activist’s guide to political economy

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Activists Guide toPolitical

Economy

Jason Mann

Rebel Youth - Vancouver


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Table of Contents

Section One: Introduction

Why Study Political Economy

Section Two: Pre-CapitalismPre-Capitalist Political Economy

Section Three: CapitalismCapitalist Commodity Production

Exploitation Under Capitalism

Distribution of Surplus Value Among Exploiters

Capitalist Reproduction and Crisis

Basic Economic Features of Imperialism


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Introduction:

Why Study Political Economy?


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Activists Guide to Political Economy

Why Study Political Economy

High wages, union rights, minimum wage and pay equity are bad economics.

Dont you know that?

Big business often tries to justify its position claiming, its simple economics

Are high wages good or bad? Is unemployment good or bad? Are profits good

or bad? It depends on where you stand in society. Therefore there are two sides

to every question.

The mainstream economics we see in the media, political debate and inuniversities represents the view of big business. This book is about the counter

view. The view of workers and students: regular people.

Where does profit come from? What determines wages? What is exploitation?

Has private property always existed? What about human nature?

We are going to look at political economy, the science that deals with the laws

governing the production and distribution of material means of subsistence in

human society at various stages of its development.

This book is meant only as an introduction. Basics only. Its not a textbook, just

an introduction to Marxist political economy.

Big business tries to hide the fact the progress of human society is governed by

objective laws.

Struggling against globalization, war, exploitation and for a better life we need

to understand capitalism. We need to know what makes it tick, what its all

about and what its economic laws are. To understand capitalism we will look first

at where it came from, where it fits in history. Then we will look objectively at

the economic laws of capitalism. What are commodities? What is meant by

exploitation? Where do profits come from? We need to know our enemy to

defeat it.

Political economy isthe science thatdeals with the lawsgoverningproduction anddistribution ofmaterial means ofsubsistence inhuman society


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Pre-Capitalist Political Economy


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Pre Capitalist Political Economy

To understand capitalism we have to understand how it came about and where

capitalism fits in history.

Mainstream economists, giving the position of big business, tell us that capitalism

is here to stay and will never change because private property and the economic

laws of capitalism and are a result of human nature.

The historical outlook of political economy tells a different story. Capitalism is a

mode of production that hasnt been around very long at all.

There have been five different modes of production in history so far:

Primitive Communal Slave Owning Feudal Capitalist Socialist

Like modern capitalists, slave owners also claimed their system was the

expression of human nature.

Aristotle, a philosopher and Greek slave owner asked, but is there any one

thus intended by nature to be a slave? There is no difficulty in answering this

question, on grounds of both reason and fact. For that some should rule andothers be ruled is a thing not only necessary, but expedient; from the hour of

their birth, some are marked out for subjection, others for rule.

Feudal lord also claimed that their system of exploitation was an expression of

nature.

They asserted their right to exploit was natural because they received their power

from the king and the king received his power from God.

So it should not be surprising that those who defend capitalism and private

property argue it represents human nature. A materialist examination of

history shows otherwise.

Like moderncapitalists, slaveowners alsoclaimed theirsystem was theexpression ofhuman nature


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In Review:

- Primitive Communal, Slave Owning, Feudal, Capitalist and Socialist are the five

different modes of production in history so far

- Slave owners claimed their power to exploit was natural. Some were meant tobe slaves, others slave owners

- Feudal lords claimed their power to exploit was natural. It was given to them by

the king, who received his power from God

- Defenders of capitaliism claim that capitalist exploitation and private property

are part of human nature

Primitive Communal Society

The primitive communal mode of production existed for most of human history.

Its lasted through tens of thousands of years, through the stone age, bronze age

and iron age. It was a system without private property, classes or exploitation.

Therefore its not true at all that class society, exploitation or private property are

just part of human nature.

Exploitation of man by man was not possible under primitive communal society

because human labour could only produce enough for bare subsistence.The seeds of slave holding society existed within primitive communal society.

As productive forces developed, advances in farming and live stock breeding

made it possible for human labour to produce a surplus above subsistence levels.

Prisoners became the first slaves. Eventually the poor and indebted in society also

became slaves, property of a slave owner.

The development of private property gave way to the first class based society:

Slavery

In Review:

- The primitive communal mode of production has existed for most of human

history and had no classes, exploitation or private property


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Feudal Society

Feudalism, like slavery and capitalism, was a mode of production based on

exploitation. Feudal lords received their power from ownership of land given to

them by the king, a higher lord or the church.

Lords lived of the surplus generated by serfs, the other main class of feudal

society, who worked on the land.

Feudal lords appropriated the surplus produced by serfs by forcing them to pay a

rent of goods or money, and forcing them to work part of the week on the lords

private plot of land.

The lord enforced his dominance over his serfs through the state which wrote

laws protecting the rights of the feudal lord.

As slave societies developed within the primitive communal mode of production

and feudalism developed from slave societies, capitalism developed within the

feudal mode of production.

A growing and developing merchant capitalist class took advantage of a situationwhere serfs, faced with high levels of feudal exploitation, rose up to overthrow

their feudal masters. The capitalist class seized power and with them came a new

mode of production: Capitalism.

In Review:

- Feudalism was a mode of production based on exploitation

- Feudal lords appropriated the surplus generated by serfs

- Capitalism developed within the feudal mode of production

- As we continue to study the capitalist mode of production, keep in mind the

context, that capitalism is just a particular stage of development.

The lord enforced

his dominanceover his serfsthrough the state,which wrote lawsprotecting therights of thefeudal lord


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Discussion Questions

1. Who were the main social classes in primitive communalsociety, slavery and feudalism?

2. What made these groups classes? Why did these classesstruggle?

3. Discuss this quote: It is not the consciousness of men thatdetermines their being, but, on the contrary, their social beingthat determines their consciousness. -Marx


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Notes


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Activists Guide to Political Economy Notes


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Capitalist Commodity Production


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Capitalist CommodityProduction

Commodities, Use Value and Exchange Value

Capitalist commodity production didnt suddenly appear, it developed within

pre-capitalist society.

