Chapter 24:  The Transformation of Surplus-value into Capital

Section 1: Capitalist Production on an Progressively Increasing Scale. The inversion which converts the property laws of commodity production into laws of capitalist appropriation.

Outline of Marx's Discussion:


There are two basic points in this section. The first is that for capitalism to expand beyond simple reproduction the surpus-value earned through the exploitation of workers, and accruing to the capitalists as money realized through the sale of the commodities produced by those workers, must be invested rather than consumed. The second point is that such investment, wherein surplus-value is used to purchase new means of production and to hire new workers to expand production, doesn't violate the "laws of exchange", i.e., we can continue to assume equality in exchange. But, because the extraction of surplus-value constitutes the very unequal exploitation of workers, the "laws of exchange" hide the reality of the situation.

Investment: by corporations, by philanthropies and by the state.

In simple reproduction - where the existing situation is merely reproduced - all surplus-value is consumed, either by the capitalist class to whom it belongs or, perhaps, by the beneficiaries of any charity the capitalists might distribute to the poor. Marx doesn't discuss charity but others of his time were well aware of this use of a little bit of surplus-value. Some, such as the Reverand Thomas Malthus whom Marx both draws upon and frequently mocks, argued against it. (2) Others, such as Emile Zola, the French novelist, drew biting portraits of such condescention on the part of capitalists. (see the description in Germinal (1885)(3) of the annual charity bestowed on coal miners by the wives of the mine owners.) Beyond charity, a few extremely wealthy capitalists have employed some of the surplus-value they have extraced from workers for "philanthropy." (see below)

In expanded reproduction, or accumulation, surplus-value is used to buy more means of production and to hire more workers in order to expand both the scale of production and to expand the amount of surpus-value/money realized from enlarged sales. Such expanded reproduction in industry, however, requires that both the new means of production and the new workers be available. Therefore, current production must produce not only the means of production necessary to replace worn-out or used up means of production but also new means of production available in exchange for surplus-value that can be used to expand production. At the same time, current production must produce sufficient means of subsistence to support the expanded reproduction of the working class, i.e., the procreation and rearing of children. Thus: in the case of accumulation "ordinary wages suffice, not only to maintain [existing workers] but also to increase [their] numbers".

In the language and symbolism of Marx's reproduction schemes, mentioned in my commentary on Chapter 23, in order for the present organization of capitalist society to reproduce itself on an expanded scale, certain conditions must be met. First, Department I must produce enough of the means of production to replace those used up in its own activities plus enough of the means of production to replace those used up in the activities of Department II plus enough new means of production to be purchased by the surplus-value realized and invested in each department. Second, Department II must produce enough of the means of subsistence to sustain/reproduce the labor-power employed in its own activities, plus enough means of subsistence to sustain/reproduce the labor-power employed in Department I, plus enough new means of subsistence to sustain/reproduce the new workers hired with the surplus-value realized and invested in each department.

These conditions can be represented in the following manner:

Department I must produce C1 + C2 + C1new + C2new
Department II must produce V1 + V2 + V1new + V2new.

If, and only if, these conditions are met can expanded reproduction take place, i.e., can accumulation occur from period to period.

While in Marx's exposition all of the production of new means of production and the expansion of the labor force is financed by businesses investments in machinery, raw materials and wages, the late 19th and early 20th Century saw a few, extremely wealthy capitalists discover a new way to achieve these same goals through expenditures of their surplus-value that went beyond the investments of their corporations. I am speaking here of the "philanthropy" mentioned above and thus of the "philanthropic" activities of "philanthropists". Here I want to distinguish between charity and philanthropy in the following way: whereas what most people mean by charity is small gifts, sometimes drawn from capitalist profits, but also often drawn from wages, that raise the income of a few of the poor - and may be deducted on one's personal tax returns - philanthropy is a much more extensive use, not of wages but of surplus-value for purposes of social engineering. Any close examination of such well-known philanthropies as those associated with the Rockefellers or with Henry Ford reveals that their expenditures amount to sizeable investments in either the shaping of labor-power, or in the development of new technologies. I will just give a few examples.

First: one early Rockefeller effort, undertaken by his General Education Board in the second decade of the 20th Century, involved support for the expansion of public schooling in the Southern States and attempts to transform the Southern family through the development of home economics. Similarly, in the same period, the Rockefeller Sanitary Commission financed an anti-hookworm campaign in the Southern States. Both of these "philanthropical" expenditures were investments, designed quite explicitly to transform and improve the quality of the Southern labor force. Unlike, say the corporate financing of a gym to help their own employees stay in shape, be productive and reduce health care costs, these philanthropic investments were aimed at improving the quality of the labor force in the region, no matter who their future employers might be. These were examples of individual capitalists financing social investments in the interests of their class as a whole. (To some degree, these investments also benefited those parts of the working class directly affected. Certainly this was true for the eradication of hookworm, even if the benefits of public schooling are less clear.)

