Marx’s Economic Doctrine

“It is the ultimate aim of this work,” says Marx in the preface to Capital, “to lay bare the economic law of motion of modern society”, that is, of capitalist, bourgeois society. The study of the relations of production in a given, historically defined society, in their inception, development and decline: such is the content of Marx’s economic doctrine. In capitalist society the production of commodities predominates, and Marx’s analysis therefore begins with an analysis of the commodity.

A commodity is, in the first place, a thing that satisfies some human want; in the second place, it is a thing that can be exchanged for another thing. The utility of a thing makes it a use-value. Exchange-value (or simply value) is first of all a relation, a proportion, in which a certain number of use-values of one kind are exchanged for a certain number of use-values of another kind. Daily experience shows us that millions and thousands of millions of such exchanges are constantly equating all kinds of use-values, even the most diverse and incomparable, with one another. What, then, do these various things, which are constantly equated with one another in a definite system of social relations, have in common? What they have in common is that they are products of labour. In exchanging products people equate the most diverse kinds of labour. The production of commodities is a system of social relations in which the individual producers create diverse products (the social division of labour), and in which all these products are equated with one another in exchange. Consequently, what is common to all commodities is not the concrete labour of a definite branch of production, not labour of one particular kind, but abstract human labour, human labour in general. All the labour-power of a given society, as represented in the sum total of the values of all commodities, is one and the same human labour-power: thousands of millions of acts of exchange prove this. Consequently, each particular commodity represents only a certain share of the socially necessary labour-time. The magnitude of value is determined by the amount of socially necessary labour, or by the labour-time socially necessary for the production of a given commodity, of a given use-value. “Whenever, by an exchange, we equate as values our different products, by that very act, we also equate, as human labour, the different kinds of labour expended upon them. We are not aware of this, nevertheless we do it.” Value is a relation between two persons, as a certain old economist said; he should simply have added: a relation concealed beneath a material wrapping. Only from the standpoint of the system of social relations of production of one definite historical formation of society, relations that manifest themselves in the mass phenomenon of exchange repeated thousands of millions of times, can we understand what value is. “As values, all commodities are only definite masses of congealed labour-time.” After a detailed analysis of the twofold character of the labour embodied in commodities, Marx goes on to analyse the form of value and money. Here his main task is to study the origin of the money form of value, to study the historical process of the development of exchange, beginning with individual and casual acts of exchange (“the elementary, isolated or accidental form of value”, in which a given quantity of one commodity is exchanged for a given quantity of another), up to the general form of value, in which a number of different commodities are exchanged for one and the same particular commodity, and ending with the money form of value, in which gold becomes that particular commodity, the universal equivalent. As the highest product of the development of exchange and commodity production, money masks, conceals, the social character of all individual labour, the social tie between individual producers united by the market. Marx analyses the various functions of money in great detail; and it is essential to note here in particular (as generally in the opening chapters of Capital) that the abstract and seemingly at times purely deductive mode of exposition in fact reproduces a gigantic collection of factual material on the history of the development of exchange and commodity production. “If we consider money, its existence implies a definite stage in the exchange of commodities. The particular functions of money which it performs, either as the mere equivalent of commodities, or as means of circulation, or means of payment, as hoard or as universal money, point, according to the extent and relative preponderance of the one function or the other, to very different stages in the process of social production” (Capital, vol. I).

