The Basic Ideas of Marxist Economics

What are some common but incorrect ways of defining capitalism? Explain why they are incorrect.

'Capitalism is a matter of private property' - private property has existed before capitalism. Also there are places where there is no private property that still follow the laws as capitalism 'Capitalism is the pursuit of profit' - The pursuit of profit also predates capitalism. The Athenian traders of classical Greece pursued profit. In some ways they were capitalists. But they were not part of a capitalist mode of production.

What are some counteracting tendencies to the long-term decline of the rate of profit?

- An exceptional increase in the rate of exploitation, forcing down workers' standard of living - Access through foreign trade to sources of cheap raw materials - Devaluing constant capital

"Unionisation causes recessions". How would you argue against this?

- By resisting any increase in the rate of exploitation, it is true that workers can contribute to capitalism's difficulties. - This doesn't mean however, that workers struggles are responsible for the crisis, nor that if there were no struggle, capitalism would be able to escape its contradictions.

What are the social effects of improvements in factory machinery/ technical equipment?

- Improved machinery in the workplace will tend to make employees redundant and increase unemployment, as fewer workers are needed to produce the same level of output. (Although if accumulation is rapid enough, and output expands greatly, those workers will be employed elsewhere in the system, and unemployment need not rise). - Improved machinery also increases productivity, which drives down necessary labour time and hence increases relative surplus value - The organic composition of capital rises.

What are some developments in capitalism today that were different to the situation Marx faced in his day?

- It has become more centralised in the hands of a few giant corporations - It has been subject to the growth in the role of nation states - The banking system has become international

Accumulation has driven some of the most important transformations to the capitalist system. What are some of these transformations?

- The concentration and centralisation of capital - The rise of the world market

What are the limits on capitalists driving down the standard of living?

- The health of the workforce can decline and reduce productivity if surplus value - relative or absolute - is increased too much - Workers' organisation also limit capitalist offensives on the standard of living

What two factors does the rate of profit depend on?

- The rate of exploitation - The organic composition of capital

What role do banks play under capitalism?

- They help to accelerate the centralisation of capital into large monopolies - They bankrupt the smaller, weak companies when they cut them off from further loans

Explain the tendency for the rate of profit to fall

- Under capitalism, there is a constant tendency towards increased technical efficiency and improvements, due to competition. - This tendency produces the drive to accumulate, and increases the organic composition of capital. - But dead labour (capital) cannot produce any extra surplus value, which is where profits come from - The rate of profit will therefore fall (unless the rate of exploitation increases and the mass of surplus value grows)

What are some factors that contribute to the cycle of 'booms' and slumps?

- the average life of most fixed capital (i.e. the part of constant capital made up of equipment, machinery, etc.) - The expansion or contraction of bank lending - Fluctuations in world trade - the actions of governments

How does capitalism differ from earlier class societies?

1. In slave or feudal societies, exploitation was transparent. The distinction between the 'necessary' labour time and the 'surplus' labour time was obvious. This division also exists under capitalism - but it is obscured by how workers are divorced from control over production and how workers must sell their labour power. It is impossible how much time is spent working for yourself, and how much time spent working for the boss. 2. Capitalism is a uniquely dynamic and expansionary system. The reason for this expansion is that capitalists direct most of their surplus not towards consumption but towards investments back into the process of production.

What two qualities define a mode of production?

1. The forces of production 2. The relations of production

What is a crisis?

A period where the anarchy of the capitalist system is exposed, and it's inability to meet human need becomes obvious.

When are the counteracting tendencies against the fall in the rate of profit strongest: during a boom or during a bust?

A bust. The counterbalancing tendencies against the decline in the rate of profit are prevailed over by the increase in the organic composition of capital during economics booms. The counterbalancing tendencies against the fall in the rate of profit are strongest during times of crisis.

What is a commodity?

A commodity is something that is produced solely for sale on the market. How much is produced depends primarily on how much can be sold.

What is capitalism?

A system of generalised commodity production.

What is absolute surplus value?

Absolute surplus value is an increase in surplus value through the lengthening of the working day, either by extending hours or cutting breaks.

What is abstract labour?