In addition to producing goods for personal use, small producers and

craftspeople often engaged in simple commodity production, producing goods

for sale.

These small producers did not hire workers and owned their own simple

instruments of labour.

Simple commodity production relies on the labour of the producer, where as

capitalist commodity production relies on the labour of workers.

Commodities

Commodity production is the dominant form of production under capitalism. To

understand capitalism, we must start our investigation at the level of the

commodity. But what is a commodity?

A commodity is aproduct of labour,produced for exchange.

Use Value of a Commodity

In order to be exchanged a commodity must be useful to someone. It shouldsatisfy a human want. This usefulness of a commodity is called use value.

Umbrellas keep you dry in the rain, Aspirin relives headaches and socks keep your

feet warm on cold nights. All commodities have use value.

But not everything with use value is a commodity!

A commodity is aproduct of labour,produced forexchange

usefulness of acommodity is calleduse value


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Sunlight and oxygen both satisfy human wants, but are not commodities,

because commodities are only goodsproduced for exchange.

That means the milk you buy in the grocery store is a commodity but the milk a

farmer produces for her family is not. One is produced for exchange. The other isproduced for personal use.

Exchange Value of a CommodityBottles of milk and umbrellas are not only useful, they also have value in

exchange, or exchange value.

Exchange value and use value are different.

Exchange value is quantitative (think quantity). This means you can measure

definite quantities or amounts. A fur trader might expect to get a certain

quantity of gold in exchange for a fur. Fur pelts and gold can be quantitatively

compared based on how much of one we can exchange for another, ie: 1 pelt =

3 ounces of gold.

Use value is qualitative (think quality). It depends on the qualities, shape, size, etc

of a commodity. A quality of a broom is it can sweep a wooden floor.

Unlike exchange value, use value can not be quantitativelymeasured because the

satisfaction obtained from a broom, for example, is completely subjective; it

varies from person to person.

We cant quantitatively measure a brooms ability to sweep a wooden floor

because that quality is only useful to people with wooden floors but not useful to

people without.

What Determines Exchange Value?

How can we measure the value of a commodity?

First, to measure anything we need a property that can be objectively measured,

that is a common property to all items

Quantitative:of, relating to, orinvolving themeasurement ofquantity or amount

Qualitative:involvingdistinctions basedon qualities


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There are two properties common to all commodities: they are useful(have use

values) and areproducts of human labour.

Neo-liberal economists claim that commodities can be measured in value by their

use value. This is impossible simply because there is no common unit ofmeasurement for usefulness.

Water can be measured in litres, heat can be measured in degrees, distance can

be measured in meters, but there is no common unit for how useful something

is.

Use value also fails the test of being objectively measurable. In distance, a meter

is always exactly the same length. There cannot be longer meters and shorter

meters. A left handed can opener, on the other hand, is very useful to some

people but absolutely useless to others. It is subjective based on who you ask.

The property that all commodities are products of labour is something that is

objective and does have common units of measurement.

The exchange value of a commodity can be measured by the amount of labour

time required to produce the commodity. Labour time is the only property of a

commodity that is both objective and has common units of measurement.

A commodity that takes 10 hours of labour time to produce is worth twice as

much as a commodity that takes 5 hours of labour time to produce.

Socially Necessary Labour Time

This does not mean that a commodity produced by an inefficient worker, taking

twice the normal time required to produce a good, produces commodities worth

twice as much.

It does not matter how much time it takes a particular worker to produce a

commodity. Its the time it normally takes that matters.

To measureanything we need:

1. A property thatcan be objectivelymeasured2. Which hascommon units ofmeasurement

Labour time is theonly property of acommodity that isboth objective

and has commonunits ofmeasurement


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In Karl Marxs words, what matters is the average time required to produce

an article under the normal conditions of production and with the average

degree of skill and intensity prevalent at the time.

Concrete and Abstract Labour

It is not the specific type of work preformed that matters, its the expenditure of

labour in general that is important.

This division between the type of work and amount of labour in general is called

concrete and abstract labour.

Concrete labouris the specific type of work. As in, carpentry or weaving.

Abstract labouris a measure of labourin general. Part of the labour force of

society as a whole.

In terms of quality and quantity:concrete labour is the qualitative type of labour performed

abstract labour is the quantitative amount of labour in general performed.

The concept of abstract labour lets us compare different types of labour such as

carpentry and weaving.

Skilled and Unskilled Labour

Obviously it matters if the labour we are measuring is skilled or unskilled. Skilled

labour produces more value.

The scientific term for this distinction issimple and complexlabour.

One hour of skilled labour creates value that unskilled labour would require

several hours to duplicate.

Concrete labour isthe specific type ofwork

Abstract labour is ameasure of labour in

general.


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Example: if one hour of skilled labour can produce as much value as five hours of

unskilled labour, we could say that one hour of skilled labour is equivalent to five

hours of unskilled labour.

Or to use the technical terms, in this example, one hour of complex labour is fivehours multiplied simple labour.

In review:

- Commodity production is the dominant form of production under capitalism

- A commodity is a product of labour, produced for exchange

- Use value is the quality of a commodity to satisfy a human want. i.e.:Can

openers open cans

- Exchange value is a quantitative measure of a commodity that compares how

much of one commodity is exchanged for another commodity

- All commodities have two common properties: they are useful(have use values)

and areproducts of human labour

- Usefulness can not be objectively measured because it varies from person to

person. The amount of labour time taken to produce a commodity however, can

be objectively measured

- It doesnt matter how much labour time it takes to produce a particular

commodity, but how much time it normally takes of the labour force as a whole

This is the amount of time that is socially necessary

- The type of work performed (concrete labour) doesnt matter, what matters is

that labour in general (abstract labour) was performed

- The skill of the labour matters. We can think of one hour of skilled labour

(complex labour) in terms of several hours of unskilled labour (simple labour)

- You would be well advised to read over this section again to master your

understanding of a commodity. You maybe wanting to get to a more exciting

topics of exploitation or imperialism right away, however, mastery of this section

will greatly increase your understanding of all future concepts in this book as thecommodity is the basic unit of capitalism.