At a certain stage in the development of commodity production money becomes transformed into capital. The formula of commodity circulation was C (commodity) – M (money) – C (commodity), that is, the sale of one commodity for the purpose of buying another. The general formula of capital, on the contrary, is M – C – M, that is, purchase for the purpose of selling (at a profit). The increase in the original value of the money put into circulation Marx calls surplus value. The fact of this “growth” of money in capitalist circulation is common knowledge. Indeed, it is this “growth” that transforms money into capital, as a special, historically defined social relation of production. Surplus value cannot arise out of commodity circulation, for the latter knows only the exchange of equivalents; nor can it arise out of a mark-up on prices, for the mutual losses and gains of buyers and sellers would balance one another, whereas what we have here is precisely a mass, average, social phenomenon and not an individual one. To obtain surplus value, “the owner of money must find… in the market a commodity whose use-value possesses the peculiar property of being a source of value”, a commodity whose process of consumption is at the same time a process of the creation of value. And such a commodity exists. It is human labour-power. Its consumption is labour, and labour creates value. The owner of money buys labour-power at its value, which, like the value of every other commodity, is determined by the socially necessary labour-time requisite for its production (that is, the cost of maintaining the worker and his family). Having bought labour-power, the owner of money is entitled to consume it, that is, to make it work for a whole day, say twelve hours. Yet in the course of six hours (“necessary” labour-time) the labourer produces a product that pays for his maintenance, and in the course of the next six hours (“surplus” labour-time) he produces a “surplus” product, or surplus value, for which the capitalist does not pay. In capital, therefore, from the standpoint of the process of production, two parts must be distinguished: constant capital, spent on means of production (machinery, tools of labour, raw materials and so on), whose value is transferred without change (all at once or in parts) to the finished product; and variable capital, spent on labour-power. The value of this capital does not remain constant but grows in the process of labour, creating surplus value. Therefore, to express the degree of exploitation of labour-power by capital, surplus value must be compared not with the whole capital but only with the variable capital. Thus, in the example just given, the rate of surplus value, as Marx calls this ratio, will be 6:6, that is, 100 per cent.

The historical prerequisites for the rise of capital are, first, the accumulation of a certain sum of money in the hands of individuals, at a relatively high level of development of commodity production in general, and, secondly, the existence of a labourer who is “free” in a twofold sense, free of all constraints or restrictions on the sale of his labour-power, and free of the land and of the means of production in general, a propertyless labourer, a “proletarian” labourer, who has nothing to live on but the sale of his labour-power.

There are two main methods of increasing surplus value: by lengthening the working day (“absolute surplus value”) and by shortening the necessary working day (“relative surplus value”). In analysing the first method, Marx gives a most impressive picture of the struggle of the working class for a shorter working day and of the intervention of the state authority, first to lengthen the working day (from the fourteenth to the seventeenth century) and then to shorten it (factory legislation of the nineteenth century). Since the appearance of Capital, the history of the working-class movement in all the civilised countries of the world has provided thousands and thousands of new facts illustrating this picture.

In analysing the production of relative surplus value, Marx investigates the three fundamental historical stages in which capitalism has increased the productivity of labour: (1) simple co-operation; (2) the division of labour and manufacture; (3) machinery and large-scale industry. How profoundly Marx has here revealed the basic and typical features of capitalist development is shown, incidentally, by the fact that investigations of the so-called “kustar” (handicraft) industry of Russia furnish a wealth of material illustrating the first two of these three stages. And the revolutionising effect of large-scale machine industry, described by Marx in 1867, has revealed itself in a number of “new” countries (Russia, Japan and others) in the course of the half-century that has elapsed since then.

To continue. Highly important and new is Marx’s analysis of the accumulation of capital, that is, the transformation of a part of surplus value into capital, its use not for satisfying the personal needs or whims of the capitalist but for new production. Marx revealed the error of all the earlier classical political economy (beginning with Adam Smith), which assumed that the entire surplus value transformed into capital goes to form variable capital. In actual fact it is divided into means of production plus variable capital. Of tremendous importance in the process of development of capitalism and its transformation into socialism is the more rapid growth of the share of constant capital (in the total capital) as compared with the share of variable capital.