Abstract labour is labour which creates the value that money represents. Abstract labour arises when all the acts of concrete labour are subordinated to the common goal of selling the commodity for money on the market. The term refers to what all labour has in common: the expending of human labour time

What is wrong with this argument: "I make profits through exchange. Buy low, sell high."

An exchange is when you buy or sell something. Exchanges do not create any value. If one commodity is sold for more than its value, another must be sold for less. If any capitalist makes a profit this way, it is at the expense of another.

Why do capitalists let banks and other financial institutions take a share of their profits?

Because banks play a useful role for the system. It allows capitalists with insufficient funds but who are ready to invest to take out loans.

Why is constant capital called 'constant'?

Because its value does not increase in the course of production. It is not called constant because the size of constant capital is fixed.

Why is there a tendency for booms over time to become shorter and weaker and slumps longer and deeper?

Because of the tendency of the rate of profit to decline. Accumulation becomes weaker because capitalists are short of profits to invest or are unwilling to invest it in large factories or more workers, and so instead let their wealth accrue interest in the bank, or use it to take over other, smaller companies. However, the failure to invest in surplus value, to put it back into the productive process, itself makes the crisis worse.

Why is competition important when looking at Marxist economics?

Because the continual pursuit of higher profits is central to the dynamic of capitalism.

Compare how bourgeois economists understand capital with how Marx understands capital.

Bourgeois economists define capital as any sort of tool or machine. Marx argued that whether something is capital or not depends on the social relations: "A cotton-spinning jenny is a machine for spinning cotton. It becomes capital only in certain relations."

When did capitalism emerge?

Capitalism rose within the womb of feudalism. Its origins lie in the spread of the market, international trade, and finance in the fifteenth and sixteenth centuries. The bourgeoisie accumulated wealth and property before it made a bid for power (with the revolutions in England in 1641 and France in 1789). The climax came when capital took direct control of the process of production.

Where does the drive to accumulate come from under capitalism?

Competition. The pressures of competition mean that no capitalist can relax - they will be in danger of being undercut in the marketplace if they fail to maintain the productivity of the workplace to the highest level. This pressure forces bosses to maximise exploitation of workers. But it also forces them to invest a share of the surplus value they extract back into the process of production. A chunk of it obviously goes to the directors and the shareholders in the dividends. But if they consume too much of their profits compared to their rivals, eventually their productivity will lag behind.

What is the concentration and centralisation of capital?

Concentration refers to the build-up of capital. Centralisation involves the absorption of small companies into one large corporation. Eventually, as we have seen in the 20th century, capital becomes concentrated in a few hundred giant corporations which dominate every major national economy. This is also known as 'monopoly capital'.

What is concrete labour?

Concrete labour refers to specific character of labour. For example, the concrete labour of a shoemaker is different to the concrete labour of a baker. They each require their own specific skills and tasks, governed by the type of use value they produce.

What is constant capital?

Constant capital is the money spent on purchasing raw materials, equipment, buildings, machinery, etc. It expresses how much 'dead labour' there is in the system.

True or False: accumulation of constant capital will always increase the organic composition of capital

False. If variable capital increases in the same proportion as constant capital the organic composition of capital will remain unchanged.

True or False: the financial system and the stock market create surplus value in of themselves.

False. The financial system and the stock market always depend on the creation of surplus value at the point of production.

How did capitalism facilitate the rise of the world market?

From its origins, capitalism is a system that transcended national boundaries. The first 'primitive accumulation' of capital which galvanised the industrial revolution was provided by the enormous profits made by British slave traders and plantation owners. It was however, the rapid growth of productivity as a result of mechanisation and factory production that made sales on the world market imperative. In the 19th century Lancashire could produce enough cotton for all of Britain's workers in just one morning! For the rest of the time, it was making cotton for the entire world.

Explain how the cheapening of capital can counteract against the rate of profit to fall

Increases in productivity in the industries producing the means of production leads to a decline in the value of the means of production: they become cheaper. Capitalists using older and less efficient machinery will be at a competitive disadvantage. The older machinery will suffer a depreciation., i.e. it is no longer worth what it used to be. This reduces the value of constant capital, counteracting its tendency to rise and the rate of profit to tall. Note: this depreciation represents a loss in capital value for the particular companies involved and adds to their difficulties in the short term.

