An introduction to Marx's Labour Theory of Value

It is fashionable these days for bourgeois economists and sociologists to refute the dialectical materialist method of analysis developed by Karl Marx. One of the basic ideas of Karl Marx that is constantly being denied by the bourgeois is his theory of value. This is understandable because from this very theory flow all the other conclusions of Marx, in particular that of the need to overthrow capitalism if we are to put to an end to all the contradictions of this unjust system which condemns millions of human beings to abject poverty, mass unemployment, periodic economic crises and wars. In this article (divided into two parts) Mick Brooks, using up to date facts and figures, shows how the Marxist Labour Theory of Value is still valid today. 


Marx's view of history

"Every child knows a nation which ceased to work, I will not say for a year, but even for a few weeks, would perish. Every child knows, too, that the masses of products corresponding to the different needs required different and quantitatively determined masses of the total labour of society. That this necessity of the distribution of social labour in definite proportions cannot possibly be done away with by a particular form of social production but can only change the mode of its appearance, is self-evident. No natural laws can be done away with. What can change in historically different circumstances is only the form in which these laws assert themselves. And the form in which this proportional distribution of labour asserts itself, in the state of society where the interconnection of social labour is manifested in the private exchange of the individual products of labour, is precisely the exchange value of these products." (Marx to Kugelmann, July 11, 1868, shortly after the publication of Capital.)

When looking at historical materialism, the Marxist theory of historical development as a whole, we ask the question: what differentiates humans from other animals? We find that humans differentiate themselves by transforming themselves and external nature. The process by which people define and redefine themselves is the labour process. Sure, humans are thinking beings. But why do they need to develop the capacity for thought? What are they thinking about? Usually they are thinking about survival, about where the next meal is coming from. Marxists argue that the way people organise themselves to gain their daily bread is the mode of production, the skeleton of any form of society. And insofar as we can talk of an objective notion of progress in human history, it is given by the development of the productive forces, which in turn is achieved by raising the productivity of labour, the increase of our power over external nature.

The "magic" of the marketplace

Now to the capitalist mode of production. Capitalism is mystifying to understand. The cause of our mystification is the market system. Capitalism presents itself to us as a system of universal commodity production (that is, where everything is produced for sale) where even labour power is a commodity. That is how Marx defined capitalism. We hear a lot about the "magic of the marketplace". Once in place, a system where everything is bought and sold strikes us as eternal and natural. We need to remind ourselves that generalised commodity production is a late and recent development in social evolution. For hundreds of thousands of years humans made their living without the aid of markets.

Secondly we need to understand what markets do. They are a form of the social division of labour, as explained by Marx. But that is not how they appear to us. A worker in Malaysia gets a job on a dredger, which is digging out tin ore from the river. After passing through dozens of sets of hands the tin ends up in Taiwan, where it is used to make solder to manufacture a transistor radio. Meanwhile a garment worker in Milan machines a piece of cloth that began life as raw cotton in the field of a peasant in Pakistan. The peasant is very poor. All he has to listen to at night is the transistor radio. He doesn't know about the workers in Malaysia or the woman in the sweatshop in Taiwan with the electric soldering iron. He doesn't know about the catwalks in Milan and the illegal immigrant on the outskirts who turned the raw cotton he grew with his own hands into a luxury item.