By speeding up the displacement of workers by machinery and creating wealth at one pole and poverty at the other, the accumulation of capital also gives rise to what is called the “reserve army of labour”, to the “relative surplus” of workers, or “capitalist overpopulation”, which assumes the most diverse forms and enables capital to expand production extremely rapidly. This possibility, in conjunction with credit and the accumulation of capital in the means of production, furnishes, incidentally, the key to an understanding of the crises of overproduction that occur periodically in capitalist countries, at first every ten years on an average and later at longer and less definite intervals. From the accumulation of capital under capitalism we must distinguish what is known as primitive accumulation: the forcible separation of the worker from the means of production, the driving of the peasants off the land, the stealing of the communal lands, the system of colonies and national debts, protective tariffs, and the like. “Primitive accumulation” creates the “free” proletarian at one pole, and the owner of money, the capitalist, at the other.

The “historical tendency of capitalist accumulation” is described by Marx in the following celebrated words: “The expropriation of the immediate producers is accomplished with merciless vandalism, and under the stimulus of passions the most infamous, the most sordid, the pettiest, the most meanly odious. Self-earned private property” (of the peasant and the handicraftsman) “that is based, so to say, on the fusing together of the isolated, independent labouring individual with the conditions of his labour, is supplanted by capitalist private property, which rests on the exploitation of the nominally free labour of others… That which is now to be expropriated is no longer the labourer working for himself, but the capitalist exploiting many labourers. This expropriation is accomplished by the action of the immanent laws of capitalistic production itself, by the centralisation of capital. One capitalist always kills many. Hand in hand with this centralisation, or this expropriation of many capitalists by few, develop, on an ever-extending scale, the co-operative form of the labour process, the conscious technical application of science, the methodical cultivation of the soil, the transformation of the instruments of labour into instruments of labour only usable in common, the economising of all means of production by their use as the means of production of combined, socialised labour, the entanglement of all peoples in the net of the world market, and with this, the international character of the capitalistic regime. Along with the constantly diminishing number of the magnates of capital, who usurp and monopolise all advantages of this process of transformation, grows the mass of misery, oppression, slavery, degradation, exploitation; but with this too grows the revolt of the working class, a class always increasing in numbers, and disciplined, united, organised by the very mechanism of the process of capitalist production itself. The monopoly of capital becomes a fetter upon the mode of production, which has sprung up and flourished along with, and under it. Centralisation of the means of production and socialisation of labour at last reach a point where they become incompatible with their capitalist integument. This integument is burst asunder. The knell of capitalist private property sounds. The expropriators are expropriated” (Capital, vol. I).

Also highly important and new is Marx’s analysis, in the second volume of Capital, of the reproduction of the aggregate social capital. Here too Marx deals not with an individual phenomenon but with a mass phenomenon, not with a fractional part of the economy of society but with that economy as a whole. Correcting the error of the classical economists mentioned above, Marx divides the entire social production into two big departments: (I) production of the means of production, and (II) production of articles of consumption, and examines in detail, with numerical examples, the circulation of the aggregate social capital, both in reproduction on the former scale and in accumulation. The third volume of Capital solves the problem of how the average rate of profit is formed on the basis of the law of value. The great advance in economic science made by Marx consists in his having conducted his analysis from the standpoint of mass economic phenomena, of the social economy as a whole, and not from the standpoint of individual cases or of the external, superficial aspects of competition, to which vulgar political economy, or the modern “theory of marginal utility”, often confines itself. Marx first analyses the origin of surplus value and then goes on to consider its division into profit, interest and ground rent. Profit is the ratio of surplus value to the total capital invested in an undertaking. Capital of “high organic composition” (that is, with a preponderance of constant capital over variable capital exceeding the social average) yields a rate of profit below the average; capital of “low organic composition” yields one above the average. Competition among capitals, and their freedom to move from one branch to another, will in both cases reduce the rate of profit to the average. The sum total of the values of all the commodities of a given society coincides with the sum total of the prices of the commodities; but in separate undertakings and branches of production, as a result of competition, commodities are sold not at their values but at their prices of production, which are equal to the capital expended plus the average profit.

