The foundations of capitalist society need close examination, so that we may see more clearly how this social system functions and in what direction it is moving.

In order to keep their great power, the capitalists and their defenders teach the idea that capital and capitalism have always existed. In this way, they seek to convey the idea that capitalist class society and capitalist exploitation will continue to exist forever. In other words, that it is a system of society that is natural and eternal, and there is no use anyone thinking of making fundamental changes in it or replacing it with any other social system.

This idea is completely false. It has been developed only to maintain the capitalist class in economic and political control.

Money or some other medium of exchange, and treasures of all kinds, have indeed been in the hands of the few, and poverty has been the lot of the many, almost since the beginning of history, or at least since society first divided into classes. Tools and instruments of production, of one kind or another, have also existed from time immemorial. But only with the rise of modern capitalism, which is only a few hundred years old, have money and the means of production been converted into what they never were before, namely, capital. More accurately, it is only under modern capitalism that capital becomes dominant, that it pervades and controls and actuates all economic life.

Under slavery and feudalism, the nobility and the landlords owned human chattels or the land and mercilessly exploited the slaves and serfs. But what these slaves and serfs produced beyond the needs of their own wretched existence, was consumed by their overlords. What did they produce? Food, clothing, castles and palaces, and other objects of personal use and consumption. Little or nothing was produced for exchange. There was accumulation of great personal fortunes, but no accumulation of commodities to speak of. The means of production were simple and primitive, like the hand-plow and the spinning wheel, and their primary purpose was to satisfy the needs of the ruling classes. In addition, there were numerous free producers who owned their own land or their own shops and tools. They were small independent producers.

Modern capitalism arose only with the development of machinery, with the great expansion of production which this made possible, with the expropriation of the independent producers, and the concentration of the means of production in the hands of a few. The means of production became capital when they became the private property of a capitalist minority and were employed for the exploitation of the modern wage-worker.

The peculiarity of capital, which distinguishes it from mere money and mere tools and mere raw materials and mere labor power, is this: All these become capital when they are used for the purpose of accumulating more capital. This is the difference between capitalism and all societies that went before it. The difference is so important that it cannot be over-emphasized.



How Capital Is Accumulated

The accumulation of capital falls into two historical divisions. If you examine them, you will see how preposterous are the claims of the capitalists that they acquired their power by hard work and laying aside savings. Capitalism came into this world by means of such plunder, rapine, devastation and expropriation as history had never before recorded. The newly-discovered lands of America, Africa and Asia were plundered by merchants, adventurers, trading companies and brutes of all kinds; their wealth and treasures were ruthlessly stolen; their defenseless peoples were mercilessly exploited, and often slaughtered wholesale. Other fortunes were made by the hideous trade in human flesh, as was notoriously the case with the African Negroes. Still other fortunes were built on the seizure of the lands of peasants by powerful noblemen and landlords, who simply expropriated these cultivators of the soil by force and without fear of legal punishment. And yet other fortunes were multiplied by plundering public lands and the public treasury, often by outright corruption and bribery of legislators.

The idea that the original fortunes on which modern capital is founded were accumulated by “hard work” and “thrift” is an impudent myth. The first historical period of the accumulation of capital is sordid, thievish and bloody from beginning to end. It is the period of the primitive accumulation of capital.

It was only on the basis of this accumulation that modern capitalism became possible. Capitalism is large-scale machine production for a vast market. To set up modern factories, with costly machinery that requires a steady flow of raw materials from all corners of the world and a large supply of labor – all this needed investments that the ordinary person, no matter how hard-working and thrifty, could hardly dream of acquiring. The possessors of great fortune could do it with ease.

Once capitalist production is under way, however, its continued existence demands continued accumulation of more and more capital, the continued expansion of capital. The accumulation of capital is made possible only by the fact the worker produces surplus-value out of which the capitalist derives his profit. In turn, a constant accumulation or expansion of capital is necessary if profit is to be maintained.

It is well to note here, before this key point is developed, that the drive to accumulate capital is peculiar to capitalist society. The fundamental purpose of this society is not the production of the necessities of life, but production for profit, production for the sake of accumulation, production for the sake of more production. Basically, this does not depend upon the wishes or desires of this or that capitalist. It is inherent in the system of capitalist production.

Capitalist production can no more take place without constantly accumulating capital by means of extorting profit, than the human being can live without constantly breathing. If it were possible for a human being, by sheer will power, to stop breathing for any length of time, the only result would be the collapse of his lungs and his own death. The collapse of any capitalist would follow his attempt – if he were so extraordinary as to make it! – to stop accumulating capital. By the same token, this applies to the capitalist class as a whole and to its method of production.

