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Capital

Capital is in the first place an accumulation of money and cannot make its appearance in history until the circulation of commodities has given rise to the money relation.

Secondly, the distinction between money which is capital, and money which is money only, arises from the difference in their form of circulation. Money which is acquired in order to buy something is just money, facilitating the exchange of commodities. [Marx represent this as C - M - C or Commodity - Money - Commodity.] On the other hand, capital is money which is used to buy something only in order to sell it again. [Marx represented this as M - C - M.] This means that capital exists only within the process of buying and selling, as money advanced only in order to get it back again.

Thirdly, money is only capital if it buys a good whose consumption brings about an increase in the value of the commodity, realised in selling it for a Profit [or M - C - M'].

The word “capital” was first used in its current meaning in England around 1611, derived from “capital grant,” meaning a grant of land from the King – i.e. the head – which would be the basis of a new estate, and so meaning ”original” funds, thus carrying in its genealogy a mirror of the changing sources and origins of power, with the rise of the bourgeois revolution in England.

“The simple circulation of commodities – selling in order to buy – is a means of carrying out a purpose unconnected with circulation, namely, the appropriation of use-values, the satisfaction of wants. The circulation of money as capital is, on the contrary, an end in itself, for the expansion of value takes place only within this constantly renewed movement. The circulation of capital has therefore no limits.” [Capital, Chapter 4]

Capital is a Social Relation

Capital is not just wealth, but wealth in a specific historically developed form: wealth that grows through the process of circulation. As an aside, it should be noted that wealth itself is a social relation, not just an accumulation of things. For example, if you owe someone a favour, then that is something personal between the two of you; if your debt is determined by a third party or by some social ritual such as a birthday, then that is a social relation. Wealth is a social relation in the same sense, and its various historically developed forms are social relations. The issue is to understand exactly what kind of social relation is capital and where it leads.

Contradictions in Capital

The contradiction within capital is this: capital arises only in and through the exchange of commodities, but on average commodities are exchanged at their value, so no new value can arise simply by the exchange of commodities for one another. So neither the purchase (M - C), nor the sale (C' - M'), can realise a new value. In order to expand, capital must purchase a commodity, the consumption of which creates new value (C - C'). This commodity is labour-power, and the consumption of labour power is the labour process.

“In order to be able to extract value from the consumption of a commodity, our friend, Moneybags, must be so lucky as to find, within the sphere of circulation, in the market, a commodity, whose use-value possesses the peculiar property of being a source of value, whose actual consumption, therefore, is itself an embodiment of labour, and, consequently, a creation of value. The possessor of money does find on the market such a special commodity in capacity for labour or labour-power.” [Capital, Chapter 6]

Wage Labour and Capital

Thus capital can make a profit because people can produce more in a day than they need to live, or to put it another way, the value of labour power is less than a full day’s labour. The whole trick reduces to the problem: how to get the workers to work longer than needed to earn the equivalent of their own needs and then get hold of that surplus labour. The secret of this trick lies in wage labour.

Further, wealth does not become capital until certain historical conditions pertain: in the first place, the development of forces of production must be such that people can produce more than they need to live, so people have surplus labour left over after they have produced all that they need in order to live; secondly, there must be a class of free labourers who have nothing to sell but their capacity to work and no other means of livelihood, who can be forced to work for the capitalist (the proletariat); thirdly, a class of people who own the means of production as their personal property (the bourgeoisie).

The Rate of Profit

The two factors involved in the labour process are the means of production – materials, fuel, land and so on,– and the labour power of the workers. The first component Marx calls “constant capital” and the wages used to pay for the workers’ labour power, “variable capital”. These terms reflect the fact that the value of the constant component is recovered when the product is sold but its value is constant, whereas when the capitalist uses the workers’ labour power, new value is created.

The capitalist must measure the profit made in producing a given commodity in proportion to the total capital invested – the rate of profit; the workers, on the other hand, will measure the proportion of surplus labour time, to the time necessary to work to produce what they need to live – the rate of surplus value.