Similarly, such philanthropies have often invested in technological changes aimed at improving productivity throughout much of society, far beyond any particular interests of those corporations that have supplied the funds underwriting such foundations and such research. One example are the agricultural research centers founded by the Rockefeller and Ford Foundations in the post-WWII era with the aim of finding new higher-yielding varieties of grain to boost food supplies in the Third World. The motivation for such investments, as in those previously discussed above, has been the desire for a more stable labor force that could be achieved in this case by reducing unrest and rebellion associated with hunger. Such were the sources of the new high-yielding varieties of rice and wheat developed in the 1950s and 1960s associated with the so-called "Green Revolution" - aimed at removing causes of "Red Revolutions." Again, in all these cases, we are talking about the expenditure of surplus-value not to improve the means of production or to expand labor force of particular corporations, and thus not aimed, directly, at expanded reproduction, but which, if successful, by providing a more stable and productive labor force, would result in the expanded reproduction of the labor force necessary for accumulation and/or improved productivity that would generate greater relative surplus-value and greater profits generally. Thus, social investmeent, and social engineering.

Not surprisingly, given the influence of powerful capitalists on public policy as well as the demonstration effect of successful private programs, these private philanthropic investments have often become the starting point for similar investments by the state. This is obvious in the case of public schooling where General Education Board lobbying in support of public education in the Southern States successfully led to the state organization of such schooling. Similarly, such private public health campaigns as those of the Rockefeller Sanitary Commission have led to broader government programs of public health. And, of course, there have been extensive government expenditures on productivity raising research of all kinds. As might be expected, for the most part all such government efforts have been financed with taxpayer money - mostly money drawn from the wages of workers. So these private social investments, designed to improve the quality of the labor force and the means of production, both of which facilitate accumulation have also resulted in a shift in the financing of such programs from surplus-value to wages.

Section 2: The Political Economists' Erroneous Conception of Reproduction on an Increasing Scale.

Outline of Marx's Discussion


The reason Marx dwells on this "error" of classical political economy is suggested at the end of the section where he writes, "it goes without saying that political economy has not failed to exploit, in the interests of the capitalist class, Adam Smith's doctrine that the whole of that part of the net product which is transformed into capital is consumed by the working class." What does he mean by the "exploiting" of this doctrine? Simply that it provides an ideological cover for the real exploitation of workers. Evoking this doctrine, business can pretend that it is greatly in the interests of the working class that capital invest - because, ultimately, the workers consume it all. In both this section and in the next, Marx both critiques an idiological ploy by the apologists of capital and, along the way, further clarifies his own analysis of how the normal functioning of capitalism involves the exploitation of workers.

Marx's acceptance of the classical political economy distinction between productive and unproductive labor can be found not only in this chapter but in many places, especially Volume III where he will apply it distinguishing between the productive labor of workers in industry and the unproductive labor of workers in commerce and finance. It turns out that Marx's retention of this distinction is much more problematic than its original use by Smith.

Working during the latter part of the 18th Century - the Wealth of Nations was published in 1776 - Smith was preoccupied with calling attention to how manufacturing industry was supplanting landed property as the major source of wealth. The traditional landed aristocracy in England maintained its huge country estates - opulantly furnished inside and surrounded by extensive and lavish formal gardens, tended inside and out by hordes of retainers, the kind of estates portrayed in many an 18th and 19th Century novels (and featured in the recent PBS mini-series Downton Abbey - with rents obtained from tenants on the owners' vast land holdings. Smith saw two trends in which capitalist profits were supplanting rents as the prevalent form of surplus and hence of wealth. One, to which Marx devotes by far the most pages, is the rise of capitalist manufacturing wherein surplus and wealth are produced by waged labor. A second, to which Marx devotes some, but far less, attention, is the gradual transformation in the managment of the great landed estates from mere rent-taking to the employment of capitalist techniques in agriculture. (See Marx's treatment in chapter 29 of volume I on the rise of the agrarian capitalist.)

Marx, on the other hand, working entirely in the 19th Century (from the 1840s until his death in 1883) is focused on understanding (and getting beyond) a fully developed capitalist system - one which has largely supplanted pre-capitalist methods in both city and countryside. As can be seen in the early chapters of Volume I of Capital Marx sharply distinguishes between the sphere of exchange/circulation and that of production. Indeed, we are not formally introduced to the sphere of production until chapter 7 on the labor process. Consistently, in the first section of this chapter 24, Marx draws the same sharp line between equality in the sphere of exchange/circulation and inequality in the sphere of production as he did at the end of chapter six:

The sphere of circulation or commodity exchange . . . is in fact a very Eden of the inate rights of man. It is the exclusive realm of Freedom, Equality, Property and Bentham . . . When we leave this sphere of simple circulation, or the exchange of commodities . . . a certain change takes place, or so it appears, in the physiognomy of our dramatis personae. He who was previously the money-owner now strides out in front as a capitalist; the possessor of labor-power follows as his worker. The one smirks self-importantly and is intent on business; the other is timid and holds back, like someone who has brought his own hide to market and now has nothing else to expect but - a tanning."

Despite this sharp distinction which is repeatedly employed, there are times when Marx recognizes what appear to be exceptions or situations where a simple appliction of the dichotomy is misleading. One example, that appears in part I of Volume II of Capital is transportation. On the face of it, the transportation of commodities would seem to be an obvious moment of circulation, a necessary moment of buying and selling because buyers can be found all over the place, most nowhere near the location of the seller. This is true whether the seller is the original industrial capitalist or wholesellers and retailers who have bought and then resell. In most cases, therefore, transportation is required for the final buyer to actually obtain the use-value purchased.