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What is Money?

Origin of moneyMoney has not always existed. There was a time when people had no use for

money at all! Simple barter was used for most of human history before money.

Barter is the exchange for one good directly for another. You probably did this

on the playground as a child exchanging your milk for someones apple juice.

Barter is not very effective.

If you want to trade milk for someones apple juice, it only works if the people

with apple juice wants good that you are offering.

Barter works ok in primitive communal societies with few types of commodities,

but with the development of commodity production and specialization, barter no

longer was effective, money was required to facilitate the exchange.

Functions of Money

In capitalist society money serves the following functions:

1. Measure of value

2. Medium of exchange

3. Means of payment

4. Means of accumulation

1. Measure of Value

Walking through a grocery store its very unlikely you will see signs advertising

how much socially necessary labour time was used to produce the fruit and

vegetables.

Before a commodity can be bought or sold its value must be measured and

expressed in money.

Simple barter wasused for most ofhuman historybefore money


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Price is just the exchange value of a commodity in terms of money. Every

commodity has a price because every commodity has an exchange value.

2. Money as a Medium of Exchange

If you owned a lemonade stand on the side of the road, you would not be selling

lemonade just to get green paper, but to purchase either more lemons or maybe

the latest comic book.Money is not the final goal in this case; its just a link between the sale of

lemonade and a later purchase.

Start with Lemonade Get Money Purchase a Comic Book

or in generalCommodity Money Commodity

3. Money as a Means of Payment

It is possible to buy a commodity without any cash available. Commodities are

often purchased or sold on credit. If a purchase is made that the buyer will pay

for later, money serves as the means of paymentfor this repayment.

Rather than being directly involved in the transaction, money is used later as a

means of repayment. Personal cheques work in this way as do most financial

loan transactions and credit cards.

4. Means of Accumulation

You can accumulate wealth in any commodity but money serves as the mosteffective way to accumulate wealth.

Its easier to accumulate wealth in money rather than another commodity, such

as salmon. It should be obvious why salmon is not a good commodity to

accumulate wealth in. Over time, salmon rapidly deteriorates in value and smells

absolutely terrible.


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In review:

- Money has not always existed. Money developed with the expansion of private

property, specialization and more advanced forms of commodity production.

- Money serves as

1. Measure of value

2. Medium of exchange

3. Means of payment

4. Means of accumulation

The Law of Value

Value and PriceWe know that exchange value (or simply value) of a commodity is determined by

the amount ofsocially necessary labour time used in the production of the

commodity.

Price is just the exchange value of a commodity in terms of money. Putting a

dollar figure to the value.

Prices often fluctuate around the value of a commodity; they can be slightly

higher or lower.

Prices tend to rise above value in boom times and fall below value in a bust.

Commodity prices can also deviate from values for reasons such as:

- a shortage or overproduction of commodities

- inflation or deflation of currency- monopoly control of industry

- booms and busts

- union organizing

Price is just the

exchange valueofa commodity interms of money


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1. What is Use Value? What is Exchange Value?

2. What determines the labour time that is sociallynecessary to produce a certain commodity?

3. Why is it convenient to use money as a means ofexchange?

4. Who primarily accumulates monetary wealth? How is thisaccumulation of wealth related to classes under

capitalism?


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Notes


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Exploitation Under Capitalism


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Capital and Labour

Before Capitalist Accumulation of Capital

Primitive accumulationof capital helped create conditions for the rise ofcapitalism.

Though plunder and looting of overseas colonies, a vast wealth was accumulated

in the hands of a few people. At the same time, a propertyless working class was

created by driving people off of their land.

This primitive accumulation lead a situation where the bulk of the means ofproduction were owned by the capitalists, to be used as capital, and where

working people were forced to sell their labour power to survive.

What is Capital

Mainstream economists claim capital has been around forever, this is a lie!

Like money, capital has not always existed.

Capital is not just an object. It is not the raw materials or machines themselves.

Capital is not a fixed thing, but rather represents a social relationship in

capitalism between the owners of the means of production and the working

class.

The raw materials, machines, etc become capital only when they are used in

production, as a means of exploitation. (Means of explanation is one way to

think of capital) Only in capitalist production does this social relation of capital

emerge. Tools and instruments of labour have existed for a long time going back

to simple agriculture and simple commodity production, but only under

capitalism did they take on a special nature as a means of exploitation.

Why else would a capitalist want to own capital? He cant eat his factories. He

doesnt buy raw materials and machines for the joy of owning rubber and steel

alone. The only way capital is used is as a means to bring workers under the

control of his wealth.

Capital is a means

of exploitation


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What is Labour Power

Unless you lay on the beach all day receiving dividend cheques in the mail,

chances are you are one of the majority of people who have to work to survive.

People have always preformed labour. But only under capitalism did the ability to

work itselfbecome a commodity that can be bought and sold.

Labour powerthen, is the commodity which represents the capacity or ability to

work.

Exchange Value of Labour Power

Labour power(capacity to work) like every commodity, has exchange value and a

price and the price of labour power known as a wage.

A workers ability to perform labour (labour power) can be sold by the hour for

hourly paid workers, or by the month or year for those paid on a salary or by the

task those paid on a piece rate.

And like all other commodities, the value of labour poweris determined by the

amount of socially necessary labour time required to produce it.

What goes into producing a worker? To produce labour power requires

commodities to keep workers in a capacity to work, produce a future generation

of workers and provide necessary training required for the job.