The ratio of constant to variable capital Marx called the “organic composition of capital”. The higher the organic composition of capital, the lower would be the rate of profit.

General Rate of Profit

It follows that the rate of profit would be different from one industry to the other, according to the organic composition of capital normal in the given industry. For example, labour intensive service industries would be expected to provide a high rate of profit while capital intensive industries like the railways would generate a low rate of profit.

However, this contradicts the empirical fact that in any given society there is a general rate of profit across all industries. Marx showed that the formation of a general rate of profit is a result of “supply-and-demand” pressures which draws capital into areas where the rate of profit is high and forces the rate of profit down again.

Falling Rate of Profit

The rate of surplus value may increase over time, either by increasing the working day and extracting more and more surplus labour time from the working class (absolute surplus value), or because the necessary labour time is reduced as a result of increases in the general level of productivity (relative surplus value).

However, the total amount of materials and machinery consumed in the production process, relative to wages, greatly increases over time, and so the organic composition of capital rises.

Marx asserted that despite possible increases in rate of surplus value, the increasing organic composition of capital meant there is an historical tendency for the rate of profit to fall. This, Marx showed, would bring about a crisis in capitalism, as it became more and more difficult for capitalists to realise their profits.

The problems of realisation of profits are exacerbated by the increasing scale of investment required to keep up with technology. Also, if the capitalists keep their profits high by keeping wages at starvation level, how are they going to be able to sell their products? These kind of problems would lead, according to Marx, to imbalances between “Department I” – production of the means of production, and “Department II” – production of the basic consumer goods and luxuries.

Conflicts within the Capitalist Class

As changes take place in the productive forces, capital flows from one industry to another, generating political conflicts between the the various sections of capital. For example, manufacturing capital might pressure for reductions in tariffs, thus threatening agriculture. The resulting political conflict which breaks out though, might take the form of a fight between two political parties, one of which has its base in the countryside. Thus changes in capital are important in undertsanding conflicts which break out from time to time ‘on the surface’ in the form of political and social movements and social change generally.

Concentration of Capital

One of the most important of these conflicts which arise from the dynamics of capital is the way big capital constantly drives smaller competitors to the wall. The resulting concentration of capital was seen by Marx as one of the main axes along which capital would eventually arrive at an historic crisis, with a handful of immensely wealthy capitalists confronted by a vast mass of proletarians, with nothing in between.

Modern bourgeois economics literature uses a number of new terms which are foreign to Marxism, such as “Natural Capital”, “Social Capital”, “Cultural Capital” and “Human Capital”. Marx showed that capital is a social relation; for the bourgeoisie, social relations are a form of capital.

Natural Capital

“Natural Capital” is the term used by economists to refer to those aspects of Nature which have the potential to be subsumed under capital, such as forests which are in national parks and can be converted into private property and harvested. The term “Natural Capital” is sometimes also used to indicate Nature as the “externality” which provides necessary inputs for capitalist production (raw materials, land, air, water, etc.) without payment, and absorbs costs of production without recompense (waste materials, pollution). This extension makes sense in as much as Nature is the fundamental condition for production, and insofar as it is destroyed or ‘used up’, although it therefore fails to be subsumed under capital, capital must in some way make expenditure to compensate for having destroyed the natural conditions of its own existence. So for example, clean air may not be “Natural Capital” in the sense that it can be converted into private property; nevertheless, if it is destroyed by capital, or in order to prevent its destruction, capital must make an outlay (for example, install filters, reduce energy consumption, plant trees, etc.). “Natural Capital” is thus Nature, taken as an “externality” for capital, making inputs and absorbing outputs without payment. Economists widely believe that private production is always destructive of public goods which are “externals”, and “Natural Capital” is one such “external” liable to be destroyed by Capital.

Social Capital

Like “Natural Capital”, “Social Capital” is a term used by bourgeois economists to refer to an “externality” which supplies inputs to capital, absorbs outputs from capital, and is capable of being destroyed by capital and/or subsumed under capital. In contrast to “Natural Capital” however, “Social Capital” refers to those factors of production and human life in general which exist in social relations presently not subsumed under capital. Frequently, “Social Capital” is used to refer to those externalities other than the conditions for capital accumulation provided by the state, in what bourgeois economists refer to as “Civil Society”.