However, Marx recognizes that transportation is more than just a moment of circulation. He recognizes that while physically a commodity at point A may be pretty much the same after being transported to point B - whether that is a few miles or oceans away - in reality there is a real difference. A shirt, manufactured and warehoused in Manchester, England can have only zero use-value for a buyer located in the United States, Australia or India. For the seller to actually sell, the buyer must be able to realize the use-value of the item purchased and for that to happen the commodity must be transported to the buyer. When this happens, he writes, "the result . . . is a change in their whereabouts. . . What the transportation industry sells is change of location."(5) Therefore, he continues,

"The useful effect is inseparably connected with the process of transportation, i.e., the productive process of the transport industry. . . The exchange value of this useful effect is determined, like that of any other commodity, by the value of the elements of production (labor-power and means of production) consumed in it plus the surplus-value created by the surplus-labor of laborers employed in tranportation."

In Marx's time this meant that the labor of loading vehicles, driving or sailing them and unloading them all counted as productive labor. As transportation methods were improving rapidly in the 19th Century - railroads were being built, steam ships were replacing sailing vessels, trucks were getting bigger and capable of carrying heavier loads - whole new kinds of labor were appearing and counted, in Marx's view, as productive labor in very much the same sense as manufacturing labor. In both cases capitalists were investing in new kinds of machines and new kinds of labor in order to put people to work and exact surplus-value or profit.

In other words, the key questions for deciding whether any labor is productive are: 1) does that labor produce a new product? (be it a thing, a service or a "useful effect") and 2) does the sale of that new product realize a surplus-value (as a result of surplus labor being embodied within it)? It is entirely secondary, according to Marx in Volume II, whether such labor takes place within "the sphere of production" or "the sphere of circulation."

If this is true then we can ask the same questions of labor employed in other "spheres." A starting point - given the commentary above - might be to query the character of labor employed in the sphere of education and the sphere of finance.

The investment of the Rockefellers' General Education Board in raising the quality of the Southern labor force certainly appeared to be "productive" in so much as it successfully promoted state investment in public schooling to raise the productivity of the Southern labor force. But can investment in education be "productive" of surplus-value. This would seem to be possible in two senses. First, if raising the productivity of labor-power results in a rise in the relative surplus-value realized by businesses that employ that labor, then yes. Second, it is also possible for capital to be invested in education with the aim of the direct realization of surplus-value from the labor of teachers (and other school employees). Marx takes this issue up in the text that now constitutes the Appendix to the Ben Fowkes translation of Volume I of Capital. In the section of that text on "productive and unproductive labor" Marx writes,

A schoolmaster who instructs others is not a productive worker. But a schoolmaster who works for wages in an institution along with others, using his own labor to increase the money of the entrepreneur who owns the knowledge-mongering institution, is a productive worker. But for the most part, work of this sort has scarcely reached the stage of being subsumed even formally under capital, and belongs essentially to a transitional stage."

But as time passed, where and when the working class became powerful enough to force down the length of the working day (as Marx describes in Chapter 10 of Volume I) and to free their children from waged labor (something which has not been achieved by millions of families around the world even today), the number of "knowledge-mongering institutions" multiplied - often as the result of capitalist efforts such as those of the Rockefeller General Education Board described above. In retrospect what he saw as "transitional" turned out to be an early moment of a huge transition from a capitalism based primarily on manufacturing to one based primarily on services. The kinds of services that Adam Smith and Marx associated with unproductive retainers came to be provided by waged workers employed by capitalists. For example, where the valet of an aristocrat might look after his master's clothing - cleaning, brushing and polishing - more and more such work was done outside the home by dedicated businesses. Where the great estates of the landed gentry employed extensive kitchen staffs, housemaids and gardeners, more and more such work would be done by caterers, restaurant workers and landscaping services - all employing waged workers in order to realize surplus-value. Where the masters of such estates hired nannies and tutors for their children, more and more such work was taken over by for-profit day-care centers and schools. But, of course, on a lesser scale all of this held for the working class as well. Successful struggles to raise wages, as well as to reduce the working day, led to increasing expenditures of wages on various kinds of services. This has been especially true where working class women have fought to substitute purchased services for their own domestic labor (cooking, cleaning, childcare, etc.) - struggles that have intensified where women have entered the labor force and sought to avoid a "double working day" of waged work in one part of the day and unwaged work in the other.

When we turn to labor expended in the sphere of finance - a sphere that Marx quite pointedly considered "unproductive" in Volume III of Capital - we are obliged today to examine that sphere as carefully as he examined the transportation sector and schooling in his day.