From this alone it should be evident that the basic problem of capitalist production has nothing to do with whether this capitalist is “good” and “generous,” and that capitalist “bad” and “miserly.” It is not at all the personal character of the capitalist that is involved – his character usually merely reflects his social position. It is not at all the individual capitalist who must be “changed” in order to change conditions. It is rather the mode of production that is involved. That is what must be studied, and that is what must be changed.

Let us take for our first example a modest and pious capitalist. He owes nothing, he argues, to the labor of others. All he has he acquired by his own labor or wit or good luck. By working like a slave for years, by stinting himself, by saving every penny; or by a legacy from a wealthy uncle; or by stumbling over a valuable gold nugget – he has managed to get hold of, say, $100,000. He got that wealth without employing labor, therefore, without exploiting anyone. So far, it seems, argument is on his side. It is not even necessary to challenge his argument, for thus far he is not yet a capitalist.

Suppose, however, that this man of wealth launches an enterprise in which he invests his hard-earned, self-earned, or luckily-found $100,000. We will even overlook how he got it in the first place. He has it, and he invests it in production.

On this sum of money, he makes a profit of ten per cent per year, or $10,000. We keep in mind here our theory of surplus-value, and we assume that the rate of surplus-value in this case is 100 per cent. That is, if the workers in his plant worked an average of four hours per day to produce the equivalent of their wages, they worked an additional four hours to produce the surplus-value. At the end of the year, the total capital would amount, thereafter, to $10,000 more than was originally invested, or to $110,000. The additional $10,000 is his profit.

The capitalist, however, is not too ambitious. He is not interested inaccumulation, that is, in expanding production. All he wants is his modest profit of $10,000, and all he wants to do is spend every penny of it on food, clothing, a home, an automobile, a little life insurance, and some other necessities of life and a few small comforts for himself and his family. In other words, he consumes his profit personally and does not re-invest it. He is content in the feeling that he deserves this income because of his enterprising nature, the risk he took in launching the business, the talent he displayed in organizing production and selling his commodities on the market at a reasonable profit. His piety is satisfied by the feeling that he exploited nobody, but instead gave a number of workers a good job and good wages in return for a fair year’s work.

If this is the basis on which he operates, he will naturally start the second year as he did the first, with a capital of $100,000, having himself consumed, as an income he considers his rightful own, the $10,000 profit he made.

But let us stop a moment. The $100,000 with which he starts the second year is not the same $100,000 with which he started the first year. Of the original $100,000, he used $90,000 for machinery, raw materials, etc., and $10,000 for wages. When he received $110,000 on the market for the goods produced by the end of the year, it divided up this way: $90,000 represented the value of the machinery, raw materials, etc., incorporated into the finished products; $10,000 represented the value contributed by the workers to make up for the wages he gave them; and another $10,000 represented the surplus-value contributed by the workers in the second part of their working day.

After taking as his income $10,000, the capitalist still has left what he started with – $100,000. But only $90,000 of that came from his original capital; the remaining $10,000 came from the workers whom he exploited.

Now, if this same process is repeated during ten years, it should be clear that he will start the third year with only $80,000 of his original capital and $20,000 of surplus-value; the fourth year with only $70,000 of his original capital and $30,000 of surplus-value; and that he will enter his eleventh year in business without a penny of his original capital. He will once again invest a full $100,000, but every cent of it will have been the product of the exploitation of labor!

From this example it may be seen that no matter how noble and spotless the methods by which a man may have gathered together a large sum of money in the first place, the moment it is converted into capital, it cannot be increased, and it cannot even be maintained at its original size, without the exploitation of labor. The idea that capital is the result of “hard work” by the capitalists, of their “savings” and “economizing,” of the “risks of enterprise” they take – or of anything else but the exploitation of labor and surplus-value – is utter nonsense.

Our example was hypothetical and, in fact, a rare one. It is seldom, if ever, met within capitalist society. Our modest, unambitious capitalist is not the capitalist as he really is and really must be. This one was content with merely reproducing his capital, and cared nothing for accumulating capital, for expanding capital. But in the real life of capitalist society, what the individual capitalist cares for or does not care for, matters very little.

It has already been emphasized that what this or that capitalist desires to do is not decisive. The mode of production is what decides. The capitalist who does not accumulate, expand, is doomed. He must expand or be crushed. This lies not in his nature, but in the nature of capital itself.

We have seen what the primitive accumulation of capital meant. It was primarily the piling up of vast sums of money and treasure. Capitalist accumulation is something else again. It is the application of wealth to the production of more wealth. How does capitalist accumulation take place? Why must it take place? What results from it?