The point is that “Social Capital” is not capital at all; it is those creative, productive and life-giving relations between people which have the potential to be converted into capital, but are presently external to capital, i.e., not capital at all.

The term was first used in an ironic sense by Jane Jacobs in her 1961 book The Death and Life of Great American Cities, and more recently popularised by James Coleman, Robert Putnam and Francis Fukuyama. For bourgeois economics, the term is important for the purpose of drawing the attention of capitalists to the potential for capitalist development contained in society generally, which can be converted into private production with minimal expenditure (for example, the skills and networks workers have before they are hired or ‘trained’ by the firm, people's capacity to provide information and ideas from their informal networks), and conversely to draw attention to the social capacities which are providing these inputs and absorbing outputs and are capable of being used up and destroyed by capitalist industry (for example, family ties supporting overworked or injured workers, trust and loyalty which allows business to be done without a team of lawyers and policemen to enforce contracts).

Bourgois economics, however, distinguishes between ‘good’ and ‘bad’ social capital; such a distinction is necessary to deal with the problem of why trade unions are not social relations providing inputs and absorbing costs of capital, while a professional association, for example, is, why one needs to be destroyed, the other exploited. This kind of distinction is generally made in an apologetic way, because bourgeois economists do not accept the idea that capital is itself a social relation, and the concept of ‘subsumption’ under capital is not acceptable within the framework of bourgeois economics. Likewise, some writers make a distinction between ‘horizontal’ and ‘vertical’ social capital; ‘horizontal’ social capital is good and ‘vertical’ social capital (called “political capital” by some) is bad. So for example, networks of support and exchange of information provide unpaid inputs to capital, and can be subsumed under capital, but organisations which build a strong sense of collective identity, elect delegates and representatives resist subsumption under capital, and such relations have to be destroyed before the “Social Capital” can be subsumed under capital. The most profitable kind of “Social Capital” are networks of person-to-person relations which lacks any collective consciousness.

Human Capital

“Human Capital” is slightly different from “natural capital” and “social capital” inasmuch as it is generally used in bourgeois economics to refer to human capacities which are subsumed under capital: the skills and knowledge of employees, the trust between employees and the effectiveness of the division of labour within the workforce employed by a given capital, which can be used to make profit. In other words, all those values which are commanded by a given capital, but which cannot be property because they are human. “Human capital” thus fails to be capital because all its elements remain the ‘property’ of the individual workers whose intellectual and physical powers constitute it, and these workers may choose whether or not to contibute these assets, and take them with them when they resign; on the other hand, “human capital” is subsumed under capital to the extent that the given capital brings together such a concentration and combination of human capacities that the ‘whole is greater than the sum of the parts’. Thus, “human capital” is contained within the workforce employed by the capital, but its ownership and value-form is contained in the ability of a company to retain and utilise the skills of its employees. Note that that knowledge and skill of employees which are not or cannot be used for profit (e.g., the employees' union-organising, their hobbies, sporting skills, interests in music and literature, etc.) are not “human capital”. “Human capital” differs from “labour power” because labour power is the use of much the same human capacities indicated by “human capital”, and is measured by the hour. “Human capital” also includes those capacities which arise from the collectivity brought about by bringing a number of workers together in one productive enterprise. See also Human Capital.

Capitalism

The socio-economic system where social relations are based on commodities for exchange, in particular private ownership of the means of production and on the exploitation of wage labour.

Wage labour is the labour process in capitalist society: the owners of the means of production (the bourgeoisie) buy the labour power of those who do not own the means of production (the proletariat), and use it to increase the value of their property (capital). In pre-capitalist societies, the labour of the producers was rendered to the ruling class by traditional obligations or sheer force, rather than as a “free” act of purchase and sale as in capitalist society.