To repeat: the key questions for deciding whether any labor is productive are: 1) does that labor produce a new product? (be it a thing, a service or a "useful effect") and 2) does the sale of that new product realize a surplus-value (as a result of surplus labor being embodied within it)? The most obvious response to the first question must be "yes", the financial industry does produce new products, products that it sells as "services." One product many workers find vital are mortgages - loans that allow them to buy homes today and pay for them over a long period of time. Another set of products are banking services: insured deposits where money can be safely stored and credit cards that, like mortgages, allow workers to obtain goods today and pay for them later. Like other products these loan services may turn out to be far more costly than the borrower intially realizes - even fraudulently marketed. But that can be true with many products from foods, supplements and drugs that don't supply the nutrition or health benefits advertized, to automobiles that don't perform as advertized. Beyond that the actual consumption of a great many products have proven dangerous. Yet for all that they are still new products produced by workers for their employers and sold by the latter with the object of making a profit. What of the second question? Does the sale of financial services realize surplus value (as a result of surplus-value being embodied within them)? Once the services provided by the financial industry are identified, the labor processes that produce them can be researched and identified just as with industrial production or transportation or schooling. What we find traditionally are legions of "Bartleby's" scrivening away in the back rooms of financial houses creating and processing the paperwork involved in the provision of such services.(6) More recently, the development of and investment in computers has dramatically raised the organic composition of capital in the financial industry but a great many workers are still employed filling forms and shaping the final products. That all this labor has indeed proved profitable has been glaringly obvious to those who have followed recent financial crises - brought on, in part, by the particular ways in which the financial industry has fashioned and handled the marketing of its products. That a few have profited immensely and many have lost their jobs, wages and commissions in the crisis is characteristic of most capitalist crises.

So why, we must ask did Marx consider the financial industry, and the labor employed within it, to be "unproductive"? Basically, the answer he gave, especially in Volume III of Capital where he argued that the profits of the financial industry (summarized as "interest") were but a share of the surplus-value that resulted from the labor of workers in "productive industrial spheres" was similar to his reasoning about the "unproductive" nature of labor in commerce. In both cases, he argued, that to the degree that such labor merely contributed to buying and selling and thus took place uniquely in the sphere of exchange - where he assumed equality - it was "unproductive" and constituted merely the faux frais of circulation.

Obviously, the examples above show that a far closer examination of the financial industry is required than Marx provided and that cursory dismissal of all labor in that industry as "unproductive" just won't do.

Section 3: Division of Surplus-value into Capital and Revenue. The Abstinence Theory

Outline of Marx's Discussion


Marx's primary aim in this section is to critique and mock Nassau W. Senior's "abstinence theory" - a theory Senior concocts by replacing the word "capital, considered as a means of production" with the word "abstinence". Nassau's "theory", Marx shows, amounts to the ressurection and glorification of the attitudes and practices of the capitalists of a much earlier era when the individual capitalist struggled to accumulate, a stuggle that often did require personal sacrifice. But, he maintains, it is totally inappropriate for the more modern capitalism of the 19th Century when the expansion of capitalist enterprise and development has grown to such a degree that the "conventional degree of prodigality" mentioned above requires very little diversion of surplus-value and therefore has very little effect on the rate of accumulation. Senior would, Marx mocks, have us feel sorry for "the self-chastisement of this modern penitent of Vishnu, the capitalist" and rever "that peculiar saint, that 'knight of the woeful countenance, the 'abstaining' capitalist."(7)

This critique is prepared by devoting the first 4-5 pages of the section to what amounts to an historical sketch of the rise of capitalism, at least so far as the attitudes of capitalists and their apologists have concerned the degree to which capitalists have chosen to invest versus consume their surplus-value.

In the early period, or "dawn" of the capitalist era, it was easy to find emphatic rants against self-indulgence on the part of those who extracted surplus-value and diverted it into revenue. In a footnote, Marx provides a very long quote from Martin Luther (1483-1546) condemning usurers "that old-fashioned but ever-renewed specimen of the capitalist." Luther wrote:

"Whoever eats up, robs, and steals the nourishment of another, that man commits as great a murder (so far as in him lies) as he who starves a man or utterly undoes him. Such does a usurer, and sits the while safe on his stool, when he ought rather to be hanging on the gallows, and be eaten by as many ravens as he has stolen guilders, if only there were so much flesh on him, that so many ravens could stick their beaks in and share it."

He might also have quoted almost any of the merchant capitalists whose sage advice to their monarch almost always included tirades against consumption and calls for abstinence and investment. An example is Thomas Mun (1571-1641) who condemned:

"the general leprosie of our Piping, Potting, Feasting, Fashions, and mis-spending of our time in Idleness and Pleasure (contary to the Law of God, and the use of other Nations) hath made us effeminate in our bodies, weak in our knowledg, poor in our Treasure, declined in our Valour, unfortunate in our Enterprises, and contemned by our Enemies." (8)

In Marx's time, when "a conventional degree of prodigality, which is also an exhibition of wealth, and consequently a source of credit, becomes a business necessity. Luxury enters into capital's expenses of representation." This "necessity" can be understood in two senses. First, with the expansion of capitalist operations, both at home and abroad through colonialism and foreign trade, the ability to obtain credit from the ever more important but also every more unstable financial sector required a solid reputation in the business world for success - and alongside information about the success of various investments there was also the perception of success created by one's self-"representation."

At the same time, as Marx makes clear in his discussion of primitive accumulation, the rise of the capitalist class to ever greater power involved not only the creation and surbordination of a working class but also the displacement of the old landed elite, not only in terms of providing the "wealth of nations" but politically and socially. For a long time new capitalist money vied with old landed money for recognition and social valorization. Although the capitalist class would eventually displace the landed aristocracy as the ruling elite, it fought to do so not only in the formal political sphere (e.g., pushing the supremacy of the House of Commons over the House of Lords in England) but also in the social sphere, and for a very long time it did so by emulating many of the social practices and graces of the old aristocracy. Thus another need for luxury as an essential element of self-representation.

