Cycle in which 1) labor power is exploited producing surplus value, 2) surplus value is realized in the goods and services market; 3) the capital market redistributes the results of exploitation in the form of profits that finally 4) get reincorporated into production as expanded capital restarting the cycle.
1. Exploitation of labor power
Unlike previous modes of production, exploitation in capitalism takes a completely economic and mercantile form. The bourgeoisie does not forcefully seize the product of the workers’ labor. On the contrary, it buys its labor power on the market under the apparent conditions of free exchange between equals.
What characterizes the capitalist era, then, is that labor power takes the form of a commodity belonging to the worker himself, and his work takes the form of wage labor. Moreover, from that moment onwards, the mercantile form of the products of labor became generalized for the first time.
Karl Marx. Capital, 1867
The price individual capitalists pay for labor power is the wage. But if a worker had the opportunity to produce on his own, wages would not be such because he would refuse to sell his labor in exchange for less than he could produce on his own. That is why the establishment of capitalism requires the prior existence of the workers as a proletariat, that is, a dispossessed class that possesses no other commodities to sell than its own labor power.
In order to transform money into capital, the holder of money must therefore find the free worker in the commodity market; free in the double sense that, on the one hand, as a free man, he possesses his labor power as his own commodity, and that, on the other hand, he has no other commodities to sell, is exempt and deprived, disengaged from all things necessary to put his labor power into activity.
Karl Marx. Capital, 1867
The absence of alternative goods to sell leads workers to sell their labor power for its cost of production. In other words, the total mass of wages paid by capital is equivalent to the social cost of reproducing a similar total quantity and quality of labor force for the next period. The labor force in this is no different than the other commodities the bourgeoisie buys in order to produce.
Economists say that the act of production -that is, the consumption of a series of commodities to transform them into different commodities- produces “value”. In capitalism this has a meaning: “creating value” means that the mass of money in constant terms that returns to the balance sheet of the owners of capital at the end of each cycle becomes larger than the mass originally invested. Marxist critique reminds us that this “value added” in production is nothing other than unpaid working hours, surplus labor. Surplus labor is the whole secret of the increase of value, that is to say of the existence of that surplus value that both fascinates economists and is hidden at the same time by the economists’ own theories of value.
Capitalist production is essentially the production of surplus value, the absorption of surplus labor.
Karl Marx. Capital, 1867
Like the ruling classes of class-divided societies before it, the bourgeoisie measures the success of its economy by its ability to appropriate and direct for its own purposes the outcome of social work. But unlike previous modes of production, capitalism tends to continually increase production and expand the market, to transform previous social relations into mercantile relations, and to modify the means of production to enable the bourgeoisie to benefit from a greater amount of social product.
The bourgeoisie can only exist on the condition of incessantly revolutionizing the instruments of production and, consequently, the relations of production, and with them all social relations. The preservation of the old mode of production was, on the contrary, the first condition of existence of all the preceding industrial classes. A continuous revolution in production, an incessant upheaval of all social conditions, a constant restlessness and movement distinguish the bourgeois era from all previous ones. All the stagnant and musty relations, with their retinue of beliefs and revered ideas for centuries, are broken; the new ones become old before they become ossified. All that is statutory and stagnant disappears; all that is sacred is profaned, and men, at last, are forced to serenely consider their conditions of existence and their relations with each other.
Spurred on by the need to provide more and more outlets for its products, the bourgeoisie is touring the whole world. It must nestle everywhere, establish itself everywhere, create links everywhere.
Karl Marx and Frederick Engels. “Manifesto of the Communist Party”, 1848
In order to understand how capitalism carries in its own foundations the need to expand and increase both production and productive capacities, we have to move to the next phases of the accumulation process and incorporate the goods and services market first and then the capital market.
2. Realization of surplus value in the goods and services market
Surplus value, like all forms of value, does not exist as such, it is not a physical property, it is the idealization of a social relationship: the relationship of exploitation of labor by capital that allows the holders of capital to appropriate labor power without compensating it. But for the capitalist this does not end at the factory, he is not an accumulator of the commodities he produces, his objective is not to hoard a treasure but to accumulate capital. And for that he needs to go to the market and turn the produced commodity into money by selling it. Only when production goes to goods and services market and is sold in a new exchange (the first was the purchase of raw materials, means of production and labor) does the exploitation of labor result in an amount of money greater than that originally invested. That is the moment when surplus value “is realized”, it becomes material in the form of money. Once realized, surplus value is reintegrated into the cycle to produce new surplus value in an even greater amount.
The mystery underlying the circulation of commodities in the capitalist system (money used to buy commodities which, in a new form, are sold again for a larger amount of money) turns out to be nothing more than the conversion of money into capital. The cycle of circulation of goods that in previous mercantile economies produced at best “hoarding”, an accumulation of money that was separated from the cycle of production, in capitalism becomes a cycle of capital accumulation.