The capitalist produces for the market. (When we speak here of the capitalist, we have in mind not so much the indi- vidual, as the capitalist enterprise, capital itself.) This implies the existence of competition between different capitalists. No competition – no capitalist market. The value which the worker adds to the product by means of his surplus labor-time cannot be realized in the form of profit until the product has been sold on the market. The finest and hardest work put into making a machine tool, an automobile, or a hat will not yield a profit to the employer until the product has been bought and paid for. The consumer, be he a worker looking for a pair of shoes or an industrialist looking for a milling machine, will not pay a higher price if he can get the same article for a lower price. In competing on the market for the buyer’s favor, the winner will be the capitalist who can produce the commodity at a cheaper cost and sell it at a cheaper price.

The winner in the race for the market is therefore the capitalist whose machines are better and more modern, whose plant and production system are more efficient, who can buy raw materials in larger quantities and therefore at lower unit cost. In other words, the large-scale enterprise based on a big capital has all the advantages over the small-scale enterprise based on a modest capital. The former has big turret lathes, boring mills, multiple drills, giant presses; the latter must be content with smaller and less efficient machines. The former organizes production with large numbers of unskilled workers, who perform single and simple operations at great speed, like tightening the same nut all day long; the latter, because it can afford only a few workers, must have them skilled enough to do a multiplicity of operations, from tightening a nut to precision milling. The former can buy materials by the carload, at favorable rates, or even has its own private, guaranteed source of raw materials; the latter can buy only in small quantities and must pay higher rates. The former maintains engineering staffs to work out speedier and cheaper production schedules, and it has the working force and the tools with which to carry out such schedules; the latter just struggles along. The unit cost of production is lower with the former and higher with the latter. The difference has developed and continues to develop with all the force of an economic law, which may be bent a little under certain circumstances but which cannot be broken.

The result is that the small-scale enterprise cannot stand up in the competitive race for the market. It goes bankrupt or is absorbed by the large-scale enterprise. Or it ceases to be a real competitor by being reduced to sub-contracting for the big enterprise, which places it at the mercy of the latter. Or else, by hook or crook, and most usually by Squeezing its workers to the last drop of their energy, it manages to eke out a miserable and hopeless existence.

What about enterprises that are approximately equal in size and efficiency, and therefore equally situated as competitors? They must engage in the competitive race, too. In the long run, which will win the race? The one that enlarges its plant; that purchases more modern machinery; that gets its raw materials cheaper, either by agreement with the source producer or by acquiring its own sources, that is, again, by expanding; that speeds up its production to lower unit cost; that increases the working force, or intensifies its exploitation.

This last it can do, and does, in several ways. It lengthens the working day. It reduces the wages of the workers. It speeds up the workers so that they produce the same amount in less time. It cuts down on expenses involved in protecting workers on the job or in making little comforts available to them. To win the race for the market, the capitalist must do some or all of these things. If he does not, he loses the race and is himself lost.

But all these things, except the last-named, involve expansion. If the capitalist consumed all his profits for purely personal use, as in the first example given above, expansion would obviously be impossible. He therefore sets aside some of his profits, as he must, for capital expansion (more plants, more raw materials, more and better machines, larger working force, more advertising and salesmen, etc.). He cannot survive if he just stands still, or continues at the old pace. Survival under capitalism – just survival – demands expansion, demands accumulation of more and more capital, demands, therefore, more and more profit, without which accumulation is impossible. Profit makes accumulation possible; accumulation makes profit necessary. No profit – no accumulation; no accumulation – no production. That is how it is, and that is how it must be under the capitalist mode of production, entirely independent of the best wishes and intentions either of the worker or the capitalist.

Capitalism is production for profit, or there is no production at all!



The Consequences of the Profit System: Ruin of the Middle Classes

But we remember the question that was asked at the very beginning:

“What is wrong with a man making a profit, especially if it is a reasonable profits If he makes a profit out of my labor, and if he is forced to accumulate and produce in order to make a profit, that certainly means that I will at least have a job. He will make a reasonable profit – I shall see to it that his profits are no more than reasonable; and I will get a reasonable or fair wage – and I shall see to it that my wage is reasonable. Each of us gives something and gets something, which is fair all around. It is just his good luck that he is on top, and my bad luck that I am not.”

Whoever talks this way shows that he is still thinking of the problem in terms of a personal relationship, so to speak, a relationship between himself and his employer. But it is not the kind of problem that depends for solution on both sides being reasonable. It is a problem of social relations, relations between two classes in society. It is a problem of the social consequences of the capitalist system, and only because of them is it a problem of the individuals involved. Let us examine some of these consequences.

One of them has already been indicated, with emphasis placed on the fact (and this emphasis must be repeated over and over again) that it does not result from the “goodness” or “wickedness,” the “reasonableness” or “arbitrariness” of individuals, but from the operation of forces which make up capitalist society itself. We refer to the gradual ruin of the owner of small-scale enterprises, which can be stated more widely as the gradual ruin of the middle classes.

