On Karl Marx

Karl Marx in a Nutshell
By Todd Vachon

Being a self-identified socialist, it would be remiss to not say a few words on Karl Marx. However, the first thing that should be noted is that Marx never wrote a single book or even an essay on the subject of socialism. This will probably come as a surprise to most readers (maybe even the folks who already consider themselves socialists). Marx wrote extensively about capitalism and class relations, but not at all in any detail about a future society that could replace it.

A Quickie Biography
Marx was born in a “middle-class” German Jewish family in 1818. He was among a privileged minority who attended a university, and he earned the 19th century equivalent of a PhD in Greek Philosophy. He grew up during a politically turbulent time in Europe and became involved in movements for what the French Revolution had promised, but not delivered; namely “Freedom, Equality and Fraternity.”

During his lifetime, Marx experienced the growth of and eventual saturation of society with capitalism and commodity exchange. And like so many others of this period, he had a sneaky feeling that this particular economic order would never deliver freedom, equality or fraternity to the people. His beliefs and writings, being contrary to those of the powers of the day (and still now), saw him exiled from his homeland of Germany at a young age, and by way of France and Belgium to spend the majority of his adult life living in London (reading and writing much of his works in English, including a stint as a branch reporter for a New York newspaper). It was in England that he began his lifelong study of what used to be called “Political Economy” and formulated his critical analysis of the capitalist mode of production.

Marxian Economics, A Crash Course
What I'd like to do here is give a quick summary of what makes Marxist economics different from “regular” economics, or to use a technical term, Neo-Classical Economics (aka the free-market stuff you learn in American schools and colleges). The reason we have to pause to do this is because most Americans don’t have a clue about Marxist thinking; it is not taught in America. In fact it’s pretty much demonized and feared here, while every other western nation has Marxist economics professors alongside the standard capitalist ones.

So, with that in mind I'm going to (probably unsuccessfully) ask you to build a space shuttle by giving you the plans for a paper airplane. Ready? Okay.

Surplus
Marx cited that all “civilized” societies require what he called a “surplus” of production by workers. For example, if a modern “democratic” country wants to have a public education system, or a fire department, or police department, or congress or some transportation apparatuses, etc… it requires there to be a set of equipment and people who work in these areas and thus cannot provide their own means of survival. This requires those who do produce the means of survival to produce in excess of their own needs in order to sustain the “non-productive” sectors. This surplus is possible by way of a simple division of labor, dating back to the birth of human civilization and not tied to any particular economic system. This is nothing new.

What Marx noted, however, was that the means by which surplus is extracted and distributed, by whom and to whom, can vary from society to society. The example above suggests some kind of democratically determined taxation process. Slavery is a different kind of system that has been used in human history, where everything the slave produced was considered to be surplus and taken by the masters. Some ancient societies used a basic barter system in which independent producers made an excess of specialized items and met with other independent producers who made an excess of different items and they exchanged with each other for the things that they each needed to live. In feudal Europe, the system just before capitalism, peasants produced surplus food, clothing, and other goods for the lords in exchange for a piece of land on which they could subsist. Ancient forms of capitalism, known as “Merchant’s Capital” and “Usury Capital” extracted surplus by either buying cheap and selling dear or lending with interest, respectively.

When “Industrial Capitalism” arrived on the scene in the 17th and 18th century it brought a new and concealed means of coercively extracting surplus from otherwise unwilling people; the transformation of human labor-power itself into a commodity. (more on that in a minute)

Class Relations
The oftentimes violent transition from feudalism to capitalism created a new kind of class division and new struggles over surplus. With the closing of the commons and creation of private property relations, the peasant serfs were freed* from the land they had subsisted on and forced into the cities to find apartments and jobs in order to survive. The wealthier mercantilists and artisans who owned workshops and had access to resources became employers of “wage workers”, a brand new concept.

The people needed jobs in order to survive and the industrialists needed workers in order to expand their wealth. Thus the class relationship between worker and employer was born.

*footnote*The worker had to be a “free” individual in order for this new system to work. Marx defined free in two parts: 1. free to sell his or her labor power to whomever for whatever rate, under whatever conditions and for whatever duration of time, and 2. free from any control or ownership of the means of production (because they would then no longer be workers, but perhaps capitalists).

Wages
What was it that determined the wage for the workers in this new system? Well, the budding capitalists began by calculating what it would take for the worker to survive, have enough energy to return to work each day and be productive. This became known as the “standard of living” in modern terms and it included some kind of shelter, minimum period of rest, nourishment and clothing.

The standard of living has increased and decreased throughout time and in different localities due to what Marx described as the moving force of history, class struggle. Through collective action both on the job and legislatively, workers and capitalists have been struggling back and forth, and still continue to struggle over who gets to keep how much of what the workers produce in the capitalist’s shops.

Value
Karl Marx believed that the value of any commodity in a capitalist system was derived from the amount of social labor encapsulated within it, but the notion of value being determined by labor was nothing new (Adam Smith, David Ricardo, Hobbes, and countless supporters of capitalism had already determined that). What Marx did differently was to separate labor into two categories which he called concrete and abstract labor. Concrete being the actual activity performed in the production of a commodity and abstract being the social character of labor, a.k.a. how much of society’s total labor power was expended in producing the commodity. The later is what determines the value of a commodity.

It should be noted that a commodity’s “value” is not to be confused with it’s “use value.” For example, I might have an old sock that is to me useless, but you might have a bottle filled with gas that needs a wick….. Hence the sock has a use value to you, but not me. If you were to open a factory producing Molotov cocktails to sell to other disgruntled people, these incendiaries would then hold a value determined by the amount of social labor that went into making them.