As a conscious vehicle of that movement, the money holder is transformed into a capitalist. His or her person, or more precisely his or her pocket, is the point of departure and return of money. The objective content of this circulation – the self-valorization of value – is its subjective end, and only to the extent that the growing appropriation of abstract wealth is the only driving force behind his operations, does he function as capitalist, that is, as personified capital, endowed with consciousness and will. Therefore, use value should never be considered as a direct end of the capitalist. Neither should profit be considered in isolation, but rather the tireless pursuit of profit making. This absolute desire for enrichment, this passionate hunt for exchange value, is common to both capitalists and hoarders, but while the hoarder is nothing more than the foolish capitalist, the capitalist is a rational hoarder. The incessant expansion of value, which the hoarder pursues when he tries to rescue money from circulation, is achieved by the more sagacious capitalist, who throws money back into circulation again and again.
The autonomous forms, the monetary forms that the value of commodities adopts in simple circulation, are reduced to mediating the mercantile exchange and disappear as the final result of the movement. On the other hand, in M – C – M circulation both function, the commodity and money, only as different modes of existence of value itself: money as its general mode of existence, the commodity as its particular mode of existence or, so to speak, only disguised. Value constantly passes from one form to the other, without getting lost in that movement, thus becoming an automatic subject. If we fix the particular forms of manifestation adopted alternatively in their life cycle by the value that is valorized, we will arrive at the following statements: capital is money, capital is commodities. But, in reality, value here becomes the subject of a process in which, by continually changing the forms of money and commodity, it modifies its own magnitude, insofar as surplus value is detached from itself as original value, it becomes self-valorized. The movement in which it adds surplus value is, in effect, its own movement, and its valorization, therefore, self-valorization. It has obtained the occult quality of adding value because it is value itself. It gives birth to living offspring, or at least lays golden eggs.
Being the dominant subject of such a process, in which it either adopts the monetary form or the mercantile form, or it divests itself of them but preserving and extending itself in those changes, value needs above all an autonomous form, in which its identity with itself is verified. And this form is only possessed by money. That is why it constitutes the starting point and the end point of every process of valorization. It was £100, and now it’s £110, and so on. But money itself only counts here as a form of value, since it has two forms. Without assuming the mercantile form, money does not become capital. Money, then, is not presented here in opposition to commodities, as is the case with hoarding. The capitalist knows that all commodities, however shabby they may seem or smell, in faith and truth are money, internally circumcised Jews, and in addition prodigious means of turning money into more money.
Karl Marx, “Capital”, book I, chapter IV
One element to take into account in this phase is that due to the “restricted bases” of the capitalist sector of every economy there can only be “overproduction”, that is, by definition wages are not enough to buy everything produced… the process of accumulation or what is the same, capitalism, needs to expand from the very beginning. In the first place towards its non-capitalist domestic markets. In second place to the outside. That was the material drive of capitalism’s global expansion.
Since the aim of capital is not the satisfaction of needs but the production of profit, and since it only achieves this aim by virtue of methods that regulate the volume of production according to the scale of production, and not vice versa, there must constantly be a split between the restricted dimensions of consumption on a capitalist basis and production that constantly tends to overcome this barrier that is immanent to it. Moreover, capital is made up of commodities, and so overproduction of capital implies overproduction of commodities. Hence the curious phenomenon in which the same economists who deny the overproduction of goods admit the overproduction of capital. If it is said that within the diverse branches of production there is no general overproduction, but a disproportion, it does not mean but that, within capitalist production, the proportionality between the diverse branches of production is established as a constant process from a disproportionality, when the relation of global production is imposed here, as a blind law, to the agents of production, instead of being submitted to their collective control as a law of the production process captured by their associated intellect, and in that way dominated. Moreover, this requires that countries in which the capitalist mode of production is not developed must consume and produce to a degree commensurate with the countries of the capitalist mode of production. If it is said that overproduction is only relative, that is entirely correct; but it is the case that the whole capitalist mode of production is only a relative mode of production, the limits of which are not absolute, but which are so for capitalism depending on its basis. How else could demand for the same commodities that the mass of the people lacks be lacking, and how could it be possible to have to seek that demand abroad, in more distant markets, in order to pay the workers of one’s own country the average of the indispensable means of subsistence? Because only in this specific, capitalist context does the surplus product acquire a form in which its owner can only make it available for consumption as long as it is reconverted for him into capital. Finally, if it is said that, in the final analysis, capitalists only need to exchange their goods among themselves and eat them, the whole character of capitalist production is forgotten, and it is also forgotten that it is a question of the valorization of capital, and not of its consumption. In short, all the objections against the palpable manifestations of overproduction (manifestations which lack concern for such objections) point to the fact that the limits of capitalist production are not limitations on production in general, and therefore neither are they limitations on this specific mode of production, the capitalist one. But the contradiction of this capitalist mode of production consists precisely in its tendency towards the absolute development of the productive forces, which is permanently in conflict with the specific conditions of production within which capital moves, and which are the only conditions within which it can move.