It is precisely in the competition for the market that monopoly ownership and control arises and is consolidated; This is a trend that can be slowed down by one device or another, but it cannot possibly be halted. The small capitalist is squeezed out and ruined, absorbed or reduced to complete dependence on the big capitalist, just as relentlessly as the small independent commodity producer was squeezed out, expropriated or absorbed in the early days of capitalism. This process results in the establishment of big monopolies, trusts, cartels, syndicates. There is no way of stopping this process. It flows from the nature of capitalist economic development.

The process results in the centralization of production on an ever-increasing scale, that is, production in plants of tens of thousands of workers instead of in little shops of a dozen or a hundred workers. It results in theconcentration of capital, that is, concentration of the ownership and control of the means of production in the hands of fewer and fewer capitalists, united in dominant monopolies. It results in the expropriation and ruin of the middle classes for the benefit of the monopolists.

The old independence of the small owner, who was usually a working owner, disappears. This is true of the small metal-working shop. It is true of the small grocer, who is either wiped out by the big chain stores or becomes completely dependent on the food trust and the banks from which he obtains credit. The ranks of the capitalists decline in number. But there is a swell in concentrated, monopolistic power. The ranks of the working class, of the expropriated, of the propertyless, of those at the mercy of capital, continue to grow in number. More and more are dominated by fewer and fewer. Where the lives of millions were once in the hands of thousands, the lives of tens and even hundreds of millions are now in the hands of hundreds. For the hundreds, there is fabulous wealth and power without parallel in history. For the millions, there is increasing dependency, suffering, poverty and degradation.



The Consequences of the Profit System: Growing Exploitation of Labor

There is another consequence inherent in capitalist production, which affects the working class even more directly. This one, too, is connected with profit and the accumulation of capital. Accumulation is impossible without profit. What is the source of profit? As we have seen, it comes out of the surplus-value created by the worker in the surplus labor time he gives to the capitalist without compensation. (Not all the surplus-value goes to the capitalist as profit, by the way. Some of it does; the rest of it goes to the landlord, where there is one, as rent, and to the banker, where there is one, as interest. For the sake of simplicity, however, we can speak here of surplus value being the profit of the capitalist enterprise.) This means that it is not the whole capital invested that produces profit, but only one portion of it, the portion set aside for the payment of wages. It is surprising how clear many things about capitalism become once this division of capital is understood. It is not at all surprising that capitalist economics denies, ignores or hides the significance of it.

From the standpoint of what interests the worker, capital is divided into two parts.

One we call constant capital. It is that part of the total capital that is represented by buildings, machinery, raw materials and the like. Since every part of these that enters into the final product does not change in value, but is merely used up or represented in the product in a different form, it is called constant. If the building in which a shirt is made deteriorates to the extent of $1.00, its original value is transferred, so to speak, to the shirt to the same extent. The same holds true of the machinery that wears out in making the shirt. The same hold true of the cotton or other raw materials.

The other part we call variable capital. It is represented by the wages paid to the worker for his labor time. But inasmuch as part of the labor time he spends in the shop is surplus labor time, the value of the raw materials, etc., is changed. An additional value, a surplus value, is added. Hence it is called variable (or changing) capital.

How much value is added to the product by the worker? That depends on the rate of exploitation to which he is subjected. If he works an eight-hour day, and the rate of exploitation is thirty-three and a third per cent, it means he is working six hours to produce the equivalent of his wages, an two hours to produce surplus value for the capitalist. If the rate of exploitation is one hundred per cent, it means he is working four hours for himself, for his wages, and four hours for the profit of his employer.

But the rate of exploitation takes on a fuller meaning when it is related to the actual division between constant and variable capital. Let us take an example.

A given plant represents a total capital of $10,000. Of this, $5,000 is devoted to constant capital (building, machinery, raw materials, fuel or energy) and $5,000 to wages. Obviously, this would not only be a tiny plant, but one with a very low machine level. Let us assume a rate of exploitation of one hundred per cent. This would give the capitalist a profit of $5,000 per year, or fifty per cent on his total investment. (For the sake of simplicity, again, we are assuming that the transfer into the finished product of the value represented by the constant capital takes place completely within the year. Actually, of course, the machinery is not used up as speedily as the raw material and the building does not go as fast as the machinery. But the principle is the same.) A fifty per cent profit is, of course, exceptionally high. The point is however, that a given rate of exploitation will yield a higher profit with a low composition of capital (the lower the amount of constant capital as compared with variable capital, the lower the composition of the capital), than with a high composition of capital (the total capital being the same).

Now let us take a much larger plant, representing a total capital of $1,000,000. It is a modern machine plant. Buildings, machinery and raw materials, the constant capital, amount to $900,000 and wages to $100,000. Again, let us assume the high rate of exploitation of one hundred per cent; that is, for every hour the worker works for his own wages, he works an additional hour for the surplus value pocketed by the capitalist. At the end of the year this would yield the capitalist a profit of $100,000, or only ten per cent on his investment, as compare with a fifty per cent profit in the case of the small plant. The mass of profit has increased (from $5,000 to $100,000) but the rate of profit has declined (from fifty per cent to ten per cent).