What is going on here is a division of labour, indeed a global division of labour. But nobody sits down in a meeting and says: "Here's what we need. Here's how long it takes to get it. You're good at this, why don't you do this? You're good at that, why don't you do that? OK, let's vote on it. We've got agreement; let's do it." The worker in Malaysia would like to be a teacher, but it's not to be. He has a family to feed. The woman in Taiwan would probably prefer not to spend long hours looking at circuit boards doing her eyesight in. The market is a ferocious dictator, but no one person takes decisions. It just happens, or so it seems. None of these economic actors (as economists call people) realise how everyone is dependent on everyone else. The forces of supply and demand, we are told, act as signals. Nobody knows how much tin we all need at the moment. But if too little is being produced, the price will go up because of shortages. If the price goes up there is a super-profit to be made. And where there is a super-profit, there will be an inflow of capital. Capitalists making average or below average profits in other sectors of the economy will be attracted to tin production. To keep pumping the stuff out of the factory gate they will be prepared to hire more workers. They may even have to post higher wages, to attract workers from other industries. The system is unplanned. But the capital will keep on flowing in as long as there is money to be made. This is what Adam Smith called the "invisible hand" in celebrating market forces. As more capital flows in the price of tin will be beaten down and the rate of profit in that sector return to the average. Quite often capitalists will overshoot, respond to the shortage by overproducing, leading to unsold stocks and bankruptcies. Capitalism, which is held up to us as the apex of efficiency, necessarily and always wastes human and material resources through its planlessness. The boss wouldn't let you get away with this in "his" factory! But the system, we are told, works itself!

Two divisions of labour

The market is not the only division of labour. In 1937 Ronald Coase, a right-wing economist, posed the question that if markets are so wonderful "why a firm emerges at all in a specialised exchange economy?" He goes on. "It is convenient if in searching for a definition of a firm, we first consider the economic system as it is naturally treated by the economist…The normal economic system works itself. For its current operation it is under no central control, it needs no central survey. Over the whole range of human activity and human need, supply is adjusted to demand, and production to consumption, by a process that is automatic, elastic and responsive. An economist thinks of the economic system as being co-ordinated by the price mechanism, and society becomes not an organisation but an organism." (We shall see later what an idealised view this is of the workings of capitalism, but for the moment bear with it.) After setting forward the conventional view of the magic of the marketplace, Coase goes on. "Within a firm the description does not fit at all…If a workman moves from department Y to department X, he does not go because of a change in relative prices, but because he is ordered to do so."

Way before Coase, Marx had realised that there are two divisions of labour within a capitalist economy, one in the marketplace and the other within the firm. "The very same bourgeois mentality which extols the manufacturing division of labour, the life-long annexation of the worker to a partial operation, and the unconditional subordination of the detail worker to capital, extols them as an organisation of labour which increases productivity - denounces just as loudly every kind of deliberate social control and regulation of the social process of production, denounces it as an invasion of the inviolable property rights, liberty and self-determining genius of the individual capitalist. It is characteristic that the inspired apologists of the factory system can find nothing worse to say of any proposal for the general organisation of social labour, than that it would transform the whole of society into a factory." (Capital)

Both divisions of labour just impose themselves on us as workers. But the division of labour within the workplace is consciously planned by the boss. He doesn't just hope that there are raw materials for you to work on somewhere out there. He makes sure they are stored up ready for you before you get in. And he makes sure there's a worker in place to do what's needed. All this is done in advance. He may say markets are wonderful, but he's not so stupid as to rely on them himself if he can help it. But the only way he can make money is by selling into the marketplace. And here nothing is done in advance. You lay out your stall and hope someone wants your stuff. If they don't, then all your work has gone to waste. But you only find out after the event. The real secret of capitalist production is to be found in the factory, in the exploitation of the working class. This fact is masked by the apparent dominance of market forces over capitalist society. Marx had to start with the commodity (goods made for the market) because the market dominates the form of appearance of the capitalist economy.

Supply and demand?

'The market is governed by the forces of supply and demand'. Isn't this true? Well, yes and no. Capitalism is an unplanned, anarchic, system. It is not chaos. There are forces at work to establish the 'proportional division of labour' that must exist in any society. These forces work in anarchy and through anarchy. Their immediate triggers are greed and stupidity. Capitalists all search for a higher rate of profit. Those on the ball enough will spot a shortage by raising prices. By moving capital into an area with high prices and an above average rate of profit they will help to eliminate the shortage. By their restless search for above-average profits, they will unconsciously help to establish an average overall rate of profit. The apparently random fluctuations in price given by supply and demand no more contradict the role of value as the central regulator of the system than the movement of waves up and down on the surface denies the concept of sea level - which does go up and down according to the pull of the tides. Supply and demand, as Marx pointed out is just the executor of the laws of capitalism. The law of value gives us the basic structure and dynamics of the system. It is the way labour is allotted to various tasks in an unplanned system. Capitalism produces Mars bars and Coca-Cola. It also produces workers and capitalists, rich and poor, and continually reproduces these class relations through the market mechanism, driven by the law of value. The apologists of the capitalist economy say that markets give us 'consumer sovereignty'. The market system is in effect a giant economic democracy, where we vote with our money for what we want, not just once every five years but every time you go down the road for a bottle of milk. Consumers weigh up what goods they want most. For their part producers have to give people what they want in the quantities they want. Otherwise they go out of business.

