March 9, 2012

WHERE DO the bosses' profits come from? That's the question that Karl Marx takes up in the first several chapters of his three-volume work Capital.

He starts with an example of what he calls "simple commodity production"--in which artisans come to the marketplace to exchange their wares. The weavers bring their cloth; the shoemakers their shoes; the bakers their bread.

Though they possess different qualities, these goods can be exchanged on the basis of how much labor time it took to produce them. The weavers sell their cloth for a certain amount of money and then use that money to buy shoes.

In this scenario, the purpose of money is to facilitate the exchange of products with different " use values," to use Marx's term. Marx used the formula C-M-C--standing for commodity-money-commodity--to describe this system where goods are sold in order to buy other goods.

Most of us still follow the same economic process in our daily lives. We sell our ability to work--which is really only a particular commodity--in exchange for money, and we use that money to pay rent, buy food, make car payments and feed our pets.

Columnist: Paul D’Amato Paul D'Amato is managing editor of the International Socialist Review and author of The Meaning of Marxism, a lively and accessible introduction to the ideas of Karl Marx and the tradition he founded. Paul can be contacted at [email protected].

But as Marx points out, the rulers of the capitalist system operate differently. Rather than selling in order to buy, the bosses buy in order to sell--with the aim of having more money at the end than at the beginning.

For a capitalist, the process of production and exchange fits the formula of M-C-M--standing for money-commodity-money.

Of course, it would be silly for a capitalist to buy something and then sell it for the same price. The aim is to buy cheap and sell dear--in other words, to make a profit.

But if everyone selling commodities simply marked up the cost of their products to make a profit, they would have to pay the inflated prices of other sellers when they bought commodities.

In other words, the markups would cancel each other out. To use Marx's terms, no "surplus value" is added to commodities during the process of "circulation." Surplus value has to come from somewhere else--to the process of production.

HERE, WE'RE no longer talking about "simple commodity production" but developed capitalism. Individual producers have given way to a great division in society between the capitalists, who own the land, buildings, machinery and tools--called the "means of production"--and workers, who "own" only their ability to work.

In order to set their workplaces into motion, capitalists must bring together both means of production and labor. The means of production have to be bought from the other capitalists--and since markups only cancel each other out, the capitalists as a class can't extract surplus value from buying and using machines, tools, buildings and so on.

But when capitalists hire workers, they are buying the commodity "labor power," which costs only as much as it takes to "reproduce" workers--that is, to keep them alive and coming back to work every day.

So, for capitalists, the peculiar characteristics of labor power is that it produces more value than it costs to purchase. Put another way, workers produce enough to cover the cost of their wages in just a part of the working day. Value produced during the rest of the working day goes into the pocket of the capitalists.

Ultimately, the value of any commodity is made up of two parts--what Marx called "dead" labor, passed on by the machinery and raw materials used to make the product; and what Marx calls "living" labor, which is added by workers.

The capitalists pay for all the value added by "dead" labor--but only part of the value added by "living" labor. So the source of surplus value--and thus profits--is the unpaid labor of workers.

Capitalism is organized to produce surplus value for the bosses. Capitalists don't really care whether they're producing shoes or socks or green beans or golf balls--as long as they end up with more money than when they started. And they can't do that without exploiting us.

This is the second of several articles taking up some of the basic ideas of Marxist economics. First published in the July 21, 2000, issue of Socialist Worker.