Exchange
In order for any two commodities to be exchanged in a market they must be equivalents. For example, one six pack of cheap beer is the equivalent of one organic dark chocolate bar. That is, the amount of socially necessary labor used in producing each of these two items is equal (do not be deterred by those who invoke the cost of raw materials, because clearly the value of raw materials is also determined by the labor expended in finding and extracting them).

Now, in most cases the value of a commodity may be different from what is called it’s “exchange value.” This means that a commodity may or may not receive it’s equal amount of value at the time of exchange. In a perfectly balanced (equilibrium) economy the exchange value would always be the same as the actual value, but in the real capitalist world there are countless variables* that cause the fluctuation of exchange values, ie; overproduction, shortage of resources, innovations in productive methods, wars, lack of long-term planning, etc…

*footnote*We should note that issues of supply and demand are often cited by capitalist economists as determining the prices of commodities, but in the instance when supply and demand are equal they no longer help to identify the exchange value of commodities. Hence, these factors can alter exchange values up and down, but the “true” exchange value itself is determined by the amount of social labor encased in each commodity.

Surplus Value
We know that a surplus is needed in all societies. We know that it’s produced by one segment of the population in order to support another. We also know that the value of goods produced in a capitalist society is determined by the socially necessary labor time used to produce them. The new concept that arose with industrial capitalism and the wage system is called surplus value, which includes profit. What is it? Where does it come from? And how does it relate to surplus, class relations, wages and value?

Simply stated, surplus value is newly created value and is what causes economic growth to occur. This is the key and central element to a capitalist system; without surplus value, and hence profit, there would be no capitalism. In order to better grasp the concept we should start by examining what is known as a simple commodity circuit and then compare it to a capitalist’s “accumulation” circuit.

The simple commodity circuit goes like this: C-M-C, a Commodity (C) is exchanged for an amount of Money (M) which is then used to buy a different Commodity (C). This is how we all survive in an economy based upon a division of labor. We exchange commodities we produce for things others produce by way of a monetary system in order to each gain all of the things we need to live.

For the capitalist, the circuit is inverted and some how magically creates a surplus: M-C-M׳ , an amount of Money(M) is used to purchase Commodities(C) to be sold for a larger portion of Money(M׳).

For merchant capitalists this can be done by buying, say, an old Firebird for $500 and then flipping it for $700 to someone who really wants to soup it up. For industrial capitalists it can be done by forwarding $100,000 to purchase a few acres of forest, a saw mill and the labor of 3 men to cut trees and then make them into 2’x4’s to sell to the Home Depot for $110,000.

The difference between the outcomes of these two examples is that the merchant creates a surplus for himself when he screws the buyer, but he does not “grow” the economy. He only shifts $200 from some poor chump’s pocket into his own. This sort of activity can and does go on all the time, but it does not create surplus value. It merely redistributes the same total amount of money around among different people based on their cunningness or naivety.

The second example demonstrates how real surplus value is created. This surplus value creation, also known as capital accumulation, is what dictates the “rate of economic growth” in a capitalistic system. As we have all experienced recently, capitalism must either grow or die. Any slight stunting of growth causes a recession (and it happens all the time in cycles of 10-15 yrs). If growth were to stop all together the whole economy would collapse. So…. How exactly did our lumberjack capitalist magically create new value? Where did the surplus come from?

Exploitation
To understand how the saw mill capitalist can actually create surplus value while the Firebird speculator merely swindles some poor bastard who loves old Pontiacs we must ask: “what was different between these two examples?” If you said that the second involved productive labor you get a cookie! (just send a self addressed stamped envelope with your preference for chocolate chip or sugar, and be sure to use a “forever” stamp because I'm not very good at baking…).

As you will recall, the value of a commodity is determined by the labor that is put into it. So our saw mill capitalist invests in the raw materials and equipment and then hires workers to use their labor power and put value into the product by transforming it into a commodity for the market.

The rate of profit is determined by subtracting the cost of the materials, equipment and labor from the final value that he realizes upon sale of his 2’x4’s ($110,000-$100,000=$10,000 profit). The raw materials, machinery and labor power are all commodities that the capitalist can find on the market and purchase, but only the labor power has the unique characteristic of inserting value into a product. If he purchased the land and the saws, but hired no-one to cut the trees and process the timber he would never realize any profit.

Marx used the term exploitation to describe this relationship between capitalists and workers. Here is why. The less the capitalist can pay the workers to process the wood the greater his profit will be, period. If he paid the workers in full for the value that they inserted into the commodity by their labor activity, there would be zero profit for him.

Summary
By creating conditions in which a large class of people are coerced into either selling their labor power as a commodity or starving to death, the capitalists found a way to make the source of value itself into a commodity that can be bought and sold on the market. And, like all other commodities it’s exchange value can be altered by countless variables, including supply and demand. For example, more unemployed workers means that the supply of labor is greater than the demand for it and hence wages drop. Profit is determined by calculating the difference between the value created in the labor process and the price (wages) paid for that labor.

Thus, the surplus in a capitalist society is created by labor and is owned and controlled by capitalists.*


And now……back to our regularly scheduled program.


*footnote*There are countless books and volumes about the countless books and volumes that Marx wrote. This is clearly not one of them. But, if you are interested in learning more you can check out my recommendations in the links on the side of this page.