Capitalist expansion, as we have seen before, means primarily the expansion of the plant, additional buildings, more and newer machinery, more raw materials; in other words, the growth of the amount of constant capital and of its percentage of the total capital. This expansion often also entails the growth of the variable capital, by virtue of the need for a larger working force. But the growth of the constant capital outstrips the growth of the variable. The percentage of the variable capital in the total tends to decline. (This is seen most clearly every time a machine displaces one or more workers.) Now, if the composition of capital tends to be higher and higher (more constant as compared with variable capital), and if the profit is derived only from the variable capital (which alone produces profit), it should be clear that under capitalism we have what is called the falling tendency of the rate of profit. This is one of the most important features of capitalist production. It is of vital importance both for worker and capitalist, though in different ways.

To live, capital must accumulate. To accumulate, capital must yield profit. Accumulation however brings with it a fall in the rate of profit. What happens under these circumstances? In order to accumulate to the greatest degree possible, the capitalist is compelled (again, it is not a question of what this capitalist or that one wants to do, but what is compulsory under the present mode of production) – he is compelled to compensate for the decline in the rate of profit by an increase in the mass of profit. This is possible only by raising the rate of exploitation, or the rate of surplus value.

Basically, there are two ways of raising the rate of exploitation.

One is to lengthen the working day. Let us take a simple example. A worker sells his labor power to an employer for an eight-hour day at $4 a day. In the first four hours of his work, he produces the equivalent of his wages, to the value of $4. In the second four hours, working at the same speed, he produces a surplus-value of $4. The rate of exploitation is 100 per cent. But if the employer succeeding in imposing a twelve-hour day on the worker, without an increase in wages, he is now getting eight hours of surplus labor-time out of the worker. The rate of exploitation has increased to 200 per cent – four hours for the worker and eight for the employer. The work-day has been lengthened without an increase in wages.

The other form in which the same end is accomplished is the maintaining of the work-day with a decrease in wages. So fierce is the drive of capital for profit, that it turns the world upside-down, if need be, in the hunt for cheap labor. The United States is the classical example of this hunt. Millions of foreign-born workers, accustomed to a lower standard of living, were lured into this country year after year, to form a vast reservoir of cheap labor. All over the world capital does not hesitate to draw women into industry, on the basis of the lowest possible wages and poorest working conditions, and without making the necessary provisions for maintaining the family life about which capitalists speak with such hypocritical piety. Even the employment of children, often under hazardous and sometimes downright bestial conditions, is known as one of the sacred institutions of capital. Capital will shrink from nothing in the pursuit of profits.

The second basic way of raising the rate of exploitation is the intensification of labor. It boils down to the speedier production of the product by the worker. The number of hours in the work-day is not increased, but the number of units to be produced in that work-day is raised. The labor-time needed to produce the value of the worker’s wages is reduced, and the amount of surplus labor-time which the employer extracts from the worker as profit, is increased.

So profitable is this intensification of labor that capital spends millions of dollars for specialists to work out all kinds of systems, methods and devices to make it possible. It takes different forms. There is the assembly line, which breaks down the division of labor to its simplest and most monotonous parts. There are all sorts of speed-up systems. There is, especially, the notorious, nerve-wracking and back-breaking “piece-work” system, which transforms workers into their own slave-drivers. There are all sorts of “standard of efficiency” systems. There is the bonus and premium system, by means of which the worker breaks his neck trying to add to his income. The same holds for the “incentive-pay” system.

In every one of these methods of raising the rate of surplus-value, the nerves and muscles of the worker are placed under exceptionally great tension. The eyes are strained, the muscles taut, the nerves frayed, the stomach tensed, the legs stiff, the back bent, the brain numbed. Under such murderous conditions of the usage of the mind and body, the capitalists can often afford to maintain, with much proud self-praise a relatively short work-day and to pay a relatively higher wage. The mass of profit they accumulate more than makes up for these benefits they give the workers. But nothing can make up for the utterly broken bodies and exhausted minds of those workers who, as a result of the intensified exploitation, find themselves thrown on the economic scrap-heap at the age of forty-five, or even less. Capitalism is a coldly ruthless devourer of human life.

Always and everywhere, the inexorable drive for profit and accumulation, expansion and profit, occurs at the expense of the workingman. Capital seeks to lengthen the work-day, labor seeks to shorten it. Capital seeks to decrease wages, labor seeks to raise them. Capital seeks to intensify exploitation, labor resists and seeks safeguards for its health, security for its living standards and assurance for its old age.