This theme was not only treated extensively in the novels and social commentaries of the 19th and early 20th Century but was taken up and made famous by the American economist Thorstein Veblen (1857-1929) in his analysis of "conspicuous consumption", one part of his Theory of the Leisure Class (1899). There is an on-going debate about the degree to which Veblen's ideas were derived from Marx but certainly there was continuity in their discussion of the propensities of capitalists to divert at least some of their profits from investment into "representation" that often involved "conspicuous consumption" for both business and social motives.

That said, it should be noted that Marx is quite clear that all of this discussion of "choices" made by individual capitalists all too often ignored the constraints that went far to determining those choices. Whatever an individual's personal proclivities, Marx insists,

"the development of capitalist production makes it necessary constantly to increase the amount of capital laid out in a given industrial undertaking, and competition subordinates every individual capitalist to the immanent laws of capitalist production, as external and coercive laws."

In other words, the capitalists who ignore the pressures of competition and divert too much of their surplus-value into personal consumption may soon find themselves out-competed and driven from the field by those who have devoted more attention and resources to accumulation. This is one of the reasons why Marx is, for the most part, only concerned with individual capitalists to the extent that their behavior accurately embodies the values and dynamics of the system.

Clearly, such an analysis provides the basis for judging the business and personal practices of individual capitalists as to the degree to which they accord with the demands of the system as a whole. Thus there are "good" capitalists who behave in accordance with the nature of the system - especially those who invest surplus-value to expand the means of production and the number of people put to work - and "bad" capitalists who behave as if they think the only purpose of being a capitalist is to get rich and flaunt one's wealth and often pursue money and wealth along paths of speculation and get-rich-quick schemes instead of contributing through real investment to the expansion of the social relations of capitalism.

I first came across economists critiquing such "bad" capitalists while I was in graduate school in the 1960s. The topic was Third World development and the critique was directed against W.A. Lewis' idea that development could be spurred by using artificially accelerated inflation of consumer good prices to transfer income from the consumers of commodities (mostly waged workers) to the capitalist owners of those commodities. The problem with the theory, it was suggested, was that it assumed that the capitalists who received the increased income would actually invest it and history had amply demonstrated that many so-called capitalists were more interested in buying expensive houses on the Italian Riviera or new race horses or fast cars than they were in investing in the expansion of production and employment. Indeed, for many years a great many "development" economists were convinced that in newly independent countries the state, whose policy makers had often been trained and groomed by their once-colonial masters, was the primary repository of the skills required for managing capitalist investment and accumulation. This was one source of the plethora of state enterprises which would, many years later, come under attack by neoliberal ideologs as being inefficient and deserving of privatization.

In the 1980s as union busting, attacks on wages, the deregulation of business, especially of finance, and the Reagan celebration of getting rich spead, such critques began to re-appear in American culture. One example was the movie Wall Street (1987) with Michael Douglas playing Gordon Gekko an unscrupulous corporate raider who became famous for uttering in the film a line that was already associated with the Reagan era: "Greed is good." Three years later came Pretty Woman (1990) in which Richard Gere played another corporate raider - only this time the raider was rescued and brought into the domain of "good capitalism" (actually putting people to work making things - in this case "big ships") by the intervention of a hooker-with-a-heart-of-gold played by Julia Roberts.

With the latest financial crisis (2007- ) also brought on by financial skulldugery and rampant unregulated speculation, we got new movies, ranging from the documentaries Capitalism: A Love Story (2009) by Michael Moore and Inside Job (2010) by Charles Ferguson, through HBO's drama Too Big to Fail (2011), a new Wall Street: Money Never Sleeps (2010) with Michael Douglas still playing Gordon Gecko, to Margin Call (2011) by J. C. Chandor featuring one typical set of speculators the night they discovered the deck of cards was coming crashing down.

In short, how one understands the nature of capitalism, what makes for successful accumulation, or expanded reproduction, and what undermines it, shapes one's understanding of both its successes and its failures, its periods of booms and its periods of crash and collapse.

Section 4: The circumstances which, independently of the proportional division of surplus-value into capital and revenue, determine the extent of accumulation, namely, [1] the degree of exploitation of labor-power, [2] the productivity of labor, [3] the growing difference in amount between capital employed and capital consumed, and [4] the magnitude of the capital advanced.

Outline of Marx's Discussion


The first part of this section is one of the rare moments in Capital - apart from Part 6 of this volume, chapters 19-22 - where Marx discusses the wage struggle, with the focus here being on the desire and sometimes the efforts of capitalists to lower wages in order to increase surplus-value/profits and accumulation. With his frequent quoting of various authors lamenting what they view as the high wages of English workers, as opposed to those in other countries, these paragraphs are reminiscent of Chapter 10 on the struggle over the length of the working day.

Among those quoted are an unnamed 18th Century writer who reveals, Marx says, "the innermost secret of English capital", i.e., the effort to "force down English wages to the French and Dutch level." That writer, in turn, quotes a Northhampshire manufacturer who points to how workers in France survive very well on a diet considerably more restricted than that of English workers.