Value is increased through the appropriation of surplus value from wage labour. In societies which produce beyond the necessary level of subsistence, there is a social surplus, i.e. people produce more than they need for immediate reproduction. In capitalism, surplus value is appropriated by the capitalist class by extending the working day beyond necessary labour time. That extra labour is used by the capitalist for profit; used in whatever ways they choose.

The main classes under capitalism are the proletariat (the sellers of labour power) and the bourgeoisie (the buyers of labour power). The value of every product is divided between wages and profit, and there is an irreconcilable class struggle over the division of this product.

Capitalism is one of a series of socio-economics systems, each of which are characterised by quite different class relations: tribal society, also referred to as “primitive communism” and feudalism. It is the breakdown of all traditional relationships, and the subordination of relations to the “cash nexus” which characterises capitalism. The transcendence of the class antgonisms of capitalism, replacing the domination of the market by planned, cooperative labour, leads to socialism and communism.

Historical Development: Capitalism develops through various stages. Since capital is both a pre-condition and outcome of capitalism, a period of primitive accumulation marks the beginning of capitalism; this may involve outright theft and plunder, and in particular the creation of a class of people who no longer own any means of production – a proletariat.

By freeing the labour process from traditional forms and expanding labour cooperation through world trade, capitalism initiates a rapid transformation in the labour process and promotes the development of science and technology. Meanwhile, religion and kinship ties are continuously undermined. Capital is built up in a few countries at the expense of other countries which are used as sources of cheap labour and raw materials.

The competition between millions of small-scale producers which was characteristic of the early days of capitalism, leads to the concentration of capital in the hands of just a few as a more efficient means of production. At a certain point (the beginning of the 20th-century), the entire globe had been divided up between a few great powers. Thus begins the final stage in the development of capitalism, imperialism, characterised by the domination of the banks, the formation of large multi-national corporations, by war and revolution.

The free market that had been envisioned by Adam Smith was shown impossible by the late 19th and early 20th century, when monopolies dominated nations causing massive Economic collapses in the 1890s, a world production crisis during World War I, and the worldwide depression in the 1930s. Thereafter national, and later international, regulation of the capitalist marketplace became necessary (SEC, International Monetary Fund, the World Bank, etc.); while the growth of militarization remains a necessity to expend excess production. For example, the United States having overspent the Soviet Union in militarization, in the last decade of the 20th century continued to create wars throughout the world – Panama, Iraq, Bosnia, etc. – unleashing double and triple the firepower in all of World War II. After the incredible expenditure of vast munitions and weapons (over $300 billion per year), the subjugated and destroyed nations are then offered contracts and infiltrated by capitalist business for the process of "rebuilding".

The Destruction of Capitalism: In capitalist society the working-class continues to grow, and ownership over the means of production continually dwindles into fewer and fewer hands. One example of this is the stock market, where the finance banks emphasize that "all workers" can own a piece of various companies. In fact, through offering "ownership" of these companies to more people, financial oligarchies are able to gain greater control over these companies by diluting the ownership amongst an unorganized group while also extracting capital from this large group for further investment. For example, a bank need only own 10 or 15 percent of a certain company to have an enormous controlling interest over that company, so long as the vast majority of stocks in that company are owned by thousands and tens of thousands of different people, people who do not have the time to attend shareholder meetings and are not united and unorganized on how to exert control over the company.

Furthermore in capitalist society, the value of labour increases while labourers continually receive a smaller portion of that value they create. The selling of labour itself is continually reduced from something that is sold on a monthly or yearly basis to something that is sold day by day, and hour by hour, piecemeal or in short term contracts. As a result, the income gap grows continually larger. For example in the United States, from 1988-1998, income for the poorest 20 percent of the population rose a meager $110 to $12,990. For the richest 20 percent it increased by $17,870 to $137,480. (Data according to the Center on Budget and Policy Priorities and the Economic Policy Institute, checked with U.S. Census data; January, 1999).