As capital brings more thousands and ten of thousands together under one roof, and exploits them under the same conditions, the worker begins to realize more clearly that it is not a problem of his relation, as one individual, to the employer as another individual, but a problem of the relations of all the workers to their exploiters. He finds himself compelled, in sheer self-defense, to unite with other men and women, who may be different in a thousand ways (age, color, sex, nationality, religion, etc.) but have in common the fact that all are workers. In a word, he finds it imperative to organize as a class, the working class, for self-defense against another class, the capitalists.

We are back, as you see, to the class struggle. It is not an artificial creation. It is not imported from a “foreign land,” which in turn must have imported it from who-knows-where. It is a natural and inevitable product of capitalist society. As capitalist society develops, it only adds fuel to the class struggle. It is the struggle between owners and disowned, possessors and dispossessed, rulers and ruled, the fabulously wealthy few and those whom they doom to poverty and misery, the capitalist class and the working class.

So we establish as another consequence of the capitalist mode of production, not only the ruin of the middle classes, but the growing impoverishment and intensified exploitation of the working class, accompanied at the other end of society by the concentration and centralization of economic power in the hands of a monopolistic few.



The Consequences of the Profit System: Anarchy of Production and Crises

There is still another consequence of capitalist production that merits examination in order to round out our understanding. It is one of those features that distinguish capitalism from every system that preceded it. This one is the fact that only under capitalism is society periodically wracked by economic crises due to over-production. Before capitalism, crises, and the hunger and suffering they brought to people, were due to a failure to produce enough. Only under capitalism are crises due to producing too much! Let us see how this happens, and why it must happen this way under capitalism.

Capitalism is production for the market. The surplus-value created by the workers cannot be realized by the capitalist in the form of profit until the product has been sold on the market. It should be borne in mind that the market, under capitalism, has a far wider meaning than is usually understood by that term. The capitalist market is not confined to the consumers who buy the simple commodities required for life – food, clothing, home furnishings and the like. Every capitalist enterprise produces for the market. But each one is itself a market. Mines buy lumber, tools and machines. Steel mills buy coal, brick, concrete, iron, machinery. Machine-tool plants buy machines and metals. Automobile factories buy machine tools, metals, glass, rubber, woolens and even agricultural products. Textile mills buy machines, cotton, wool and synthetic materials.

How does a capitalist enterprise know how many of its products can be sold on the market, in other words, how many it can safely turn out for any given period? It does not know. It cannot know. All it can do is to depend on the market price and a judgment of its trend. Prices are regulated by supply and demand. Low supply and great demand usually mean high prices, and vice versa. If prices are relatively high and it looks from the trend that they will stay high or go higher, the enterprise is stimulated to produce and to capture from its rivals as large a share of the market as possible. The market is the only basic regulator of capitalist production. As we shall see, however, it is a blind regulator.

The capitalist enterprise begins to produce. It acquires machinery or replaces its old equipment with new, more modern, more efficient equipment. It purchases raw materials, and uses more fuel and electrical energy. It may set up an annex to its building, not only to produce a greater quantity of its commodity but to produce each unit cheaper. It hires a larger working force.

By these very acts, it stimulates production in other enterprises. Wages in the pocket of the worker means a greater demand for ordinary consumers’ goods; the industries producing them therefore increase their activities. The machine-tool industry expands production; so do those industries which supply it with raw materials, construction materials, tools, etc. The raw materials’ industries – chemicals, mining, cotton and leather, steel and iron – likewise speed up production. Multiply all this a thousand times and you get a clearer picture of how production gets under way and develops on an even-wider scale.

As the market expands, each capitalist is impelled to produce more, in the hope of capturing a greater share of the market and out of fear of losing out to his competitors. They, meanwhile, are prompted by the same considerations and act in the same way. Even in boom times, therefore, or rather precisely in time of economic boom, capitalist production has an inherent tendency to over-production. This tendency to over-produce does not refer to the real needs of society. There is over-production in relation to the capitalist market, that is, there is a tendency to produce more than can be disposed of on the market at a profit.

Let us illustrate the process. The supply of automobiles is low, the demand high; the market price is therefore high. The capitalist is stimulated to produce. Each automobile factory begins. None of them has anything like an exact idea of how much the market can absorb. None of them has an exact idea of how many automobiles its rivals are planning to produce. The competitive race commences. This race stimulates the same kind of unplanned production among the manufacturers of rubber tires and other rubber articles that go into the making of automobiles. This, in turn, stimulates the production of raw rubber and the machinery required to process it. The production in the steel mills and aluminum plants is stimulated in the same blind way, each plant producing more and more in the hope of capturing a larger and larger share of the growing market. The same holds true of leather factories; the machine-tool industry; the coal mining and iron ore industries; the plate glass industry; and a hundred others.