These are items like food, shelter, clothing and expenses related to raising and

educating children. What is considered necessary varies according to the level of

class struggle. What is considered necessary in one country may be considered a

luxury in another.

Use Value of Labour Power

Not only do all commodities, have exchange value, they also have use value.

Labour power is no exception.

Labour poweristhe commodity

which representsthe capacity orability to work


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The use value of labour power is that it creates new value. Labour power is the

onlycommodity that can produce new value.

In Review:

- Primitive capital accumulation helped create a capitalist class, who owned the

means of production, and a working class that had to sell its labour power to

survive

- Capital isnt a fixed object but a social relation between owners of the means of

production and the working class

- Only under capitalism do raw materials, machines etc, become a means of

exploitation, or capital

- Under capitalism, workers sell their labour power as a commodity.

- The exchange value of labour power is determined by the value of commodities

required to sustain a worker and produce a future generation of workers

- Labour powers use value is that it can create value

Surplus Value

There once was a capitalist who wanted to make a profit selling hockey pucks.

With his money, the capitalist built a factory, bought machinery, rubber, and

chemicals. He climbed a ladder to the highest spot on the factory gate and put

up a sign that read Open for Business!

He waited a month. Nothing happened

No hockey pucks produced, no value created, no profit.

This is because factories, machines and raw materials are all completely

unproductive unless labour is applied to them.

You could even do a scientific experiment if you liked, and put machines and raw

materials in a white sterile room for 100 years and the result would be the same.

Only labour can generate new value.


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So the boss hires some workers to set up the factory and others to work in the

factory, operating the machines and using the raw materials to produce finished

hockey pucks for sale.

Hockey pucks are now being produced

In this factory, a worker can produce 1000 hockey pucks a day which are sold at

$2 a piece.

Each day the capitalist pays workers $100 in exchange for 8 hours of labour

time.

Producing 1000 hockey pucks costs:$1500 of raw materials$100 of depreciation to machinery

--------------------------------------------

$1600 cost of raw materials and depreciation

New value created:$2000 value of hockey pucks:

$1600 cost of raw materials and machines

-----------------------------------------------------

new value created by labour = $400

In 8 hours, one worker created $400 worth of new value that previously did not

exist. That works out to $50 of new value per hour.

However, even though each worker produces $400 worth of value in a day, they

each only get paid a wage of $100 a day, the value of their labour power.

Since the worker produces a new value equal to $50 per hour, only two hours of

her labour are actually necessaryto create enough value to cover the wage of

$100 per day.

The two hours of the working day necessaryto produce the value equal to 8

hours of labour power is called the necessary labour.


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But the workers dont get to go home after 2 hours, they have to stay for the

rest of the day or they will be fired!

The other six hours of the working day, where the new value created goes to the

factory owner is called thesurplus labour. Essentially, this is time worked withoutpay!

This surplus labour is the source of all profit to the capitalists.

The value created by unpaid surplus labour issurplus value. In the example of the

hockey pucks, the surplus value created is $300. (Six hours unpaid labour x $50

new value per hour)

In Review:

- Raw materials, machines, hammers and saws are all inanimate objects that are

unproductive unless labour is applied to them

- Labour is the source of all value

- Workers do not get paid for the value they create, but for the value of their

labour power

- The surplus value generated is appropriated by the capitalist and is the source

of all profit.

Constant and Variable Capital

Constant Capital

The value of raw materials and depreciation used in production is included into

the value of the new commodity directly.

For example if $1600 of rubber is required for 1000 hockey pucks, then the value

of 1000 hockey pucks increases by exactly $1600.

Because the amount of value transferred is constant, this type of capital is called

Constant Capital.


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Examples of constant capital are raw materials, factory depreciation, and

machine depreciation, all which transfer their value 1:1 into the value of the new

commodity.

Variable Capital

The other part of the cost of production is variable capital, which is the amount

of money spent on wages to buy labour power.

It is called variable capital because the amount of new value added to the

commodity varies from the price of labour power the capitalist buys.

By purchasing $5 worth of labour power, the labour of one worker might raise

the value of a commodity by $7, $10, $15 or more.

How much value is added for each dollar of labour power purchased is

determined by the rate of surplus value. (Also known as rate of exploitation)

In Review:

- Constant capital is made up of raw materials, depreciation of machines etc

- The value of consumed constant capital transfers at a constant rate of 1:1 intothe value of the new commodity

- Variable capital is the price of labour power

- Its called variable capital because one dollar of labour power can produce a

value greater than $1. It varies

Rate of Surplus Value (Rate of Exploitation)

The goal of the capitalist is to squeeze as much surplus value as possible from a

worker because surplus value is the source of all profits.

The more surplus labour that is extracted in a day compared to the necessary

labour, the more intense is the level of exploitation.

Rate ofExploitation andRate of SurplusValue are thesame


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Picture an eight hour work day broken into two parts:

4 hours : 4 hours

Necessary Labour Surplus Labour

The bigger the chuck of day devoted to surplus labour compared to necessary

labour, the higher the rate of surplus value.

You can think of it asNecessary Labour : Surplus Labour

OrPaid Labour : Unpaid Labour

Or(V) Variable : (S) Surplus Value

It is all the sameThe rate of surplus value is the ratio of the total amount of unpaid labour

performed (or surplus value) to the total amount of wages paid (or variable

capital)

The formula for the rate of surplus value is

Take the hockey puck example:

= 300% rate of surplus value

The capitalists goal is to increase the rate of surplus value as high as possible.

There are a few ways to do this.

Take an average eight hour work day made of two hours of necessary labour

(labour time required to compensate the cost of labour power) and six hours

surplus labour

V

S

CapitalVariable

ValueSurplus

CapitalVariable

ValueSurplus

100$

300$


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8 Hour Work Day

One way to increase the rate of surplus value is to try and reduce wages, which

reduces the amount of necessary labour required in a day

Reduced Wages

Increasing output per hour through speedups or increasing productivity also has

the effect of lowering the amount of necessary labour time required tocompensate the value of labour power.