Another writer he quotes is the American Benjamin Thompson (1773-1814) who goes so far as to propose a specific recipe for the preparation of a cheap soup - based on barley, Indian corn and herring - adequate, according to him, to feed 64 men.

What such quotations demonstrate is how carefully capitalists have calculated the minimum wage that could - imaginably - support workers at the level of bare subsistence. When the classical economists spoke of a "subsistence wage" they meant exactly that. That said, it is worth remembering Marx's discussion in Chapter 6 on the buying and selling of labor-power that what defines "subsistence" is socially and historically determined. This is obvious today when the economists and sociologists hired to determine "basic needs" or the "poverty line", i.e., the income below which one is declared to be "poor" or "in poverty", vary their estimates according to local requirements. Thus, to avoid being poor in New York City requires more money than avoiding being poor in Podunk, Mississippi because of differences in the cost of things like food, clothing, housing, heating and transportation.

One part of this discussion throws some light on the debates of the early 19th Century over the Corn Laws - laws introduced in 1815 at the end of the Napoleonic Wars to artifically sustain the high price of wheat which had prevailed during the wars when imports from the continent were cut off. The debates involved capitalists and their spokespersons, including David Ricardo, who wanted to remove the laws - and they sought to mobilize workers to the same end with promises of cheaper bread - while landlords, whose rents were high as a result of the laws, and their supporters, including Thomas Malthus, fought to keep the laws and their high rents intact. What the capitalists kept from the workers to whom they appealed to support their efforts to remove the laws and lower the price of wheat and bread, was how their calculations of the subsistence wage would drop with any fall in the price of bread. So the real objective of the capitalists fighting the Corn Laws was to reduce wages and increase profits.

But, as Marx goes on to show, wherever it was feasible capitalists would try to pay less than the bare minimum if they could get someone else to provide the difference between what they paid and that minimum. One source of such support was parochial relief, parish charity and the work house. So if, for example, local charities would provide workers with clothes, wages could be reduced accordingly.

The contempoary relevance of this material should be obvious. Millions of waged workers and their families in the United States are paid wages so low that they must obtain food stamps to survive. The children of poor working families also often obtain subsidized school lunches. Food banks all over the country provide food to waged families. In place of the parish relief of Marx's day we have a variety of federal, state and local programs that, by providing the difference between existing wages and a subsistence income make it possible for capitalists to hire workers for less than the value of their labor-power. As in Marx's time, the level of wages is determined by struggle, but among the least powerful sectors of the working class we find millions who cannot even earn a subsistence wage and depend on taxpayer-financed public subsidies to survive - subsidies as diverse as food stamps, food banks, school lunches, general hospitals for the indigent, homeless shelters, and so on. To such obvious subsidies we must add all of those that reduce the costs of basic subsistence goods, such as food and clothing. I am referring here to the vast Federal and state agricultural subsidies, paid for by taxpayers, not by capitalists, that keep down the price of food and such raw materials as cotton (used in clothing) not to mention subsidies to the energy sector that keeps down the costs of fertilizer, other agricultural chemicals and the raw materials of synthetic fibers. Just as the capitalists fought to eliminated the Corn Laws in the early 19th Century to reduce the price of bread, so have they fought for and obtained vast subsidies to keep the price of bread and many other consumption goods low in the 20th and 21st Centuries.

Of course, it is also true that reducing such subsidies (when they are able to hold money wages constant - or even lower them) is a weapon for attacking the real wage and forcing it down, not only for workers living with a subsistence income but for all workers. Such reductions have been common elements of the structural adjustment policies imposed by the International Monetary Fund and capitalist banks during the decades of the "international debt crisis" of the 1980s and 1990s as well as the current efforts to impose "austerity" - read reduce real wages and standards of living - on the working classes in Europe and the United States. All of these attacks can be understood as capitalist responses to earlier working class successes in fighting to increase wages, benefits and programs that have subsidized their income and standards of living. The dominant rationale for current attacks is the existence of "debt crises" wherein various governments have borrowed heavily from the international banking system to finance their expenditures (including those that support working class income and well-being). Naturally, when we examine the reductions demanded by these austerity policies we discover that the main cuts in government expenditures are those that benefit the working class.

Section 5: The So-called Labor Fund

Outline of Marx's Discussion


Eventually bourgeois economists set aside the "Wages-Fund Doctrine" as it is mostly known today, in part because they came to recognize precisely the point that Marx made about the flexible and fluctuating character both of capital in general and of the part invested in hiring labor.

John Stuart Mill, for example, after having set out and embraced the doctrine in his Principles of Political Economy published in 1848, finally recanted his support in a 1869 book review article. (9) Let us examine Mill's recantation. First, he set out his understanding of the doctrine to which he had previously adhered:

The theory rests on what may be called the doctrine of the wages fund. There is supposed to be, at any given instant, a sum of wealth, which is unconditionally devoted to the payment of wages of labour. This sum is not regarded as unalterable, for it is augmented by saving, and increases with the progress of wealth; but it is reasoned upon as at any given moment a predetermined amount. More than that amount it is assumed that the wages-receiving class cannot possibly divide among them; that amount, and no less, they cannot but obtain. So that, the sum to be divided being fixed, the wages of each depend solely on the divisor, the number of participants. In this doctrine it is by implication affirmed, that the demand for labour not only increases with the cheapness, but increases in exact proportion to it, the same aggregate sum being paid for labour whatever its price may be.