The more they expand production, the more complex the problem becomes. The expansion in an industry that supplies automobile manufacturers, in turn stimulates all the industries that supply that one. The echo of the initial stimulus to production reverberates to the most distant parts of economic life and back again, like the shout of a man standing among canyon walls.

The trouble is that this expansion of production in boom times is in its very nature unplanned. For example, a 100 per cent increase in wheat production does not require a 100 per cent increase in the production of threshing machines. A 100 per cent increase in the production of threshing machines may mean a 100 per cent increase in the iron that goes into the machines, but only a 10 per cent increase in the production of the tools by which the threshers are made. A 100 per cent increase in cotton textiles may require only a 25 per cent increase in the production of textile machinery. What is more, this small increase in textile machinery for one year may suffice to keep textile production at the higher rate for five years – the market for textiles themselves is more continuous than the market for textile machinery, the one used up far more rapidly than the other.

If all the capitals could be joined under one roof, and production centrally planned with meticulous care, it would be possible to work out a schedule of expansion for each industry so that each would develop in harmonious proportion to the other. Planning on a national scale (eventually on an international scale) could regulate the proportions in which each industry should be expanded so that the whole of economic life advances harmoniously.

But we do not and cannot have that under capitalism. In place of planned production, there is anarchy of production, competitive production for the market.

Does the development of monopoly put an end to competition and anarchy of production? No, under capitalism, monopoly exists side by side with competition, even though it dominates it. As a matter of fact, monopoly makes competition fiercer and more brutal.

Under the conditions of “free enterprise,” a big multitude of capitalist enterprises compete with each other for the market. The weaker fall by the wayside or are absorbed by the stronger. The many are centralized into a few. The few tend to unite with each other into a cartel or a single trust, which has a complete monopoly in the industry. All the branches of industry undergo the same process, in one degree or another. But inasmuch as each combination or merger of enterprises is much stronger than all these enterprises when they existed independently, the competition between monopolies for the rule of the market becomes more violent.

If competition between one steel mill and another is replaced by a cartel in which they agree to share the market, or by a single trust which they establish, a new competition for the market develops between the steel trust and the aluminum trust, or between both of them and the newly-developed plastics industry. If coal and oil and electrical companies cease to compete with other coal and oil and electrical companies by establishing “horizontal trusts” (trusts covering a whole branch of economic life, like all of coal mining, all of steel making, etc.), a violent competition develops for the “fuel” or “energy” market between the coal monopoly and the oil monopoly. The competition is now between mighty and extremely ruthless giants.

We shall see later how this competition between monopolies is extended on a world-wide scale, in the form of struggles between the monopolies of one nation and those of the others.

At this point, it will suffice to stress that production is carried on in every capitalist country in an anarchic, unplanned manner, and that it cannot be otherwise.

What is the result?

As production gathers speed, free rein is given to what we have called the inherent tendency to over-production. Remember, the capitalist enterprise does not have an exact knowledge of the state of its particular industry, to say nothing of the market as a whole. Rising prices give the capitalist both the urge to produce in greater quantity and the confidence he will find a profitable market for his products. Each one produces without a knowledge of the proportions in which his enterprise or industry should expand with relation to the expansion of the other enterprises in the industry, or in relation to the expansion of other industries. Capitalism has no way of establishing what the total demand is, and therefore cannot organize the production of the total supply to meet this demand.

The automobile manufacturers (assuming that all of them work it out together) decide that the market will absorb sufficient automobiles to warrant an increase of production of fifty per cent. Steel, however, may very well increase sixty per cent in the rising market; rubber, seventy per cent; plate glass, eighty per cent; aluminum, ninety per cent. Each of these increases is based not only on a judgment of what automobile production will require, but on a judgment of what will be required in the form of steel, rubber, plate glass, aluminum and the like, in a hundred other industries, in tens of thousands of other enterprises, each of which operates independently, with its own production schedule, separate from all others.

There is no way of telling immediately that the demand has been exceeded by the supply. The rising market stimulates production in expectation of sales. Machinery and raw materials are not bought only for the orders received and guaranteed, but also for orders that are expected. Finished products, as well as raw materials, begin to accumulate, in the stores, in the warehouses and in the factories themselves. Industry begins to overproduce without knowing it and without being in a position to know it in advance.

At a certain point a collapse takes place, and very suddenly. Not enough buyers are to be found for the accumulated commodities of one enterprise or industry. Because of over-production, supply exceeds demand. Therefore, prices fall. If the enterprise is not ruined entirely by the fall in prices, it is at least compelled to suspend production or to cut down drastically. Workers are discharged or their wages reduced. Orders which the enterprise previously placed with other concerns are reduced or canceled altogether. Discharged workers mean a reduction in the market of consumer goods. Canceled orders means a reduction in the market of industrial consumption.