Is this right? Neo-classical economics starts with people's wants. But where do they come from? Are they just 'exogenously given', as they say in the textbooks? Most of our wants are provided by the possibilities for humans given by the development of the productive system. It is quite likely that medieval peasants were bored on long winter nights. It is unlikely that they sat around wishing someone would hurry up and invent television. And the idea that these days giant oligopoly firms make their money by 'giving people what they want' is quaint, but naive. On the contrary they spend vast sums making sure we will want what they give us, by manipulating people's wants. The most obvious way they do this is through advertising and the sales effort. This doesn't come cheap. Ten years ago advertising alone swallowed up 1.3% of our National Income. Marketing expenses also include finance credit, accounting, lawyers' fees, accounting costs, packaging, commissions, coupons, samples and trade allowances. For toiletries marketing is 14p for every £1 of sales, for soap 10p and for pharmaceuticals 8p. So much for giving people what they want!

Nor is it true that markets equate the costs and benefits to society of production for people's needs. First under capitalism production is for profit, not for need. It is just a nuisance for the capitalist that he has to sell his goods to somebody before he can realise the profit. For the system as a whole it's not a nuisance - it's a contradiction. Each capitalist strives to drive down the living standards of his workforce in order to maximise profits. But for the capitalist system the working class are their consumers. That means they should have plenty of money jangling in their pockets. One way a capitalist nation can solve this contradiction is by driving down wages at home and selling abroad. As Keynes told the MacMillan Committee during the Great Depression, "If you are part of an international system, you can always improve matters by cutting wages more than your neighbour". But for world capitalism there is no abroad. Attempts to offload the contradiction merely generalise the crisis and produce results such as the 1929 Depression.

And markets measure the costs and benefits, not to society as a whole, but for the capitalist. This can have perverse results, results that are very costly for 'society', for the rest of us, but not for the capitalist firm The firm belches out smoke and pollutes our air. It does so because this is cheaper than attaching a filter. The firm doesn't have to pay the costs of hospitalisation and early death of workers with lung and respiratory illness caused by pollution. And once it's in the air, you can't 'choose' not to 'consume' the pollution. Paradoxically this affects the 'consumer sovereignty' of everyone. Even a millionaire in Mexico City can't buy clean air, despite the fact that the pollution poisoning his lungs is the source of his profits.

And what sort of electoral system is it that gives 257 billionaires more 'votes' (more money) than 2 billion poor people in the world? For capitalist economists the distribution of income, like wants, are 'exogenously given'. In fact capitalism produces rich and poor as inexorably as it produces Coca-Cola. But capitalism rests on the exploitation of the working class, whether organised by bureaucrats in a corporation plan (big companies have five year plans just like Stalin) or whether imposed by the apparently impersonal workings of the world market.

Having dealt with how the allocation of social labour time takes the form of value in an exchange economy it is time to look at the central mystery of the market, the ratio of exchange, or in Marxist terms the substance and magnitude of value. In Capital Marx starts with the isolated act of exchange of one commodity for another, in this case of twenty yards of linen for a coat. As inhabitants of a market economy, we don't blink at this notion. But what's really happening? Coats do not really confront piles of linen. People confront each other, but they do so via the products of their labour. That is why market forces are important to us, but also mystifying. Relations between people appear to us as relations between things. This is what Marx called commodity fetishism.