In this way the well-known and indisputable fact of the divergence between prices and values and of the equalisation of profits is fully explained by Marx on the basis of the law of value, since the sum total of the values of all commodities coincides with the sum total of their prices. However, the reduction of (social) value to (individual) prices does not take place simply and directly, but in a very complex way: it is quite natural that in a society of separate producers of commodities, linked only by the market, a law can manifest itself only as an average, social, mass law, when individual deviations to one side or the other mutually cancel one another out.

An increase in the productivity of labour implies a more rapid growth of constant capital as compared with variable capital. And since surplus value is a function of variable capital alone, it is obvious that the rate of profit (the ratio of surplus value to the whole capital, and not to its variable part alone) has a tendency to fall. Marx makes a detailed analysis of this tendency and of a number of circumstances that conceal or counteract it. Without dwelling on the extremely interesting sections of the third volume that deal with usurer’s capital, commercial capital and money capital, we shall pass to the most important: the theory of ground rent. Owing to the limited area of land, which in capitalist countries is all occupied by individual owners, the price of production of agricultural produce is determined by the cost of production not on soil of average quality but on the worst soil, and not under average conditions of delivery of produce to the market but under the worst conditions. The difference between this price and the price of production on better soil (or under better conditions) constitutes differential rent. Analysing this in detail, and showing how it arises from differences in the fertility of different plots of land and in the amount of capital invested in land, Marx fully exposed (see also Theories of Surplus Value, where his criticism of Rodbertus deserves particular attention) the error of Ricardo, who considered that differential rent is obtained only when there is a successive transition from better land to worse. On the contrary, there are also inverse transitions; one category of land may be transformed into others (thanks to advances in agricultural technique, the growth of towns and so on); and the notorious “law of diminishing returns”, which charges nature with the defects, limitations and contradictions of capitalism, is a profound error. Further, the equalisation of profit in all branches of industry and of the national economy in general presupposes complete freedom of competition, the free flow of capital from one branch to another. But the private ownership of land creates a monopoly, which hinders this free flow. Because of this monopoly, the products of agriculture, where a lower composition of capital and consequently an individually higher rate of profit prevail, do not enter into an entirely free process of the equalisation of the rate of profit; the landowner, as a monopolist, is able to keep the price above the average, and this monopoly price gives rise to absolute rent. Differential rent cannot be abolished so long as capitalism exists; absolute rent can be, for instance by the nationalisation of the land, by making it the property of the state. Such a transfer would undermine the monopoly of private landowners and would mean a more consistent and fuller application of freedom of competition in agriculture. That is why, Marx points out, radical bourgeois have again and again in history put forward this progressive bourgeois demand for the nationalisation of the land, which, however, frightens away the majority of the bourgeoisie, because it touches too closely upon another monopoly, one that is especially important and “sensitive” in our day: the monopoly of the means of production in general. (Marx himself set out his theory of the average rate of profit on capital and of absolute ground rent in a remarkably popular, concise and clear form in his letter to Engels of 2 August 1862; see the Correspondence, vol. III, pp. 77–81. See also the letter of 9 August 1862, ibid., pp. 86–87.) For the history of ground rent it is also important to note Marx’s analysis showing how labour rent (in which the peasant creates a surplus product by his labour on the lord’s land) is transformed into rent in produce, or rent in kind (in which the peasant creates a surplus product on his own land and hands it over to the lord by virtue of “extra-economic compulsion”), then into money rent (the same rent in kind, converted into money, the obrok of old Russia, as a result of the development of commodity production), and finally into capitalist rent, when the place of the peasant is taken by the agricultural entrepreneur, who cultivates the soil with the help of wage labour. In connection with this analysis of the “genesis of capitalist ground rent”, note should be taken of a number of profound ideas of Marx’s (especially important for backward countries like Russia) on the evolution of capitalism in agriculture. “The transformation of rent in kind into money rent is not only inevitably accompanied, but even anticipated, by the formation of a class of propertyless day labourers, who