"But is there," he then asks, "such a thing as a wages-fund, in the sense here implied? Exists there any fixed amount which, and neither more nor less than which, is destined to be expended on wages?" His answer? "There is not."

This is how he made his case:

If we choose to call the whole of what he possesses applicable to the payment of wages, the wages-fund, that fund is co-extensive with the whole proceeds of his business, after keeping up his machinery, buildings and materials, and feeding his family; and it is expended jointly upon himself and his labourers. The less he expends on the one, the more may be expended on the other, and vice vers‚. The price of labour, instead of being determined by the division of the proceeds between the employer and the labourers, determines it. If he gets his labour cheaper, he can afford to spend more upon himself. If he has to pay more for labour, the additional payment comes out of his own income; perhaps from the part which he would have saved and added to capital, thus anticipating his voluntary economy by a compulsory one; perhaps from what he would have expended on his private wants or pleasures. There is no law of nature making it inherently impossible for wages to rise to the point of absorbing not only the funds which he had intended to devote to carrying on his business, but the whole of what he allows for his private expenses, beyond the necessaries of life. The real limit to the rise is the practical consideration, how much would ruin him, or drive him to abandon the business: not the inexorable limits of the wages-fund.

This, of course, was one of Marx's points published two years earlier!

Again, as with Marx, Mill very clearly sees how this doctrine has been used to undermine workers' wage struggles and how once we recognize the falsity of the doctrine we must also see that it cannot be used to justify arguing against those struggles. Mill wrote:

The doctrine hitherto taught by all or most economists (including myself), which denied it to be possible that trade combinations can raise wages, or which limited their operation in that respect to the somewhat earlier attainment of a rise which the competition of the market would have produced without them,óthis doctrine is deprived of its scientific foundation, and must be thrown aside. The right and wrong of the proceedings of Tradesí Unions becomes a common question of prudence and social duty, not one which is peremptorily decided by unbending necessities of political economy.

Finally, Mill argues that this critique justifies the struggles of workers and their unions for a greater share of the wealth they produce:

It has made it necessary for us to contemplate, not as an impossibility but as a possibility, that employers, by taking advantage of the inability of labourers to hold out, may keep wages lower than there is any natural necessity for; and Ť converso, that if work-people can by combination be enabled to hold out so long as to cause an inconvenience to the employers greater than that of a rise of wages, a rise may be obtained which, but for the combination, not only would not have happened so soon, but possibly might not have happened at all. The power of Tradesí Unions may therefore be so exercised as to obtain for the labouring classes collectively, both a larger share and a larger positive amount of the produce of labour; increasing, therefore, one of the two factors on which the remuneration of the individual labourer depends.

Spreading rejection of the wages-fund doctrine in the latter part of the 19th Century was facilitated by the rise of a new economic doctrine that would also provide at least some weapons against workers' wage struggles. That new doctrine was "marginalism"; its rise often called the "Marginal Revolution"; and the name we know it by today is neoclassical microeconomics. The fruit of the work of several economists, of whom those most closely associated with its crafting are William Stanley Jevons (1835-1882), Marie-Esprit-Leon Walras (1834)-1910) and Carl Menger (1840-1921), although its spread to hegemony in the English speaking world was primarily due to its embrace by Alfred Marshall (1842-1924) who elaborated these new ideas in The Economics of Industry (1879) written with his wife Mary Paley and especially in his widely read Principles Of Economics (1890).

The weapon provided by the new neoclassical or marginalist doctrine that replaced the wages-fund doctrine was the doctrine of the "marginal productivity of labor", or, put more generally, was the neoclassical doctrine that to each factor of production is due the value of its marginal product. Whereas the wages-fund supposedly defined an absolute upper limit to what workers could possibly receive, so, according to this new doctrine, labor should neither expect, nor struggle to achieve any more than the value of its marginal product. Moreover,the doctrine argued that given free markets, labor would receive neither more nor less than the value of that product. (The only possibilities of "exploitation" in this theory were those few cases, due to imperfectly competitive markets, where labor received less than the value of its marginal product.)

The obvious question that flows from the above is "what is meant by the value of a factor's marginal product"? Well, an essential element of the marginal revolution was the replacement of labor as the source of value, first by utility and then by nothing at all. Jeremy Bentham (1748-1832) - the same Bentham Marx mocks in this chapter - was one of those who popularized the concept of "utility" as a replacement for labor as a source of value. But once the "marginal utility" of any commodity (including money) was seen to decline as the quantity of its consumption rose, that observation came to be used to argue for the redistribution of money from the rich to the laboring poor in order to increase the total utility of society. As a result, neoclassical theory was reworked in the 20th Century, to get rid of "utility", "marginal utility" and "declinging marginal utility" until the only concept of "value" that remained was market value, or price. So the value of the marginal product of labor (or of any factor) was the market value of that product. In short, the labor theory of value, some version of which was common to the classical political economists and Marx was excised from economics.