Speedups

Lengthen the work day without increasing wages

10 Hour Work Day

In each case the interests of workers and bosses are diametrically opposed:

- Workers want to increase wages : Capitalists want to decrease wages

- Workers want to stop speedups : Capitalists want to increase the speed and

intensity of labour as high as possible

- Workers want to decrease the work week with no loss in pay : Capitalists want

to increase the work week

2 6

1 7

1 7

2 8


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These conflicting interests are part of capitalism. The defence of capitalism is the

defence of the right of the capitalist to exploit the working class. Exploitation can

only be ended, therefore, with the end of capitalism and the building ofsocialism.

In Review:

- Capitalists want to squeeze as much surplus value as possible out of workers

- The formula for the rate of surplus value is or

- Capitalists can increase the rate of surplus value by trying to lower wages,

speed up production, or increase the work day

The Growth of Capital and theWorking Class

Capitalist Accumulation of Capital

Having looked atprimitive accumulation of capital, lets examine capitalist

accumulation.

No matter how rich a capitalist is or how large his profits are, he always wants

more. The rule of capitalism is grow or die. If you dont accumulate more and

more capital you will be crushed by larger capitalists. There is no other option.

Two Main Ways to Accumulate Capital:1. use surplus value to build capital stock larger than your competitors

2. merge with other capitalists and take over smaller competitors

V

S

CapitalVariable

ValueSurplus

The rule ofcapitalism isgrow or die


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This process of capitalist accumulation ensures that a larger and larger amount of

capital becomes concentrated in fewer and fewer hands.

Relative Deterioration of Working Class Incomes:The process of capitalist accumulation means the share of the wealth of a

country given to workers becomes small and smaller.The total income of a country can be visualized in two parts: Wages and Profits

The relative income of the working class represents the size of the income pie

shared by workers.

As more capital is accumulated

The capitalist expands his total profits

Though technology, speedups, extending unpaid labour time, and attacking

organized labour, workers receive less for their labour

Therefore the share of profits increase : Share of wages decrease

The change in ratio between profits and wages represents a relative deterioration

of the working class relative to the capitalists.

Profit

Wages

Profit

Wages

ProfitWages

Profit

Wages

As capitalaccumulates,relative incomefalls


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Absolute Deterioration of Working Class Incomes:

An absolute deterioration of incomes for workers is built right into the economic

laws of capitalism.

You can look at wages in two ways:1. A nominal wage is how many dollars a worker receives in exchange for her

labour power.

2. A real wage is the amount and quality of goods, food, clothing, etc a

worker can buy with their paycheque.

Real wages are affected by two things: the cost of living and the amount of

money a worker gets for selling her labour power.

As the cost of living increases, the real wage decreases, because the worker can

not purchase as many goods.

As the wage a worker receives decreases, the real wage decrease, as the worker

can no longer purchase as many goods.

There is a tendency for the absolute income of the working class to decline

because capitalists are always pushing for lower and lower wages and the cost ofliving is rising and rising.

Its certainly true there have been periods where the real wages of workers have

increased under capitalism. These are the exceptions that prove the rule.

All of these increases in real wages have come not because of capitalism but by

struggling against it politically and organizing into trade unions!

Capitalists have always opposed efforts to increase real wages or reduce the

working day. Only by organizing into unions and working together for better

work and higher real wages has the working class ever made gains in income

under capitalism.


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Growth of Capitalism and Unemployment

Capitalism will never eliminate unemployment because capitalism needs

unemployment and capitalismproduces unemployment.

Unemployment is an essential part of capitalism. Even rightwing economists,

who represent the interests of big business, admit that unemployment is a

natural part of a healthy capitalist economy. They call the level of unemployment

required for a healthy capitalist economy the Non-Accelerating Inflation Rate of

Unemployment.

Capitalists like unemployment because they can use it as a weapon to lower

wages of workers and increase their profits.

If you dont work harder for less money there is always someone who can

replace you.

Unemployment is not an accident, nor a result of poor economic indicators, nor a

result of the work ethic of the unemployed but is built into the economic laws

of capitalist accumulation.

unemployment isbuilt into theeconomic laws ofcapitalism


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Economic and Political Struggle

The development of capitalism creates unemployment and both a relative and

absolute deterioration of the position of the working class.

Workers naturally fight back to defend their economic interests by forming trade

unions. By uniting in unions, workers can fight for better working conditions and

higher wages.

This economic struggle alone can never end unemployment, poverty or

exploitation because these problems are built into the economic laws of

capitalism.

To tackle the root cause of these problems requirespolitical struggle by the

working class to overthrow capitalism itself.

In Review:

- Capitalists must accumulate more and more capital because the rule of

capitalism is grow or die

- Capital can be accumulated by using surplus value to create more capital or by

merging with or taking over other capitalists- Capitalist accumulation leads to a relative decline in workers incomes

- Capitalist accumulation also leads to an absolute decline in workers incomes

- Unemployment is a natural part of capitalism

- Capitalists like unemployment because it is a powerful weapon to use against

the working class

- Because unemployment, poverty and exploitation are part of capitalism, to

eliminate these problems requires a political struggle to overthrow capitalism

Economicstruggle alonehas its limits


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1. How is labour the source of all value?

2. Why do capitalists have to expand their capital all the time?Cant they just have enough?

3. Why didnt primitive communal, slave holding,feudal and socialist societies suffer frommass unemployment?


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Notes


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Distribution of Surplus Value AmongExploiters


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Industrial Capitalist

Rate of Profit

The rate of profit is the ratio of profit to production costs of the capitalist.

As we know, surplus value is the source of all profit and variable capital (wages)

and constant capital (raw materials, machines etc) are the production costs to the

capitalist.