hire themselves out for money. During their genesis, when this new class appears but sporadically, the custom necessarily develops among the more prosperous peasants subject to rent payments of exploiting agricultural wage labourers for their own account, much as in feudal times, when the more well-to-do peasant serfs themselves also held serfs. In this way they gradually acquire the possibility of accumulating a certain amount of wealth and themselves becoming transformed into future capitalists. The old self-employed possessors of the land themselves thus give rise to a nursery for capitalist tenants, whose development is conditioned by the general development of capitalist production outside the countryside” (Capital, vol. III, part 2, p. 332)… “The expropriation and eviction of a part of the agricultural population not only set free for industrial capital the labourers, their means of subsistence, and the material for labour; it also created the home market” (Capital, vol. I, 2nd ed., p. 778). The impoverishment and ruin of the agricultural population in its turn plays a part in the formation of a reserve army of labour for capital. In every capitalist country “part of the agricultural population is therefore constantly on the point of passing over into an urban or manufacturing” (that is, non-agricultural) “proletariat. This source of relative surplus population is thus constantly flowing… The agricultural labourer is therefore reduced to the minimum of wages, and always stands with one foot already in the swamp of pauperism” (Capital, vol. I, 2nd ed., p. 668). The peasant’s private ownership of the land he tills is the basis of small-scale production and the condition of its prosperity and of its attainment of the classical form. But such small-scale production is compatible only with narrow and primitive bounds of production and society. Under capitalism “the exploitation of the peasants differs only in form from the exploitation of the industrial proletariat. The exploiter is the same: capital. The individual capitalists exploit the individual peasants through mortgages and usury; the capitalist class exploits the peasant class through state taxation” (The Class Struggles in France). “The peasant’s smallholding” (his small plot of land) “is now only the pretext that allows the capitalist to draw profit, interest and rent from the soil, while leaving it to the tiller of the soil himself to see how he can extract his wages” (The Eighteenth Brumaire). As a rule the peasant even hands over to capitalist society, that is, to the capitalist class, a part of his wages, sinking “to the level of the Irish tenant farmer, all under the pretence of being a private proprietor” (The Class Struggles in France). What is “one of the reasons why the price of grain is lower in countries with a predominance of small peasant land ownership than in countries with a capitalist mode of production” (Capital, vol. III, part 2, p. 340)? It is that the peasant hands over gratis to society (that is, to the capitalist class) a part of his surplus product. “This lower price” (of grain and other agricultural produce) “is consequently a result of the poverty of the producers and by no means of the productivity of their labour” (Capital, vol. III, part 2, p. 340). Small landed property, the normal form of small-scale production, deteriorates, is destroyed and perishes under capitalism. “Small landed property by its very nature excludes the development of the social productive forces of labour, social forms of labour, the social concentration of capital, large-scale cattle-raising, and the progressive application of science. Usury and a system of taxation must impoverish it everywhere. The expenditure of capital on the price of the land withdraws this capital from cultivation. An infinite fragmentation of means of production, and isolation of the producers themselves.” (Co-operatives, that is, associations of small peasants, while playing an extremely progressive bourgeois role, only weaken this tendency without eliminating it; nor must it be forgotten that these co-operatives do much for the well-to-do peasants and very little, next to nothing, for the mass of the poor peasants, and that the associations themselves become exploiters of wage labour.) “An enormous waste of human energy. A progressive deterioration of the conditions of production and an increase in the price of the means of production is a law of small landed property.” In agriculture, as in industry, capitalism transforms the process of production only at the price of the “martyrdom of the producers”. “The dispersion of the rural labourers over larger areas breaks their power of resistance, while concentration increases that of the town operatives. In modern agriculture, as in the urban industries, the increased productiveness and quantity of the labour set in motion are bought at the cost of laying waste and consuming by disease labour-power itself. Moreover, all progress in capitalistic agriculture is a progress in the art, not only of robbing the labourer, but of robbing the soil… Capitalist production, therefore, develops technology, and the combining together of various processes into a social whole, only by sapping the original sources of all wealth: the soil and the labourer” (Capital, vol. I, end of chapter 13).