How then did this new doctrine provide a weapon against the struggles by labor to raise wages (and other benefits)? Let us examine the attitude of one of the innovators of this new doctrine and the policies he prescribed. William Stanley Jevon's saw great dangers to both workers and society of wage struggles by workers organized in unions. In a lecture given in 1866 to primary school teachers about the importance of teaching economics to working class children to avoid the evils of class struggle, we find the following:

"The best example I can give, however, of the evils and disasters which may accompany progress is to be found in trade unions and the strikes they originate and conduct. Of these I may say, in the words of a recent article of the Times, that 'every year sees these organizations more powerful, more pitiless, and more unjust. Such atrocities as that reported from Sheffield are but the extreme cases of a tyranny which is at this very moment paralzing the large part of the trades of the country . . . there is one great disaster almost the greatest that I can figure to myself. It is that our working classes, with their growing numbers and powers of combination, may be led by ignorance to arrest the true growth of our liberty, political and commercial." (10)

So strongly did Jevons fear such struggles that he untook to lecture trades unionists directly, two years later in 1868. While he approved the efforts by unionists to reduce working hours and improve working conditions, he deplored any effort by them to raise wages above the value of their marginal product and argued that not only would such efforts be doomed to failure but any success would be "injurious to the welfare of the community." If some workers succeeded, he argued, it would be at the expense of others as higher wages would lead to higher prices and thus a lower standard of living for other workers who had to consume the higher priced goods. If workers as a class succeeded it would raise all prices therefy undermining the value of whatever increase had been gained. Real wages would still be limited.

In short, Jevons interpretation of the new marginalist doctrine accepted - in a manner altogether parallel to the reasoning of those who had embraced the wages-fund doctrine - that wages had an upper limit, in the new theory this limit was set by the value of its marginal product. Any effort to exceed that limit was doomed. The implication that Jevons draws from this, for the edification of workers, is that the best way to achieve increases in wages is to collaborate with their employers in improving the productivity of labor - which will then, through market forces - be returned to them in the form of higher wages. Now it must be noted that Jevons not only saw, and argued, that this path was a better one for raising wages but that it was a path to the transcendence of the class struggle. He argued that as wages rose, workers could earn enough and save enough to become capitalists themselves and as they did, they would abandon their objections to what they call "the tyranny of capital." He evoked:

"But all this is changed for the man who has even a moderate amount of savings. Not only does he disarm sickness or misfortune of half its terrors, but he may also, by co-operation, become his own employer; and then he will, I presume, cease to complain of the tyranny of capital." (11)

Marx's analysis, of course, has demonstrated why such a path may work for this or that worker but it is delusional to think that it would work for all, or even for most - given the nature and dynamics of capitalism.

Ironically, or perhaps inevitably, there was a progressive insight at the core of Jevons' thinking, that would be largely ignored by capitalists for many years to come, namely, that increases in labor productivity made it possible for real wages to rise without undermining profits (the marginal productivity of capital) or provoking inflation. Over time a few capitalists, like Henry Ford, would recognize and accept this principle, but it would not be until John Maynard Keynes demonstrated that the principle was applicable at the level of the whole economy that capitalists would begin to see wage struggles and wage increases as not only compatable with the system but at least potentially a vital motor of its development.

All of this was implicit in Marx's analysis of relative surplus-value, but unlike these economists who were devoted to the promulgation of capitalism he was not preoccupied with discovering how workers struggles might be compatible with it but rather with how they might lead beyond it.


1 See John Locke, Second Treatise of Civil Government (1690), Chapter V: Of Property.

2 See Thomas Malthus, An Essay on the principle of Population (1798).

3 Emile Zola's novel Germinal is a realistic portrayal of coal mining and the struggles of coal miners in France in the 19th Century based on visits to a mining town on strike.

4 NB: temporary hoarding of some money as a reserve to deal with fluctuations in the need for money, is a natural part of the circulation of capital. Marx discussed this in Chapter 3 of Volume I and takes it up again in Volume II.

5 Today, with so many shopping online or from catalogs, we are all too familiar with the ways in which capitalists foist the costs of "shipping and handling" off onto the consumer. But whether it is the capitalist who pays for the transportation, or the consumer, matters not to the transportation industry that will do its best to profit either way.

6 The reference, of course, is to Herman Melville's short story "Bartleby, the Scrivener: A Story of Wall Street" published in 1853.

7 "Penitent of Vishnu" refers to those worshipers of the Hindu god who have contributed over a certain amount to the support of his priests and temples. The "knight of the woeful countinence" refers to Don Quixote de la Mancha who gave up all his fortune in the pursuit of doing good as a knight errant.

8 From Thomas Mun, Englands Treasure by Forraign Trade. Or the Ballance of our Forraign Trade is the Rule of our Treasure, a letter on economic policy addressed to the Lord High Treasurer of England. First printed by his son in 1664.

9 John Stuart Mill, "Thornton on Labour and its Claims," Fortnightly Review, n.s. V (May, 1869), pp. 505-18. Available in the on-line edition of The Collected Works of John Stuart Mill, where it is reproduced as part of Volume V - Essays on Economics and Soceity, Part II..

10 William Stanley Jevons, "The Importance of Diffusing a Knowledge of Political Economy," a lecture delivered on October 12, 1866.

11 William Stanley Jevons, "Trades Societies: Their Objects and Policy," a lecture delivered at the request of the Trades Unionists' Political Association in Manchester, March 31, 1868.