Therefore

Rate of Profit = or

In our hockey puck example

The rate of profit is 23.5% (400/1700)

Tendency Towards an Average Rate of Profit

Competition between capitalists tends to equalize profits on equal amounts of

capital.

For example: pretend there are two sectors in an economy: hockey puck

manufacturing and Frisbee manufacturing.

Each year, 100 million dollars worth of capital (constant plus variable) are used in

production of Frisbees and hockey pucks.

CapitalVariableCapitaltCons

ValueSurplus

+tan VC

S

+

Surplus Value = $400

VC

S

+

1600$100$

400$

+

Variable Capital = $100

Constant Capital = $ 1600


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Frisbee production produces 10 million dollars of surplus value in a year

Hockey puck production produces 5 million dollars of surplus value in a year

Rate of Profit

Hockey Pucks Frisbees

5% Rate of Profit 10% Rate of Profit

Because Frisbee production generates a higher rate of profit, some hockey puck

producers will stop producing hockey pucks and start producing Frisbees in order

to increase their rate of profit.

Competition increases in Frisbee production

Competition decreases in hockey puck production

With more competition, Frisbee producers will lower the prices for Frisbees.

Profits decrease.

With less competition, hockey puck producers can charge higher prices for

hockey pucks.

Profits increase.

This process continues until the rate of profit is equal for hockey pucks and

Frisbees. Thus competition between capitalists levels profit rates around one

average rate of profit.

VC

S

+

100$

5$

100$

10$


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Tendency for the Rate of Profit to Fall

To get an edge on their competitors, capitalists want to decrease per unit

production costs and increase the rate of surplus value. To obtain higher

productivity, capitalists use their accumulated capital to increase the amount ofmachinery and raw materials per worker.

Lets look at hockey pucks again: To double the amount of hockey pucks a

worker produces an hour would require twice the amount of raw materials.

This increases the rate of surplus value because more surplus is

being generated for every dollar spent on labour power.

This change actually lowers the rate of profit.

Example:

Initial production$500 Constant Capital

$500 Variable Capital$500 Surplus Value (100% rate of surplus value)

Rate of profit = Rate of profit = 50%

To lower costs and increase profits, the factory owner might use accumulated

capital in a new process that increases the rate of surplus value to 150%.

This higher level of productivity means there are more raw materials andmachinery per worker. Now lets say for every $800 of constant capital, only

$200 of variable capital is required.

CapitalVariable

ValueSurplus

VC

S

+ 500$500$

500$

+


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Change in production:$800 Constant Capital

$200 Variable Capital

$300 Surplus Value (150% rate of surplus value: $200x150% = $300)

Rate of profit = Rate of profit = 30%

Countering a Falling Rate of Profit

No capitalist wants a low rate of profit. There are many ways they can fight the

tendency of the rate of profit to fall.

Look at the Equation as a mathematical equation:

Rate of Profit =

To increase the rate of profit:

S can be increased

C can be decreased

V can be decreased

S: Increasing surplus value can be accomplished by raising the intensity of

exploitation. This can be done through measures such as lengthening the work

day or speeding up production.

C: Constant capital can be lowered by increasing labour productivity in the

production of raw materials machines and lowering the price of constant capital.

i.e: If labour productivity doubles in the production of rubber, then the price of

rubber (as constant capital) to hockey puck producers will be reduced.

Constant capital can also be lowered by exporting capital to countries where

VC

S

+ 200$800$

300$

+

VC

S

+


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labour power is cheaper and where there is less constant capital relative to

variable capital.

Constant capital can also be lowered through war. War destroys existing capital

stocks and creates goods such as bombs which are destroyed upon use.

V: Variable capital can be lowered by busting unions and increasing

unemployment to bring down wages.

In Review:

- The rate of profit is equal to

- Competition between capitalists levels profit rates around an average rate of

profit

- The average rate of profit has a tendency to fall as more constant capital is

introduced relative to variable capital

- Capitalists can counter the falling rate of profit by increasing the rate of

exploitation, reducing constant capital costs and reducing wages

Commercial and Loan Capital

Up until now we have only discussed industrial capital as if industry needs no

loans and as if customers purchased cars, bread and washing machines directly

off the assembly line.

In reality, the industrial capitalist must share his profits with the owners of

commercial and loan capital.

Commercial Capital

A commodity must be sold in order for the industrial capitalist to make a profit.

This task is often delegated to a commercial retailer (commercial capital). In

exchange, the industrial capitalist shares part of his profit by selling the

commodity to the retailer at a reduced price called a factory price (or wholesale

price).

Surplus is sharedwith Commercialand Loan capital

CapitalVariableCapitaltCons

ValueSurplus

+tan


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Loan Capital

Some capitalists have money that they can not use immediately.

Other capitalists may be short on money. They might want to open a newfactory but not have enough cash on hand to do it.

Because money not being used commands no profit, the capitalist with a

temporary surplus of money, gives his money to the capitalist who is short of

money in exchange for part of his surplus value later. This payment is known as

interest.

Banks

Banks serve as an intermediary in this transaction as dealers of capital.

Banks take the surplus money of one capitalist, pay them a low rate of interest

and give it to another capitalist in exchange for a high rate of interest.

Separation of Ownership of Capital from Production

In early stages of capitalism, management of production was done directly by thefactory owner.

But with the expansion of banks, loan capital and stocks, managing production

becomes increasingly separated from ownership of capital.

Its now possible for a capitalist to own vast amounts of stock or other capital

assets and lay on the beach all day doing nothing but collecting unearned surplus

value.

This further shows how unnecessary the capitalist truly is to production. They

exist solely to suck surplus value from workers like a parasite.

Price of loan capitalis known as interest


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In Review

- Industrial capitalists share their surplus value with commercial and loan capital

owners

- Commercial capital owners receive surplus value in exchange for sellingcommodities to the final consumer

- Loan capital owners receive surplus value through interest payments on capital

loaned to capitalists short of money

- Banks serve as intermediary dealers of capital

- Loan capital, banks and stock ownership allow the separation of ownership and

production


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1. Why is there a tendency of the rate of profit to fall? Is a fal-ling rate of profit a problem for capitalists? If so, why and whatcan they do about it?

