradictions on a higher level. The cycle of boom and slump is the inevitable form of capitalist development. It is fundamental to the drawing up of a scientific socialist perspective.
The analysis put down here is bare and schematic (it will be filled out in succeeding sections) but unless the structure and dynamics of capitalist society as laid down by Marx are understood there can be no possibility of intervening in the class struggle necessarily engendered by the economic movements.
Money
A commodity is a good produced for exchange. Generalised commodity production, as opposed to production directly for consumption either for the producer or for the exploiting slave-holding or feudal landlord class, is a recent phenomenon in the history of mankind. It presupposes a thoroughgoing division of labour, with society being divided into cobblers, smiths and separate producers of all society’s other needs. It also presupposes private ownership of the means of production, and a bursting asunder of all the feudal fetters on production.
The problem arises, on what basis can all kinds of different commodities be exchanged? What is the common measure of their value? All commodities have two features in common – they must all be of use to someone or they would never be sold, and they are all the product of human labour. Commodities cannot be evaluated in terms of their utility – this is entirely dependent on the individual’s assessment. Labour is the only possible objective measure of value. We speak here not of the concrete labour of the cobbler or smith but the abstract labour time to which commodity valuation is reduced on the market by the continuous exchange of goods of entirely different kinds.
The first form of exchange is barter – a straight exchange of goods of different kinds. Obviously it is highly inconvenient for a smith who wants shoes to find a cobbler who wants a scythe, and so as the division of society becomes more thoroughgoing there arises necessities for a universal equivalent – a commodity which will be expected everywhere as a value. The exchange process then takes the form of a sale of goods produced in exchange for money and re-conversion of the money into goods wanted (Commodity – Money – Commodity.) Historically cattle or wheat are likely to have first played the role of universal equivalent. later, for practical reasons of transport, etc, this function developed onto the precious metals.
Exchange first develops the isolated form of value a simple comparison of two different commodities. Because of their common property as being the product of human labour, any commodity can be used as the measure of equivalence of every other commodity. 1 coat – 2 yards of cotton cloth, or 5 bottles of whisky or ½ oz of gold. We have already seen how gold or silver have become the universal equivalent. Commodities are not measured directly by the labour time congealed in them but rather every commodity is valued in terms of a specific amount of gold – money.
Since a golden coin is rubbed and worn in the process of circulation, however it becomes in reality a formal token of value – commodities are bought and sold for what the coin would be worth (in terms of its weight) when new. The way is clear for the replacement of gold coinage by paper notes, not themselves valued in terms of the labour time it takes to produce them but representing a certain quantity of gold.
Given that money is a universal equivalent and a means of exchange it can also be used as a means of payment. While the commodity is realised by the seller the buyer defers payment. They become creditor and debtor. Under conditions of modern capitalist production, coins and banknotes play an entirely subsidiary role in oiling the wheels of industry to bills of exchange and other means of payment between capitalists. One of the most marked features of the post-war period has been the enormous increase in credit.
The development of money makes possible an entirely new historical epoch. For in addition to the sales of commodities in exchange for equivalent commodities of a different use value there arises the capitalist who start with money and buys commodities solely in order to end up with more money. (Money – Commodity – Money + augmentation.) Before the development of capitalist production it was the merchant who bought cheap and sold dear and the usurer who loaned money for interest. Now of course it is the industrial capitalist who buys the elements of production. These include labour power, whose unique use-value is that it can create a surplus. The industrial capitalist sells his product at its value; surplus value comes from the exploitation of labour power.
If we break down the value of a commodity into its constituents – constant capital (plant and raw materials), variable capital (wages) and surplus value – and take the elements of constant capital as given in value, we can see that an inevitable struggle must develop between labour and capital as to the apportionment of the rest. The capitalist cannot simply insure his share by raising prices if wages increase. He is constrained by competition with others capitalists. This even occurs with the big monopolies today because of international competition. A general rise in wages would lead to an increase in demand for commodities produced for the workers and a reduction of demand of demand for luxury goods produced for the capitalist class and their hangers-on. Capital would there flow from the less profitable luxury production sector to produce necessities for the workers. The end result would not be an overall rise in prices but simply a redistribution of production. It follows that inflation is not caused by wage increases which only act to reduce profit levels.
And this is precisely the point. The argument that “one man’s wage increase is another man’s price increase” used by both Tories and Labour leaders is a cloak for an attack on the working class in the interests of profitability.
The arguments put forward by the TUC and Communist Party is that freeze conditions lead to inflation because constant capital costs, which are usually fixed, become more expensive when resources are not fully used, and that therefore growth is the answer, has a measure of truth in it. What it leaves out of account of course is that capitalists produce only for profit and if the economy is stagnant it is because growth would reduce profits.
In reality neither wages nor rising costs are the fundamental causes of inflation currently affecting the capitalist world. Inflation, the continued depreciation of the currency, is a product of the parasitism and decay of modern capitalism. There has been an enormous development of fictitious capital relative to productive capital – an enormous outpouring of coupons and paper claims on the wealth of society with no concomitant development of production.
Though we would contest the miraculous effects claimed for the permanent arms economy in producing a whole epoch of uninterrupted growth and class harmony, the effect of arms production on producing inflation cannot be doubted.
Arms are not goods entering into the cycle of capitalist reproduction – they do not contribute either to renewing constant capital or variable capital. From that point of view arms production is waste production. Nevertheless, it generates incomes for capitalists and workers in the arms sector, income not backed by any development of real wealth. More demands on a stable national product is an inflationary situation.
Likewise with the development of credit, share watering and all other stock exchange manipulations which push up nominal holdings without any increment in productive wealth the world wide rise in interest rates and the growing claims of finance capital on industrial capital.
Whereas the nation state can replace precious metals with paper money, on the international arena anarchy reigns as each national capital bloc grabs for itself. Here gold, because it is a real value, is accepted alone. The Bretton Woods agreement of 1944 made the dollar a gold equivalent on the world market. This was only possible because of the overwhelming productive might of US capitalism.
Thus the USA found itself in a position to issue wealth not backed by productive wealth. But this was a purely temporary phenomenon, since as the Marshall Aid dollar revived shattered Europe, so national antagonisms and capitalist rivalry grew up once more. This was compounded by the increasing parasitism of US imperialism relying increasingly on foreign investments bought with dollars – fictitious capital. Hence the clash with de Gaulle and the suspension of dollar convertibility. Some compromise can be patched up so long as world trade continues to boom. But with the tightening of profit rates worldwide, a sharpening of antagonisms is inevitable. If money is the only indicator of the social character of production even under capitalism, then the crisis of the world monetary system means crisis for international capitalism. The crisis, reinforced by a breakout of monetary anarchy and protectionism given the basis of the post war boom in a development of international trade and the international division of labour much faster than the development of the individual capitalist economies.
The capitalist’s life is dominated by money, a social force he cannot understand. And like his savage predecessors, what he cannot understand he bows down and worships. And yet, as Lenin pointed out, cash is a very ordinary commodity which in a socialist society could be used for paving lavatories. The mystifying effects of the commodities can be replaced by a rational planned production to fulfil the needs of all society.