Capitalist ideology attempts to refute Marxism on the basis that the biggest class in capitalist society is the "middle-class". This class conception however is based purely on economic wealth (two cars in the garage, an income of x amount of dollars, etc.) and not on that person's actual relations to the means of production (See definition on class). The enormous majority of the population in a capitalist society is proletarian – however through imperialism some highly specialized proletarians (from executive officers to autoworkers, information technology workers to industrial foremen, etc.) are paid very well (not by the full value of what they actually produce, but by a higher percentage of that value when compared to unskilled workers and workers in nations subjugated to imperialist exploitation).

In order for capitalism to function correctly, the petty-bourgeois class must be in existence. This is one of the great contradictions in capitalist society, because on the one hand while capitalist production continually pushes small-business people out of the market (for example, the owner of the general store, vegetable shop, small grocery store owner – all are wiped out by corporations who establish enormous shopping centers to meet a large variety of consumer needs, with products of higher quality at a cheaper price); while on the other hand capitalism cannot survive without a class of people establishing new businesses to fill new consumer needs; and from a very select few of those businesses to recruit new bourgeois, forming large corporations (in United States this is referred to as the "American dream").

The ultimate failure of capitalism is brought about by capitalist production itself – the further technology advances, the more expensive and powerful are the machines needed for production, while at the same time, as a result of technological advances, products produced by more efficient machines become cheaper and cheaper. This has the effect of firstly driving the petty-bourgeoisie into extinction (who cannot afford to constantly upgrade their productive forces, while their products continually become cheaper (the reason they are heavily subsidized by advanced capitalist governments); and further the creation of larger corporations, which in turn must not only shrink internally to maintain "efficiency", but must also merge with other companies, forming multinational conglomerates, etc. The further this process continues, production becomes increasingly centralized, and when controlled by the capitalist, the more oppressive and backward production becomes (Microsoft at the end of the 20th century). These technological advances will inevitably lead to either the common destruction of humanity (a third world war) or socialist revolution, a democratic society where the means of production and distribution will be controlled by the majority.

Further Reading: For a detailed description of the fundamentals and early development of capitalism see: Marx, Wage labour and Capital, and Capital Volume 1 & Volume 2 – on the Process of Production, Circulation and of Capital respectively), Capital Volume 3 on capitalist production in whole.

For a detailed description of the beginning of the later stage of development of capitalism, see: Lenin, Imperialism: the Highest Stage of Capitalism.

Casualisation

Casualisation is the practice of replacing the employment of workers on continuing contracts with the hire of workers on an hourly basis with no guarantee of continued employment or acceptance of any commitment to paying rates related to the cost of living or conditions of employment which constitute a reasonable basis for life.

The advantage to employers is that it enables them to turn the tap on and off as required to meet fluctuating demand, and even more importantly, it enables the employer to threaten every worker every hour with termination of their employment. Casualisation is thus a method for forcing the price of labour-power down to its minimum.

The terms ‘casualisation’ was coined by a government enquiry into dock labour practices in Britain in 1920, where casual labour was becoming the norm for unskilled workers. It was in the fight against those conditions that the first great unions of unskilled workers were built, including the British dockworkers and the I.W.W. in the early 20th century, and in the 1930s, the U.S. Teamsters Union.

Cause & Effect

Understanding of Cause and Effect is a basic mode of scientific investigation, the discovery of the specific causes of phenomena and the complete cause: “When all the conditions of a fact are present, it enters into Existence”. However, the fixed opposition between cause and effect is limited, since every effect is also a partial cause of its own conditions of existence. The concept of reciprocity arises from an understanding of the whole network of cause-effect leading to an understanding of "complete cause".

Scepticism says that Causality is simply a subjective construction, which flies in the face of the obvious successes of industry and natural science. However, the limitation of the standpoint of Causality is shown in the inability to conceive the world and humanity's part in it as a single whole.

Further Reading: Hegel's Outline of Logic, the Shorter Logic and in the Science of Logic, Hegel on “When all the conditions of a fact are present, it enters into Existence”, “In reciprocity, therefore, necessity and causality have vanished”, “Causality as simply a subjective construction”, “Effect contains nothing whatever that cause does not contain”, and Lenin's comment on the place of Causality in Hegel's Logic.