2. What does the declining rate of profit mean for the strugglebetween workers and bosses and the capitalist mode of pro-duction as a whole?

3. Do workers employed by commercial and bankcapital directly produce surplus value?


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Notes


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Capitalist Reproduction and Crises


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Simple and ExtendedReproduction Under Capitalism

Production and ReproductionCommodities are produced and then consumed.

Every year, for example, food is produced and then eaten.

The next year its necessary to reproduce food and other commodities and repeat

the process of production.

If each year a country produces the same amount of commodities, this is called

simple reproduction.

production consumption production consumption

If a country produces more commodities year after year this is called extended

reproduction.

production consumption production consumption

Under the capitalist mode of production, extended reproduction prevails.

Capitalist Reproduction, the Realization Problem, theAnarchy of Production and Endless Waste

Production under capitalism occurs without a plan. There is an anarchy of

production. This is a problem because production is a social process and

capitalists are linked to other capitalists.

For example, retailers of hockey pucks are linked to the producers of hockey

pucks. Producers of hockey pucks are linked to the manufacturer of raw

materials and machinery used to create hockey pucks. Plus all of the other

capitalists involved in the spheres finance and transportation. Individual

capitalists may have plans, but there is no plan for the system of production as a

whole.

Producing thesame quantity ofcommodities yearafter year issimplereproduction

Producing agreater number

of commoditiesyear after year isextendedreproduction


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Despite this interlinkage, each capitalist decides what to produce and how much

to produce based on a guess of which commodities can be produced at a

profitable price. To realize a profit the commodity must be sold. If a producer

overestimates how many hockey pucks can be produced at a profitable price,

over production occurs and profits fall.

Production can be divided into two parts:1. Production of the Means of Production (raw materials, machines etc)

2. Production of Articles of Consumption (consumption goods for workers

and for capitalists)

A country cannot produce just articles of consumption or only means of

production. A delicate balance must be achieved between the two. Produce too

much means of production and there is not enough food for workers to eat.

Produce too many articles of consumption and there is not enough means of

production to replace worn out machines.

Picture the total social product of a country divided into three parts

Constant Capital Variable Capital Surplus Value(raw materials, machines etc) Income of Workers Income of Capitalists

Undersimple reproduction, the production of articles of consumption must equal

the income of workers and capitalists combined.

This makes sense because the value of consumption articles cant be greater than

the income of the consumers or they cannot be purchased.

In other words

Production of Articles of Consumption = Variable Capital + Surplus Value

ThereforeProduction of Means of Production = Constant Capital Consumed

It becomes much more complex under extended capitalist production.

To expand production each year, new means of production must be put into use.

New machines on the factory floor and more raw materials.


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To put new machines and new raw materials into the factory floor in the next

production period means that those raw materials and machines must be

produced in the proceeding period.

The exact proportion of production between articles of consumption and means

of production must be achieved. But there is no planning or coordination

between capitalists. This task is impossible!

This problem is even more complex considering how many different sub

branches of means of production must be balanced without a plan.

(i.e. transportation, construction, heavy industry, mining etc)

This leads to a series of over production and shortages as capitalists try to guess

and adjust production from period to period without a plan or coordination. This

causes an endless waste of productive resources.

In Review:- Producing the same quantity of commodities year after year issimple

reproduction

- Producing a greater number of commodities year after year is extended

reproduction

- Capitalist reproduction is extended reproduction

- Capitalism suffers from an anarchy of production since each capitalist decideson what to produce and how much to produce separately without a plan or

coordination

- Total production can be divided between production of articles of consumption

and production of means of production

- Extended reproduction requires a complex balance between all branches of

production

Period 1 Period 2New means of production produced

must be greater than means of

production consumed

So that they will be available to put

into use in period 2


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Crisis of Relative Overproduction

Not only does the anarchy of capitalist production cause sporadic overproduction

and shortages, capitalism is plagued by a general crisis of overproduction.

This may sound odd at first glance considering the absolute deprivation and

poverty of so many workers in the world.

What is being discussed is not an absolute overproduction of goods but a relative

overproduction of commodities, relative to the purchasing power of workers.

Every year, grain is thrown into the ocean and factories are closed or lie idle

because workers cannot afford to purchase the goods. The great depression is anexample of the extremes of overproduction.

Inevitability of Crisis in Capitalist Production

To make a profit:

Capitalists produce more and more commodities in a struggle with their

competitors.

At the same time, capitalists try to reduce the wages of working people as low as

possible.

Problem: Capitalists produce more and more goods while workers have less and

less income to buy these goods.

Eventually it becomes impossible to sell the consumer articles because of the

limited purchasing power of the working class. The growth of production of

articles of consumption in one period is not met with increased consumption in

the next. This creates economic crises.

Capitalism isplagued byoverproduction


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Cycle of Boom and Bust

Cycles of booms and busts, caused by overproduction, are found in every

capitalist country without exception.

Overproduction sets off a crisis where capital owners are not able to sell their

goods and realize a profit.

With profits declining, smaller firms go bankrupt. Many workers are laid off as

larger capitalists reduce production. Depression sets in.

Capitalists take advantage of the cries by intensifying exploitation, lowering

wages and replacing older machines with new ones to become profitable again.

The demand for means of production rises and production resumes and expands

past its original level. Production expands and expands during this boom time

until a new crisis sets in.

In Review:

- Capitalism is plagued by a general overproduction of goods relative topurchasing power of workers

- Overproduction occurs as capitalists produce more and more goods and while

driving down the income of workers who have less and less money to buy the

goods

- Overproduction is responsible for the cycle of boom and bust which occurs in

every capitalist country.