Karl Marx. Chapter XV of book III of “Capital”, 1867
Capitalism’s chronic lack of markets could only push it to the limit. A limit that represents the passage from rising capitalism to the decadence of the capitalist mode of production. That limit would be announced by the entry of capitalism into its imperialist phase and preceded by military “winds of catastrophe”.
The existence of non-capitalist purchasers of surplus value is a direct vital condition for capital and its accumulation. In this sense, such purchasers are the decisive element in the problem of capital accumulation. But in one way or another, in fact, the accumulation of capital as a historical process depends, in many aspects, on non-capitalist social layers and forms. (…) Capitalism needs, for its existence and development, to be surrounded by non-capitalist forms of production. (…) The second fundamental precondition, both for the acquisition of means of production and for the realization of surplus value, is the extension of the action of capitalism to societies with a natural economy. (…)
Imperialism is the political expression of the process of capital accumulation in its struggle to conquer the non-capitalist means that are not yet exhausted. Geographically, these means cover, even today, the widest territories of the Earth. But compared to the powerful mass of capital already accumulated in the old capitalist countries, which struggles to find markets for its surplus product, and possibilities of capitalization for its surplus value; compared to the speed with which territories belonging to pre-capitalist cultures are transformed into capitalist ones today, or in other words: compared to the high degree of the productive forces of capital, the field still seems small for the expansion of capital. This determines the international play of capital on the world stage. Given the great development and the increasingly violent concurrence of the capitalist countries to conquer non-capitalist territories, imperialism increases its aggressiveness against the non-capitalist world, sharpening the contradictions between the capitalist countries in struggle. But the more violently and energetically capitalism seeks the total collapse of non-capitalist civilizations, the more rapidly it will undermine the terrain of capital accumulation. Imperialism is both a historical method of prolonging the existence of capital and a sure means of objectively putting an end to its existence. This is not to say that this end should be happily achieved. Already the tendency of capitalist evolution towards it is manifesting itself with winds of catastrophe.
Rosa Luxemburg. “The Accumulation of Capital”, 1913.
3. Distribution of the results of exploitation in the form of profit through the capital market
Capital expanded with new profits is not tied to a company. In reality, the various companies are nothing but possible placements of capital which compete against each other in the capital market to be more attractive, i.e. to offer better rates of return to the capital seeking placement. The function of the capital market is precisely to homogenize the profit rates of the different possible capital placements.
They behave among themselves as they would if we were to represent the global sum of the capitals that make up the capital of the capitalist classes as a magnitude on which to calculate total surplus value […] There is no doubt that, calculated in this way, each fragment of this global capital would receive an aliquot part of the total surplus value, according to the proportion in which it participated. […] The volume of profit depends on the volume of capital, on the number of shares in that general capital which are owned by the capitalist, so that competition between capitals seeks to regard each capital in itself as a fragment of the overall capital, thereby regulating its share of the surplus value and hence of profits.
Capitalists tend to share out among themselves ( which is precisely what competition is all about) the amount of unpaid labor that they squeeze out of the working class – or the products of that amount of labor – not in the proportion in which specific capital directly produces surplus labor, but, first, in the proportion in which this specific capital represents an aliquot part of the global capital and, second, in the proportion in which the global capital produces surplus labor. The capitalists share the spoils of the appropriated labor of others as fraternal enemies, so that on average one appropriates the same amount of unpaid labor as the other.
Karl Marx. Theories of Surplus Value, Chapter VIII.
By equalizing -or tending towards equating- the rates of profit of possible placements of capital, the equivalence between the surplus labor/extracted value and the profit obtained by capital in a country or an industrial branch is blown away, not to mention in a particular company. It becomes at best a coincidence, a statistical anomaly. In fact, generally speaking, extracted surplus value will be different from profit in each individual company.
4. Return to production as increased capital
The capital market “closes” capitalism as a system, orienting the uses of capital, that is, the concrete forms of exploitation towards its most efficient forms for the objectives of the system, that is, it “incessantly revolutionizes the means of production” incorporating technical and organizational innovations that will allow capital as a whole to extract more surplus labor.
However, one of the characteristics of capitalism in its decline is that the chronic absence of markets produces a lack of profitable applications for capital. Not everything can be placed without stifling the rate of profit. Capital that is “over-accumulated” in relation to demand drifts towards speculation and becomes fictitious capital: the kind we see in the stock markets, futures markets, etc. A gigantic mass of capital, that is, of exploitation rights, separated from production and therefore built on shifting sands, which acts as an accelerator of the catastrophic character of financial crises.