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How the capitalists make their profits

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In the third column of our series, Joseph Choonara examines the process of exploitation of workers
Issue 2047
What is a fair wage
What is a fair wage

Last week I showed how the value of a commodity is a reflection of the labour time required to produce it. The commodity is produced by “living labour” (fresh labour put in by workers) and “dead labour” (the old labour embodied in raw materials, machinery, etc).

For example, a single newspaper might be produced by one hour of living labour (by the print workers) plus two hours of dead labour (the raw materials and machinery consumed).

So the newspaper, in this example, might exchange for a sum of money equivalent to three hours of labour.

The capitalist who runs the printing press would have to pay for the raw materials and the machinery worn out in production.

So the capitalist must pay out the equivalent of two hours worth of labour.

That leaves the capitalist with one hour’s worth of labour from the sale of the newspaper. But the capitalist still hasn’t paid the workers their wages.

How much does the capitalist pay? Here Karl Marx made what he considered “one of the best points in my book”.

The workers produce new value worth one hour of labour time.

But the capitalist does not pay the worker for the value they produce.

The capitalist only has to pay the workers for their “labour power” – for their ability to do a day’s work.

The value of labour power – the wage – is simply the amount required to reproduce the labour power, to provide the worker with food, clothing, shelter, and other needs.

In different societies and at different times this may be a bigger or smaller quantity, but in capitalist society it is generally far less than the value the workers create.

To return to our example, imagine that during the course of a day, the workforce put in 1,000 hours of labour time.

If each hour of labour time is worth £10, then the new value created is £10,000. If the wage bill for that day is £5,000, then only half the value created goes to the workers.

The capitalist has made £5,000 of “surplus value”, which can go towards his profit. This is the basis of exploitation – workers do not receive the full value they create, they receive only their wage.

Of course, like so much that happens under capitalism, this process is mystified.

For one thing, for the worker there is no distinction between the time when she is working for her own wage and the time when she is working for her boss’s profit.

Exploitation under capitalism is hidden behind a wage packet.

As Marx put it: “The fact that half a day’s labour is necessary to keep the labourer alive during 24 hours, does not in any way prevent him from working a whole day.”

Nor does the capitalist think about production in the way that Marx did.

As far as the capitalist is concerned, the machinery and raw materials are as much the basis of profit as the living labour of workers.

However, Marx was not primarily concerned with what was happening in the heads of those involved in production – he wanted to understand the laws of motion of capitalism.

Marx’s analysis shows that without exploitation there is no capitalist system – or to put it another way, to end exploitation capitalism must be overthrown.

But within capitalism there will also be more limited battles over exploitation, and these battles help give the working class its self-confidence and organisational strength.

For example, one way that capitalists can increase their surplus value is by making their employees work longer or harder.

Marx called this increasing the “absolute surplus value”. This will lead to battles over the length of the working day or rate of work.

Marx understood that there were limits to how hard or how long workers could be made to work.

As capitalism developed, he said, the increase in “relative surplus value” would become more important.

This is based upon general improvements in technology across society, which cheapen the goods that workers require. This means that the workers can cover the cost of their wage in a shorter time, leaving a greater surplus value for the capitalist.

So far I have explored the central division in capitalism, between workers and bosses.

Next week I will look at the other division in the system – that between the capitalists themselves, as they compete for the greatest share of surplus value.

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