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1. What is the difference between articles of consumption andmeans of production? Wouldnt it be nicer just to produceconsumer goods?

2. What modes of production have been under simplereproduction? Which modes of production have been extendedreproduction?

3. Can capitalism exist without crises?


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Notes


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Basic Economic Features of Imperialism


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Basic Economic Features ofImperialism

Early capitalism and free competition has been replaced by imperialism, the

monopoly stage of capitalism.

Imperialism can not be separated from capitalism because imperialism is what

capitalism has become. It is capitalism decaying, plagued by crises, booms and

busts, overproduction and a falling rate of profit, but trying by wars, by racism,

by brutal exploitation to turn back the clock of history. Its a socio-economic

system trying to avoid the judgement of history by brute force. It is the highest

and final stage of capitalism.

Lenin was the first to conduct a thorough investigation into imperialism from the

point of view of the working class.

Lenin described the following five essential economic characteristics of

imperialism:

1. Concentration of production and capital develops to such a high stage that it

creates monopolies which play a decisive role in economic life

2. The merging of bank capital with industrial capital and the creation, on the

basis of this financial capital, of a financial oligarchy

3. The export of capital, as distinguished from the export of commodities,

acquires exceptional importance

4. The formation of international capitalist monopolies which share the world

among themselves

5. The completion of the territorial division of the world among the greatestcapitalist powers

Check out:Imperialism, theHighest Stage ofCapitalism


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Concentration of Production, Capital and the Rise ofMonopolies

As capitalism develops, production becomes concentrated into fewer and fewer

hands.

This concentration is created by the law of capitalist accumulation. Competition

between capitalists also concentrates production as smaller capital owners are

pushed out of the market by larger competitors with more capital at their

disposal.

As concentration of production and ownership developed, many industries

became controlled by just a handful of big firms who conspired together to raisetheir own profits. With their vast size, resources and control of key industries,

these monopolies are able to affect all areas of economic and political life.

Types of Monopoly

The most direct form of monopoly is where a single capitalist controls an entire

industry, but there are several ways where a group of capitalists can control an

entire industry.

One basic way is a price agreement. Under a price agreement, a group of

capitalists agree not to lower their prices lower than a certain point. Price fixing is

common in food markets, such as breakfast cereals.

Cartels and Syndicates are a higher form of monopoly control. Under this system,

prices andproduction are manipulated by a small group of capitalists. The Oil

industry is an example of an industry controlled by cartels and syndicates.

Trusts and conglomerates are an even higher form of monopoly. Capital owners

join together, or are taken over, to form a single organization with greater

monopoly power. Mining and manufacturing of products, such as steel, are

controlled by groups of trusts and conglomerates.


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Monopoly and Competition

The title of this section is monopoly AND competition rather than monopoly OR

competition. There is a reason for this.

Although monopoly is the very opposite of free competition, the presence of

monopolies does not mean the absence of competition.

In fact, the presence of monopolies, which play a decisive role in economic life,

only means different types and forms of competition, which can often be more

intense and cutthroat.

Under Monopoly Competition:There is a struggle and competition between monopoly and non monopoly firms.

There is a struggle between large monopolies for top position within a sector.

There is a struggle between large monopolies in different sectors for political and

economic control.

Merging of Bank Capital with Industrial Capital Leadsto a Financial Oligopoly

Like industrial capital, competition between loan capital owners as well as the

laws of capitalist accumulation, led to a concentration of ownership in the

banking industry. This concentration led to the formation of large banking

monopolies.

In most countries of the world, a small percentage of banks control the majority

the total money deposited. This gives banks a huge influence and amount of

power, controlling the flow of money and loan capital.

Although originally banks were just intermediaries, their new power and

influence changed the relationship between banks and industry.

Banks began to acquire shares and ownership in industrial monopolies : industrial

monopolies acquired shares in banks.


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This merger or fusing of banking and industrial capital is also solidified by

personal unions. Personal unions are the placement of industry executives on the

governing bodies of banks and the placement of bank representatives on the

board of directors of industrial monopolies.

This fusion of bank capital and industrial capital is called financial capital. The

financial oligopoly that controls this finance capital has power extending past the

ownership of their own capital because of the immense power and influence of

the monopolies on the economy.

See www.theyrule.net for a listing and graphical representation of the personal

interlinkage between some industrial and banking monopolies.


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Export of Capital

In pre-monopoly capitalism, the export of goods was a typical feature.

In monopoly capitalism, the export of capital has become the most typical

feature.

As more and more capital is accumulated in the largest imperialist countries,

there become fewer fields for profitable investment in those countries.

This surplus of capital, with no field for profitable investment, generates no

profit.

The imperialist countries desperately want to export this capital to the third

world countries by whatever means necessary, and use it to bring workers of

other countries under the rule of their capital.

This can be accomplished through ways such as debt trap schemes through the

WorldBank and IMF, or by direct military force as in Yugoslavia, Iraq, Haiti and

Afganistan.

The Division of the World Among the Greatest

Capitalist Powers and Monopolies

The largest monopolies and trans-national corporations have divided the world

between themselves economically and the largest imperialist countries have

divided the worlds territories among themselves politically.

As the world has already been divided up politically and there are no free

territories left, imperialist countries struggle with each other now for the

redivision of the world.

The first world war, for example, was fought between the imperialist countries

for the re-division of the world.


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In Review:

- Imperialism is the highest and final stage of capitalism

- There are five essential economic characteristics of imperialism

1. Concentration of production and capital develops to such a high stage that itcreates monopolies which play a decisive role in economic life

2. The merging of bank capital with industrial capital and the creation, on the

basis of this financial capital, of a financial oligarchy

3. The export of capital, as distinguished from the export of commodities,

acquires exceptional importance

4. The formation of international capitalist monopolies which share the world

among themselves

5. The completion of the territorial division of the world among the greatest

capitalist powers


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activist’s guide to political economy

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