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intro to marxist economics
How is that here, in the richest country in the world, the public school system, the mass transit systems, the vast network of roads and bridges – the entire infrastructure of American society is being allowed to steadily deteriorate and even collapse?
Why is it that although a steadily increasing portion of workers’ wages go to city, state, and federal treasuries to pay for schools and other social services, the tax collectors demand more, claiming there aren’t enough tax dollars for these things in the treasuries?
Not only are “we” rich, but each year the economy continues to grow, producing more goods faster than the increase in population. Each year society has more productive capacity available out of which these basic systems can be maintained at their highest level of efficiency, not to mention, be improved.
But, this increasing wealth doesn’t get where it needs to go to maintain the basic infrastructure of society.
Moreover, for at least the last 20 years, the living standards of those who produce the wealth of this country – the working class – have steadily declined despite the increasing number of breadwinners in the average family.
An ever-larger proportion of the working class is being driven below the poverty level, with growing numbers of homeless people sleeping in the streets of the nation’s big cities.
Karl Marx was the first to come up with a fully consistent economic explanation of how the capitalist economic system works – and why it doesn’t work. While it’s beyond the scope of this newspaper article to attempt to present all of Marx’s economic theory there, we can point the reader in the right direction by providing a brief introduction of a few basic ideas.
Where Do Profits Come From?
All wealth is produced by workers. All commodities are exchanged according to their value; that is, the labor time necessary for their production.
Although wage workers are paid the value of their labor power, they are compelled to work longer than necessary for reproducing the value of their wages. Thus, a good portion of the workers’ labor – perhaps half, on average – is not paid for. The difference between the wages paid out and the surplus value produced by the worker is pocketed by the capitalist as profit.
But this “profit” is shared by the industrial capitalist with the whole class of capitalists, including bankers and landowners, and their servants – from cops, prisons guards and nightwatchmen, to mayors, senators, presidents, dictators and kings.
Thus, the surplus value produced by workers and taken from them without payment, is distributed as interest, rent, taxes, etc., with the balance being net profit to each industrial capitalist.
In other words, all those who do not work live in the pickings of this surplus value, which reaches them in one way or another. To find the answer to the above questions, however, we must look deeper.
The Declining Rate of Profit
There is a long term tendency, intrinsic to the system of capitalist production, for the rate of profit to decline. This means that even though absolute profits might steadily grow, the rate of profit on invested capital may simultaneously decline.
How does this seemingly illogical phenomenon occur? And how is it related to the absurdities of increasing wealth, increasing tax revenues, and the deteriorating infrastructure, declining living standards for the majority, and the insidious destruction of the quality of life for all humanity on this planet?
Marx showed in Capital – his major work explaining capitalist economy – that money invested in capitalist production is divided into two parts:
1.) What Marx called constant capital, is the money laid out for the purchase of machinery, buildings, raw materials, land, interest, etc. The value of this portion of invested capital used up in the process of production, is reproduced in the commodities created. But it adds no new value to the goods produced. Marx called it deal labor.
2.) The second portion of invested capital Marx called variable capital; that is, the part paid to workers as wages. The price of the workers’ living labor power is also reproduced in the goods manufactured; but the worker continues to work, creating new, or surplus value which is not paid for.
Marx calls this division of productive capital its organic composition.
The portion of the laborer’s time spent to reproduce the value of wages, Marx called necessary labor; and since he or she is made to work longer than what is necessary to replace wages, a surplus is also created. Marx called this portion of the labor time surplus labor, which is appropriated by the capitalist. This is how surplus value, or profit, is created and becomes the property of the capitalist.
Contrary to the popular myth, profit is not an addition to the value of commodities, it is a deduction. The capitalist, as a capitalist, adds nothing to the product of society. They only take.
In the course of competition among the capitalists and the normal development of technology, more and bigger machines are introduced – the simplest hand tools giving way to increasingly complex machinery, driven by water, steam, and electric power – which systematically increases the productivity of human labor.
Consequently, the proportion of capital laid out for dead labor (machinery, etc.) grows faster relative to living labor (wages). And since surplus value is created only by living labor, and even smaller proportion of total capital produces surplus value.
Or, to put it another way, since profit is calculated as a percentage of total capital invested – both constant capital and variable capital – the rate of profit tends to go down.
This, however, is a long-term tendency which is not expressed in strict accord with the changing organic composition of productive capital. This is because there are a variety of factors which counteract the tendency toward this evolution to a higher proportion of constant to variable capital.
For example, as productivity increases, there are cheaper machines and raw materials, reducing the value and price of constant capital; and cheaper food, clothing and other necessities reducing the value and price of labor power.
Most importantly, the rate of exploitation – intensity of labor, length of work day – is variable. And like the level of wages, the rate of exploitation is determined by the relation of forces in the class struggle.
These and other countervailing factors, as Marx called them, may slow down or postpone the decline in the rate of profit.
Destabilizes Capitalist Economy
What we see happening today is in great part dictated by the law of the falling rate of profit.
Especially in the United States, where the resources wasted on war production and the other costs of policing the world to make it safe for capitalist exploitation are highest, the pressure on profits has compelled the ruling class to accelerate its attacks on the wages on workers and the shifting of the tax burden from the rich to the poor.
The capitalists are also forced to chisel away at health, welfare and other tax-subsidized social benefits – in effect reducing, what some call, the social wage of the working class. Also being neglected are the necessary expenditures for maintaining the entire infrastructure.
But this is only the beginning. Despite the current recession, world capitalism remains stabilized. But the relentless pressure to sustain the rate of profit will accelerate the pauperization of the working class down toward an absolute state, as predicted by Marx a century and a half ago.
Sooner or later, there will be an explosion of resistance that will open the door anew to the socialist revolution. Now is the time to get prepared to learn how to fight for the victory of the world working class and humanity as a whole. Join us!
The article above was written by Nat Weinstein. If first appeared in the May 1991 issue of Socialist Action newspaper under the name “Why Do We Have Cutbacks in the World’s Richest Country?”