Each enterprise is connected with all the others by thousands of ties. The collapse of one directly or indirectly, immediately or soon, affects others, and they in turn affect still others, until virtually all are involved. If, for example, automobile production declines, the production of steel, coal, aluminum, brass, rubber, glass and all the others which were dependent upon automobile production, also declines. There is in turn a decline in production in the enterprises and industries which depended for their market upon them.

Banking, which is inseparably connected with industry, is stricken by the collapse. In the boom period there were large borrowings by industries which were expanding to meet the rising market. With the fall of prices, the collapse or retrenchment of enterprises, the latter are unable to meet their obligations to the banks. What is more, individual depositors begin to withdraw their funds, fearing a coming crisis or needing money because they are now without work. The difficulties in the sphere of production, on one side, and the difficulties in the sphere of finance, on the other, combine meanwhile to upset or knock out entirely the small retailers and businessmen, dragged down by large stock accumulations, loans they made to finance these accumulations and falling prices.

Capitalist economy thus reaches the stage of crisis, which it experiences periodically. It is the kind of crisis that occurs only under capitalism, a crisis generated by over-production. Thousands of enterprises go bankrupt. Industries slow down production or stop producing altogether. Millions of workers are thrown on the street, without employment and without a source of income, except, possibly, inadequate relief or unemployment insurance. Plants do not operate because too many machines and too much raw material have been produced! People cannot buy the food and clothing and home furnishings they need because too much of them have been produced! Small businessmen are ruined. Millions of workers go hungry. Their homes are lost. Their family life becomes a nightmare of insecurity. Suffering and privation spread like wildfire.

The inevitable result of capitalist production is capitalist collapse. Production expands under capitalism only to come to a periodic standstill. Crises of general over-production can be delayed in appearing, but so long as capitalism exists they cannot be abolished.

The periodic crisis and collapse of production affects all the classes of society, but in different ways and in different degrees. The ruin of the middle classes is speeded up and strikes more and more of them. The weak ones who are driven to the wall by the crisis end up in the ranks of the working class. Their enterprises are absorbed by the more powerful capitalists, who are able to weather the storm with greater ease. The higher standard of living which the worker enjoyed during the “prosperity days” is “evened out,” so to speak, in the days of crisis, depression and stagnation. The modest savings with which he may have hoped to enjoy a comfortable old age, or which he may have planned to use presently in order to “go into business for himself,” are wiped out. The comforts and little luxuries he may have accumulated during the boom – a partly-paid-for home, a good radio, an automobile, time-and-back-saving electrical appliances for the home – must be disposed of for a song during the crisis.

Just as the boom brings big capital the overwhelming bulk of the benefits, in the form of stupendous profits, so the crisis brings the working class the great bulk of the burdens. The capitalists have large reserves, the workers have next to none. The capitalist class suffers some losses, but on the whole it survives the crisis with comparative ease. The big ones emerge from the crisis even stronger than before. While it rages, they swallow up their smaller and weaker competitors. They enter the new boom period with increased monopolistic strength. The crisis period shows most glaringly how reactionary anti-outworn a social system is capitalism. It allows the spectacle – what else can it do, being what it is? – of millions without work who want to work, of millions without adequate food because there is too much food, of industries shut down tight when there is just as urgent a need as ever for industrial products. The consequences of production for profit, of planless, unorganized, anarchic production, are shown in all their ugliness.

Capitalism refuses to resume production – because it cannot – until it has been stimulated once more by rising prices, by the prospect of a profitable market. It awaits the rise cold-bloodedly. Just as cold-bloodedly, it undertakes the wholesale destruction of useful commodities. Citrus crops are burned in vast funeral pyres. Vegetables, coffee and other foodstuffs are dumped into the sea and destroyed as though they were poisonous. Hundreds of thousands are paid subsidies out of the public funds to “plow under,” to annihilate the precious yield of agriculture – cotton, wool, corn, wheat, rice, fruit, tobacco, hogs, sheep and cattle. Hunger stalks a land of plenty!

It is then we see the system in all its hideous absurdity, as the great destroyer of social wealth, and of human happiness, security and life itself. The wondrous productive machine which it developed and which, if rationally organized, could easily supply the needs and comforts of all, proves to be a mechanism that degrades the people to poverty, wretchedness, suffering and every social iniquity.

As we have seen, the consequences of capitalist production are:

*The accumulation of wealth and power at one pole of society and the accumulation of poverty and misery at the other pole.

*The ruin of the middle classes and increased exploitation of the working class.

*Periodic crises which rend society, bring production to a halt, destroy wealth, and inflict untold sufferings upon the working class.

*The sharpening of the conflict in class interests, and therefore of the class struggle.

How the World We Live in Operates

Chapter 3,The Fight For Socialism (1946)