William J. Blake: An American Looks at Karl Marx
We now come to the practical question of capitalist production. Up to the present Marx has given us the anatomy of surplus-value. But we have no idea of how much surplus-value capital can obtain. Can it make labor work gratis for two hours? Four hours? Or very intensely? Are there laws that govern these fluctuations? For, even if we know the cause of surplus-value, but not its quantity nor its changes, we know little that will assist us in getting to Marx’s goal, to depict the laws of motion of the capitalist system.
Marx uses three symbols, for convenience in restatement:
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C—constant capital V—variable capital S—surplus capital |
Let a capital be composed of $5,000 ($4,100 C, $900 V), and let the capital be increased by $900 S. The capital after the process of production is of course V plus C plus S, or $5,900.
But of course, the figure of $4,100 for constant capital is itself composed of several constituents. Let us say $3,130 for raw materials, $430 for auxiliary materials, and $540 for wear and tear of machinery and depreciation of the plant. The total constant capital, composed of these ingredients, is $4,100.
Of course, the new value added is $900 V and $900 S, or $1,800. The value of the product that is added to the constant capital is $1,800. The magnitude of C is therefore of no consequence whatever to the process of creating new value, since it remains constant irrespective of the products added by labor.
This is not seen because the increase of capital from $5,000 to $5,900 seems to be an augmentation of constant capital as well as variable. Also the variable capital of $900 appears to be a fixed figure like constant capital, but its place is taken in the production process by living capital, which thus makes it function as a variable. Thus V reproduces itself plus its increment, S.
The Position of Constant Capital
Here an objection must be raised. If the constant capital has no influence on the magnitude of surplus-value, can this be carried to an absurdity? For example, is the constant capital of a million dollars invested in an enterprise less likely or more likely to employ a thousand workers than a thousand dollars? But this is not Marx’s distinction. He means that given a constant capital it will have no relation to the surplus-value, since that surplus-value can only be realized by labor, which to begin with produces all value, surplus included. It is not a question of the mass of surplus-value, since clearly a man employing ten workers in a small plant will not have as much occasion to employ workers as the General Motors Company. But the mass of surplus-value is one thing, the rate is another. The capital of General Motors, therefore (the constant capital, that is), has no relation to the rate of surplus-value in its operations, since this rate is a function of its variable capital and of that alone.
Constant capital is the condition of the use of variable capital.1 It supplies it with use-values for the labor-process. But it is not the source of the increase in value, for that, as we have seen, is produced only by labor, that is, variable capital. Constant capital was excluded previously by the enigma of surplus-value. It could not augment its quantity of value and capital was thus forced to consume a use-value, labor, with the unique property of producing a value greater than itself.
Rate of Surplus-Value to Variable Capital Only
That is not to say that the ratio of surplus-value to the entire capital advanced is not a source of great interest to the economist. That ratio is the rate of profit, but what we must first examine is how there is a source of profit to begin with, and that can come only from surplus-value. Certainly it is out of surplus-value that the capitalist is enabled to expand his enterprise and so add to constant capital, but there constant capital is a consequence of surplus-value and not a cause.
Since the constant capital is equated to zero, we have narrowed our equation to V plus S. The new value produced was $900 and $900 S, or $1,800 (V plus S). The ratio of surplus-value to variable capital is $900 to $900, or 1 to 1, or 100 per cent. That is the rate of surplus-value:
The rate of surplus-value is the ratio of surplus-value to variable capital only.
Profit Different from Surplus-Value
This is distinct from the rate of profit. The surplus-value rate is 100 per cent but the ratio of surplus-value to total capital invested (rate of profit) is $900 on $5,000, or merely 18 per cent. There are significant consequences of these differences in ratios for, as we shall see later, the increase in constant capital leads to a terrific decline in the rate of profit, or, to put it much more carefully, a tendential fall in the rate of profit.