Explain how increases in productivity increase surplus value

Increases in productivity means that goods that workers need fall in value, since they take less labour time to produce. This means the value of labour power falls, which in turn means the amount of socially necessary time to work also falls. There is an increase in relative surplus value.

Can capitalists increase their profits through improved technology?

Individually they can. But the pursuit of their own interests undermines the collective interests of them all.

Where does surplus value come from? (surplus value allows for profits, interest for money-lenders, taxes to the state, etc.)

It comes from the surplus labour time which workers perform.

What is labour power?

It is the capacity for a worker to labour. Under capitalism, workers must sell their labour power for a wage. This sale transforms labour power into a commodity.

How is the rate of exploitation defined?

It is the ratio between surplus labour time to necessary labour time. This ratio applies to all class societies. r = S / V Under capitalism, it can also be expressed in value terms as the ratio of surplus value to value of labour power.

What is the organic composition of capital?

It is the ratio of constant capital to variable capital

How does the banking system accelerate the process of accumulation?

It speeds up the process by channelling money from those who are reluctant to invest to those who are willing to do so. However, any system of credit is vulnerable if the borrowers are unable to repay.

What is the labour theory of value?

Labour is the source of all wealth

Do commodities always have an exchange value?

No. Commodities having an exchange value depends on the social relations. A loaf of bread you bake at home has a use value but not an exchange value.

Does capitalist accumulation benefit everyone?

No. Even if in some countries capitalist accumulation has led to improved living standards. Workers' share of production has not risen. Workers' rate of exploitation has not fallen. The relative power and wealth of the capitalist class has increased.

Does the rate of profit apply to individual capitalists? Why/ why not?

No. It applies only to the capitalist class as a whole. This is because profits can come from not only the workers that individual capitalists employ, but also from workers employed by other capitals (just as the early merchant capitals grabbed a share of he surplus produced by the peasants who worked for the land-owning class).

Is the main goal of a capitalist to sell commodities?

No. It is to end up with more money than they started with.

Does all the surplus value produced by workers go to capitalists?

No. Some of it goes to land-owners as rent, to the state as taxes, and to the banks (and those who deposit money with the banks) as interest.

Some understand the labour theory of value to mean commodities will exchange for money at a price which corresponds to the amount of value they contain, measured in labour time. For example, I get paid $20/ hour for one hour to make a toy. The toy will therefore be sold for $20. Is this a correct understanding of the labour theory of value?

No. The exact price a commodity sells at is irrelevant to the labour theory of value. The theory does not require a precise matching of relative prices of things with their underlying value.

If a company produces products which are uncompetitive and make a low profit or a loss, are workers not exploited?

No. Workers of that company have still performed surplus labour time. They have produced products which contain surplus value. However, if the company made it at a loss, that surplus value is not realised.

What is wrong with this argument: "I don't exploit my workers. My profits come from capital: me re-investing old profits back into the business"

Raw materials, machines, tools, etc. These all have value. Labour also produces value. Your capital investment into these things has to be covered by the price of the final commodity you sell. But you make more than the price of the commodities you sell; you make profit. The capital you invest in the business does not make you profits because capital does not produce any new value on it's own. Neither capital nor land are an independent factor of production. They only produce value because workers act upon them.

Can rising unemployment help capitalists restore the rate of profit?

Rising unemployment does place capitalists in a better position to lead offensives against workers. However, in the short term, rising unemployment also makes it difficult for capitalists to sell their products. So there is no easy way out for capitalists looking to restore the rate of profit.

What is the historical achievement of capitalism?

Scientific + technological innovation and the expansion of the forces of production and

What are the two ways surplus value can be increased?

Surplus value can be increased by - increasing the length of the working day, or - reducing the proportion of the day that is spent by workers producing for themselves

What did Marx argue would be the main regulators of changes in prices over the long term? Give some examples.

The change in the value of commodities (measured in hours of socially necessary labour time) would be the main regulator of changes in prices. For example, calculators and microchips have become cheaper because the amount of socially necessary labour time required to produce them has declined. Where socially necessary labour time has not declined or changed that much, the price of those commodities has increased - often faster than the rate of inflation. For example, houses and books.

What is the circuit of capital? How does this compare to how a worker spends money?

