Chapter 7: Capital and Surplus-Value. The Basic Economic Law of Capitalism

Transformation of Money into Capital

Each unit of capital begins its career in the form of a certain sum of money.

Money does not in itself constitute capital. When, for instance, independent petty commodity producers exchange their commodities, money plays its part as a circulation medium, but does not serve as capital. The formula of commodity circulation is: C (commodity)-M (money)-C (commodity), i.e., the selling of one commodity in order to buy another. Money becomes capital when it is used to exploit the labor of others. The general formula of capital is M-C-M, i.e., buying in order to sell so as to make money.

The formula C-M-C means that one use-value is exchanged for another: a commodity producer hands over a commodity which he does not need and receives in exchange another commodity which he needs for use. The purpose of the circulation process is a use-value. In the formula M-C-M, on the contrary, the starting and finishing points of the movement coincide: at the beginning of the process the capitalist had money and at the end of it he has money. The movement of capital would be pointless if at the end of the process the capitalist had the same amount of money as at the beginning. The whole sense of the capitalist’s activity is that as the result of the operation he has more money than he had at the beginning. The purpose of the circulation process is an increase in value. Therefore the general formula of capital in its full form is:

M-C-M’, with M’ standing for an increased amount of money. Capital advanced by a capitalist, i.e., put into circulation by him, returns to its owner with a certain increment.

What is the source of this growth of capital? Bourgeois economists, in their endeavor to hide the true source of money-making by the capitalists, often assert that this increment comes about in the process of commodity circulation. This assertion is unsound. Consider the facts. If commodities and money of equal value, i.e., equivalents, are exchanged, none of the commodity owners can derive from circulation any value greater than that which is embodied in his own commodity. If sellers succeed in selling their commodities above their value, by 10 percent, say, when they become buyers, they have to pay back this 10 percent to the sellers. Thus, what the commodity owners gain as sellers they lose as buyers. Yet in actual fact increments to capital are secured by the whole class of capitalists. Evidently, the owner of money, in order to become a capitalist, must find on the market a commodity which when consumed creates its own value and something over besides, more than it possesses itself. In other words, the owner of money must find on the market a commodity the use-value of which possesses the property of being a source of value. This commodity is labor-power.

Labor-power as a Commodity | Value and Use-value of the Commodity Labor-power

Labor-power, as the aggregate of physical and mental qualities of which a person disposes and which he puts into action whenever he produces material wealth, is a necessary element of production in any form of society. Only under capitalism, however, does labor-power become a commodity.

Capitalism is commodity production at the highest stage of its development, when labor-power too becomes a commodity. With the transformation of labor-power into a commodity, commodity production takes on a universal character. Capitalist production is based on wage-labor, and the hiring of a worker by a capitalist is nothing else than the buying and selling of the commodity labor-power: the worker sells his labor-power and the capitalist buys it.

When he has hired a worker, a capitalist has the worker’s labor-power at his free disposal. The capitalist uses this labor-power in the process of production; and that is where the increment to capital takes place.

Like every other commodity, labor-power is sold at a definite price, which is based upon its value. What is this value?

For the worker to retain his ability to work he must satisfy his need for food, clothing, footwear and housing. Satisfaction of these necessary vital requirements means restoring the vital energy of muscles, nerves and brains which the worker has expended and putting him once more in a fit state to work. Furthermore, capital needs a constant flow of labor-power; for this reason, the worker must be able to maintain not only himself but also his family. In this way the reproduction, i.e., the continuous renewal, of labor-power is ensured. Finally, capital needs not only unskilled but also skilled workers, able to handle complex machinery, while the acquisition of skill involves a certain outlay of labor on training. For this reason, the expenses of producing and reproducing labor-power also include a definite minimum of expenditure on the training of the rising generations of the working class.

It follows from the above that the value of labor-power as a commodity is equal to the value of the means of existence which are necessary for the maintenance of the worker and his family.

“The value of labor-power is determined as in the case of every other commodity, by the labor-time necessary for the production, and consequently, also the reproduction of this special article.”[1]

In the course of the historical development of society both the level of worker’s customary requirements and also the means needed to satisfy these requirements have undergone changes. The level of a worker’s customary requirements varies from country to country. The special features of the historical path followed by a given country and the conditions in which the class of wage-workers was formed have much to do with determining the nature of these requirements. Climatic and other natural conditions also have a certain bearing on the workers’ requirements in respect of food, clothing and shelter. The value of labor-power includes not only the value of the consumer goods needed to restore the physical strength of the worker but also the cost of satisfying certain cultural requirements of himself and his family, engendered by the very conditions of society in which the workers live and are brought up (education of children, purchase of newspapers and books, visits to the cinema and the theatre, etc.). The capitalists try, all the time and everywhere, to reduce the material and cultural conditions of the working class to the lowest possible level.

When he begins in business, a capitalist buys everything that he needs for production: buildings, machinery, equipment, raw materials, fuel. Then he engages workers, and the production-process commences in the enterprise which he owns. When the commodity is ready, the capitalist sells it. The value of the finished commodity comprises: first, the value of the means of production expended (the raw material worked up, the fuel used, a certain part of the value of the buildings, machinery and tools); second, the new value created by the workers in the enterprise itself.

What does this new value consist of?