But this has nothing to do with the rate of surplus-value. If a firm has a constant capital of a million in factories and materials and pays out $500,000 in wages the C is twice that of the V. Let it increase its C to $2,000,000 and by reason of installing this expensive machinery cut its wages bill to $400,000. The profit before was $200,000, which is 40 per cent of the variable capital of $500,000 but only 13⅓ per cent on the total capital of $1,500,000. But on the new capital, the profits rise $300,000. The surplus-value is $300,000, therefore on the new wages bill of $400,000 the rate of surplus-value has risen from 40 to 75 per cent. But the profit of $300,000 on the new total capital of $2,400,000 is just 12½ per cent or a rate a trifle less.
Mass of Profits May Be the Contrary of the Surplus-Value Rate
The capitalist added to constant capital so as to raise his mass of profits, to “make more money,” by increasing the rate of surplus-value, even though he lowered the rate of profit. And since the mass of profit can be increased, in any circumstance, only by an increased exploitation, that is, by an increase in the ratio of surplus value obtained to wages paid, the lower rate of profit can be tolerated, for the firm is, in absolute amount, making more money. The fierce competition for increasing the rate of surplus-value may therefore easily carry as its corollary so high an investment in constant capital as to threaten the rate of profit and give it a tendency to fall. Why this tendency is counteracted and how it is resisted will be a later subject of discussion.
The intensity of exploitation of labor is determined by the rate of surplus-value and not by the rate of profit.
This discussion of the rate of surplus-value to variable capital leads to a concrete determination of what is the socially necessary labor-time required by the laborer for his reproduction of labor-power so that one factor in the ratio can be determined exactly. Until now the labor-time required for labor itself has been treated only approximately. How do we ascertain how many hours he works to reproduce his labor-power and how many for the capitalist? These are the number of hours he would require for himself, if he were not employed but were self-employed. When the expression “necessary labor-time” is used hereafter it will refer to time required by labor-power for its reproduction and no longer be applied to the time labor embodies in commodities. This is a derived meaning, but it makes exposition easier.
Surplus-Value Rate the Exploitation Rate
The exploitation of labor by capital, that is, the determination of a certain number of hours for the worker and the rest gratis for capital, is a mere taking-over of more primitive modes of exploitation. The reason that capital found it easy to obtain surplus-value was that the propertyless serf was at hand, he who had worked all day in the fields and at the end of it been given poor fare and a damp hut, while the bailiff of the lord took over the rest.
The reason why the rate of surplus-value is the rate of exploitation is that it measures the ratio of hours worked for pay and hours worked for nothing. For the worker, if he works 6 for himself and 2 for the employer, the rate of surplus-value is 2 to 6, or 33⅓ per cent. If it is 4 and 4, it is 100 per cent. The rate of profit does not concern him.
So that, in the first example, the $1,800 that was produced, of which $900 was paid in wages—that is, acted as variable capital—was equal to the $900 surplus-value, or an even ratio, which meant that four hours were given to the employer and four to the worker (assuming an eight-hour day).
The surplus-value produced by labor is, as we shall see, divided among the capitalists in the shape of merchant profits, landlord’s remuneration, usurer’s or banker’s pay. This too is a serious consideration for the employer, but again is largely immaterial to the worker. For him there is only one question: How many hours of his labor make up his present for all of them to divide?
The difference between the rate of surplus-value (the concern of the worker), and the rate of profit (the concern of the capitalist), is the real source of the discrepant statistics bandied by experts.
NOTE: All the figures used here are oversimplified. To begin with, they equate price and value. In the section devoted to the rate of profit, these clear theoretical illustrations will be made to conform to complex reality.
Before proceeding to a study of what is a necessary working day, it is best to go over the remaining questions or difficulties of the theories of surplus-value, since this is the core of Marxist economic theory.
The quantity added by labor to value is what it is, irrespective of constant capital. If the capital be a thousand or a million, the amount added by each worker is so much. It is four hours per man, say, for the surplus-value. That rules for a sweatshop or for General Motors.
Per laborer employed, then, the rate of surplus-value is indifferent to constant capital.
Is Profit Made in the Last Hour?
But as to the question of how many hours the laborer should work at all, the issue is at the heart of applied political economy. The capitalists of England used to argue that since the rate of profit (not of surplus-value) was 10 per cent, say, and the worker was employed for ten hours, the profit was in the last hour and a nine-hour day would end profit.