The circuit of capital refers to how capitalists spend money to purchase commodities, which are then sold for a greater sum of money: M-C-M. A worker has to sell commodities for money, which is then used to buy more commodities C-M-C: .

Marx argued that he did not discover the working class: he merely pointed out the key to it's exploitation. What was that key?

The difference between the value of labour power itself and the value which labour creates in the process of production. In other words, the labour time necessary to replace the value of labour power (i.e. feed you, clothe you, etc.) is less than the labour which workers actually perform. E.g. the former might take 4 hours and the latter 8 hours.

What is the key to the cycle of boom / bust?

The fluctuations in investment (or rate of accumulation). New investments mean demand expands faster than output, as new means of production are produced more cheaply and capitalists scramble in competition to acquire them each before the other. As more products are then released onto the market, output begins to exceed demand. Investment slows and the means of production industries are thrown into a slump. Workers in steel, construction, etc. industries are laid off, and the whole system contracts. This then leads to a new wave of investment, and the cycle repeats.

What allowed the division of society into classes?

The generation of a surplus product in excess of the minimum essentials required to sustain life. This could only arise when the productivity of human labour had increased to a certain level. This breakthrough came around 8,000 years ago with the development of tools which enabled the cultivation of land in the Middle East and Asia.

Give an example of an industry that has seen the rate of profit fall

The microchip and computer industry. The first companies in this industries made excess profits. But as capacity increased, and more competitors entered the market, prices collapsed dramatically. The rate of profit declined, and the weakest firms (such as Sinclair) went bankrupt.

How is the rate of profit defined?

The rate of profit is the ratio of surplus value (S) to capital (i.e. the sum of constant and variable capital: Rate of profit (r) = S / (C + V)

What is the relationship between use value and exchange value?

There is none. There is no correspondence between something's usefulness and it's exchange value. Something can be very useful, but free - like air. And something can be totally useless but highly expensive - like bombs.

What are the forces of production?

These are the tools, machines and technology created by human labour. They are a reflection of the knowledge and skills of human beings

What are the relations of production?

These are the ways in which production is socially organised. It is defined by the organisation of the division of labour (i.e. who works) and by how the forces of production are distributed across society. Classes are defined by relations of production.

Why would capitalists invest in such a way as to raise the organic composition of capital if that hurts their rate of profit?

They have to. Competition means that the first capitalists who invest in technical improvements to the production process gain a competitive advantage over their competitors. Eventually, all the competitors must invest in similar improvements, or risk going under. When this happens, the value of the commodity falls and the temporary excess profits disappear. The final result is that socially necessary labour time is decreased, the organic composition of capital rises, and the rate of profit falls.

What is relative surplus value?

This is an increase in surplus value through reducing the time taken up by 'necessary' labour. This may occur through capitalists forcing down workers' standard of living.

True or False: if one commodity is sold for more than its value, it must mean that somewhere else in society, other commodities are selling for less then their value. Explain why true/ false.

True. Because if more money is spent on one commodity, there will be less available to spend on others.

How can we determine the value of labour power?

Under capitalism, labour power is a commodity. Like any other commodity, it's value is determined by the socially necessary amount of time required to produce it. Feeding, clothing and housing workers, and the next generation of workers, are all required to produce labour power.

What governs the process of production under capitalism? How does this distort our understanding of where value comes from?

Under capitalism, the exchange of things govern the human process of production. Money itself appears as the goal of production and the source of value. But money only has value to the extent that it gives you a claim on the labour of others. Gold on a desert island has no use at all.

Every commodity has two types of value. What are these values?

Use value - expresses the usefulness of a commodity aka why people want or need it. Qualitative. Exchange value - refers to what a commodity can be sold for. Expressed in money. Quantitative.

What is variable capital?

Variable capital is the money spent on purchasing labour power.

Why is variable capital called variable?

Variable capital is the sole part of capital that produces surplus value. It is called variable because the total amount of surplus value produced will vary according to how hard and how productively the workers actually work.

Is there a limit on increases in variable capital? If so, what is it?

Yes. If variable capital increases, a higher proportion of the workforce is employed. This pressures capitalism as it begins to exhaust it's labour supply, and pressures capitalists to increase wages, in competition with other capitalists.