The capitalist mode of production presupposes a comparatively high level of productivity of labor, under which the worker needs only part of the working day to create value equal to the value of his labor-power. Let us suppose that one hour of simple average labor creates value equivalent to one dollar and the daily value of labor-power is equivalent to 6 dollars. In this case the worker, so as to pay for the daily value of his labor-power, would have to work 6 hours. But the capitalist has bought his labor-power for the whole day, and he compels the worker to work not 6 hours but for an entire working day, lasting, say, 12 hours. During these 12 hours the worker creates value equivalent to 12 dollars, even though the value of his labor-power is equivalent only to 6 dollars.

We now see what the specific use-value of the commodity labor-power consists of for the person who buys it—the capitalist. The use-value of the commodity labor-power is its capacity to be the source of value, and withal, of more than it possesses itself.

The Production of Surplus-Value – Basic Economic Law of Capitalism

The value of labor-power and the value which is created in the process of using it are, in fact, two quite distinct magnitudes. The difference which exists between these magnitudes is the necessary prerequisite for capitalist exploitation.

In our example, the capitalist, who has spent 6 dollars on hiring workers, obtains value created by their labor which is equivalent to 12 dollars. The capitalist recovers the capital which he originally advanced plus an increment or surplus equivalent to 6 dollars. It is this increment that constitutes surplus-value.

Surplus-value is the value created by the labor of a wage-worker over and above the value of his labor-power and appropriated by the capitalist without payment. Thus, surplus labor is the result of the worker’s unpaid labor.

The working day in a capitalist enterprise is divided into two parts: necessary labor-time and surplus labor-time, and the labor of the wageworker into necessary and surplus labor. During the necessary labor-time the worker reproduces the value of his labor-power, and during the surplus labor-time he creates surplus-value.

A worker’s labor, under capitalism, is a process of use by the capitalist of the commodity labor-power, or a process of extraction of surplus-value from the worker by the capitalist. The labor-process is characterized, under capitalism, by two fundamental peculiarities. First, the worker works under the control of the capitalist to whom the worker’s labor belongs. Second, not only does the worker’s labor belong to the capitalist but also the product of this labor. These peculiarities of the labor-process transform the wage-worker’s labor into a heavy and hateful burden.

The immediate aim of capitalist production is the production of surplus-value. In accordance with this, productive labor means under capitalism only such labor as creates surplus-value. If the worker does not create surplus-value, his work is unproductive work, useless for capital.

In contrast to the previous forms of exploitation—slave-owning and feudal—capitalist exploitation is masked. When the wage-worker sells his labor-power to the capitalist, this transaction appears at first sight to be an ordinary transaction between commodity owners, the usual exchange of a commodity against money, carried out in accord with the law of value. The transaction of buying and selling labor-power, however, is merely the outward form, behind which is hidden the exploitation of the worker by the capitalist, the appropriation by the capitalist, without any equivalent, of the worker’s unpaid labor.

In order to clarify the essential nature of capitalist exploitation we will suppose that the capitalist, when he engages the worker, pays him the full value of his labor-power, determined by the law of value. It will be shown later when we examine wages that, unlike the prices of other commodities, the price of labor-power, as a rule, diverges below its value. This circumstance still further increases the exploitation of the working class by the capitalist class.

Capitalism enables the wage-worker to work, and consequently to live, only insofar as for a certain amount of his time he works gratis for the capitalist. If he leaves one capitalist enterprise, the most favorable thing that can happen to the worker will be to find himself in another capitalist enterprise, where he will be subjected to the same exploitation. When he exposed the system of wage-labor as a system of wage-slavery, Marx pointed out that whereas the Roman slave was bound by chains, the wage-worker was bound by invisible threads to his owner. This owner is the capitalist class as a whole.

Surplus-value, created by the unpaid labor of wage-workers, constitutes the common source of the unearned incomes of the various groups of the bourgeois class: industrialists, traders and bankers, and also the class of landowners.

Production of surplus-value is the basic economic law of capitalism. Analyzing capitalism, Marx wrote: “Production of surplus-value is, the absolute law of this mode of production.”[2]

The essential features of this law consist in the production of surplus-value on an ever-increasing scale and the appropriation of it by the capitalists on the basis of bourgeois ownership of the means of production by means of increasing exploitation of wage-labor and the extension of production.

Capital did not invent surplus labor. Wherever society consists of exploiters and exploited, the ruling class pumps surplus labor out of the exploited classes. But unlike the slave-owner and the feudalist, who in conditions where natural economy prevailed, used the greater part of the product of the surplus labor of the slaves and serf-peasants for the direct satisfaction of their needs and whims, the capitalist transforms the whole of what his wage-workers produce into money. Part of this money the capitalist spends on buying consumer goods and luxury articles, the rest he invests again, as additional capital, to bring him in further surplus-value. This is why capital displays, in Marx’s words, truly wolf-like greed for surplus labor.

The pursuit of surplus-value is the principal driving-force of the development of the productive forces under capitalism. None of the previous forms of society based on exploitation, neither slavery nor feudalism, possessed such a force, hastening forward the growth of technique.

Lenin called the doctrine of surplus-value the corner-stone of Marx’s economic theory. By disclosing in his doctrine of surplus-value the essence of capitalist exploitation, Marx dealt a mortal blow to bourgeois political economy and its talk about the harmony of interests under capitalism, and gave the working class a spiritual weapon for overthrowing capitalism.

[1] Marx, Capital, Kerr edition, Vol. I, p. 189.

[2] Marx, Capital, Kerr edition, Vol. I, p. 678.