One might ask, as an absurdity if, during bad business, the rate of profit fell below 4 per cent, the worker should acquire an ectoplasm, double, or wraith, to work alongside him in the flesh, since one man can work no more than twenty-four hours a day, and since the profit is in the last 4 per cent, a reduction to a twenty-four hour day would spell ruin to the employer. Nor could this absurdity be reversed, for the worker has a minimum, he must reproduce his own labor.
NOTE: A good method for bringing the entire issue of the working day to a head is the method of proportioning production time.
We will take 100 yards of cotton yarn. They are worth $10. The cotton used in spinning this yarn was worth $7. The depreciation of the factory, wear and tear of the machinery, etc., is, say, $1 for this amount of production (that is, equated to it in proportion). The variable capital is $1, that is, the amount paid out in wages, and the surplus-value is $1. The rate of surplus-value is 100 per cent, S over V. Now the first $8 represented what Marx called the preservation of value which is the extension of use-value or, more correctly, the transfer of one use-value into another. That is, the $8 represents conservation of constant capital. It does not represent any increase in value. That comes from the $2.
If the proportions are expressed as yards of yarn, then the profit is represented by the production of 10 yards, and the wages and profits together by 20 yards. The constant capital is preserved in 80 yards.
The capitalist argues: You see, here was a 10-hour day. The surplus-value is 10 yards produced in the last hour, or in only one hour, for that is the proportion of time it takes to make my profit to the total production of yarn. A 9-hour day and I am out of business. Such a demand from trades unions is destructive.
Labor replies: You are confusing value and use-value. That proportion of time, 8 hours to reproduce 80 yards, transferred use-value but had nothing to do with value. Your profits come out of new value, and that alone is the issue. We produced that in 10 hours, 5 of which were given to you. Can you ask us to be charged as spinners for the production of factory and machinery, in which labor is already embodied? We transfer that constant capital into cotton yarn, but that transfer takes place all the time that we are creating new value in addition!
The last 20 yards of cotton were created in the last 2 hours, proportionately. But it is their use-value that has been created, and ⅕ of their value, that is, the proportion of the variable capital and surplus value to the constant, is their new value as well. But if we create surplus-value in 1 hour, then in 10 hours we ought to create a value equal to 100 hours a day. Let us reduce the day to 9 hours and see what happens to the actual calculation.
Marx points out that this bookkeeping method of calculation of the employers is entirely legitimate, for their purposes. But does the spinner of yarn actually produce the raw cotton, spindles, machinery, factory, over and over again as well as spin the cotton into yarn?
We assume that in a 9-hour day labor would produce a tenth less than in a 10-hour day, although experience is not so pessimistic, for reasons to be found in the study of relative surplus-value later on. But granted the diminution, what happens?
Ninety yards are spun in 9 hours in place of 100 in 10. The product is worth $9.00. The cost of the raw cotton is not $7.00 but 10 per cent less, $6.30. The wear and tear is not $1.00, but 90 cents. Total constant capital then is $6.30 + .90 = $7.20. On an hourly basis, wages are now 90 cents instead of $1.00, thus variable capital = 90 cents. Total capital involved, C - V = $8.10, price of yarn at 10 cents per yard, for 90 yards, $9.00. Surplus-value, 90 cents. Ratio of surplus-value to variable capital, unchanged, at 100 per cent. Mass of surplus-value reduced not by a wipe-out but merely from $1.00 to 90 cents. Assume that labor wins a great victory and that wages are unchanged but hours diminished. Then variable capital is $1.00, surplus-value down to 80 cents, or a mere 80 per cent in place of 100 per cent. Even the rate of profit, that is, rate of surplus-value to all capital, both constant and variable, is reduced to 80 cents on $8.10, or slightly under 10 per cent. What becomes of the contention that the profit is in the last hour? It is clear that the profit arises throughout the production process. The worker does not lose a moment of his day in replacing constant capital. The other way around: it is because the worker spins for 10 hours that the values of cotton and machinery are transformed into the yarn, and this is owing to the quality (use-value) of the labor and not its quantity. The figures above, when checked as to their implications, fortify this subtle and abstract reasoning.
1. Or we can use a figure of speech and say constant capital determines how much variable capital can be absorbed. It is a favorite image of Kautsky.