Value

Even in 1867 coats v linen was a tedious example, but note what else is unusual about it. In a market economy we do not usually exchange things we've produced but do not want for things we haven't produced but do want. We swap things around with money. But Marx does not want to take money for granted, as capitalist economists invariably do. He wants to show how the universal equivalent emerges inevitably as exchange becomes generalised. Like him, we will derive the money form from the value form. This belongs a little later. Since twenty yards of linen is being exchanged for a coat, they must have something in common. Clearly this cannot be a physical characteristic. Bourgeois economics argues that they are both objects of utility. But if artisans produce coats all day, they are not producing for themselves and selling the surplus. They are producing the coat for sale from the word go. In other words the coat has no utility for its maker. Sure, if nobody wants to buy it will turn out to have no exchange value. Use-value is a precondition for the determination of value. It does not determine its magnitude. Modern neoclassical economics makes marginal utility the foundation of its value theory. They obviously came up against the objection at a very early stage that water, the most vital requirement of life, is virtually free, while diamonds (basically useless lumps of carbon) are very expensive. They propound a grand 'paradox of value' to be found in almost all the textbooks. This states that the reason we don't rate water very highly is because there's a lot of it about. Though water is valuable in absolute terms we don't care much for any more because we've already got a lot. We value the marginal unit, not the mass. Now really this amounts to nothing more than noticing that water is relatively abundant. Likewise diamonds are dear because they are scarce. They don't really need to go on and on about marginal utility at all. This is not good enough! Marx, and Ricardo before him, were aware that paintings by Van Gogh and the like were exceptions to the law of value. Since they are unique, they are not reproducible at will. In that case their price will be determined entirely by how much collectors are prepared to pay for them, by their utility.

But both Marx and Ricardo were concerned to analyse the production process as the life process of society. If we want to understand the social division of labour imposed by the market, we need to understand how an expansion of demand calls forth a capital inflow and an increase in the supply of the vast bulk of goods that can be increased in quantity by human effort. That bourgeois economists spend so much time contemplating the situation of people seated beside abundant springs or dying of thirst in the desert only shows how remote they are from the real production process.

Use-value and exchange value

That a commodity is both a use-value and an exchange value is a contradiction. What does that mean? It means that labour expended on the commodity is only a potential value. Someone must be prepared to buy it. Value has to be validated in the marketplace. Likewise it is irrelevant to me if you spent twice as long to make a chair as everybody else. You have just wasted your time. I and every other buyer expect an average price determined by the extant productivity in that sector at the moment. It is not the amount of labour individually or accidentally expended on a commodity that determines value, but the amount socially necessary for its production. This is a vital concept when we come to look at the dynamics of the capitalist system.

The only thing both commodities have in common is that they are both objects of human labour. Obviously all real labour is the labour of particular types of worker, whether maker of coats or bus driver. As such they are examples of individual labour. They are also all taken from the general pool of social labour available to satisfy our needs. The worker in Malaysia is qualified to be a teacher, but capitalism in Malaysia doesn't need him as a teacher. He gets a job on the dredger digging up tin ore. In the act of exchange social labour is seen as its opposite, social labour and concrete labour of a particular kind as representative of its opposite, abstract labour. How can the labour objectified by a worker on a dredger into tin ore be equated with the labour of a seamstress objectified in a dress? "Indifference towards specific labours corresponds to a form of society in which individuals can with ease transfer from one labour to another, and where the specific kind is a matter of chance for them, hence of indifference. Not only the category, labour, but labour in reality has here become the means of creating wealth in general, and has ceased to be organically linked with particular individuals in any specific form. Such a state of affairs is at its most developed in the most modern form of existence of modern society." (Marx - Grundrisse) In other words, both forms of individual, concrete labour are part of the pool of social labour available to meet our needs.

What are we doing when we use twenty yards of linen to measure the value of a coat? In effect the twenty yards of linen is used as what he called the equivalent form. In other words it is being used in a one-off act of exchange as performing one of the functions of money. A commodity is both a useful object, a use-value, and an exchange value. It contains a contradiction within itself. When it enters into exchange, the use-value of the equivalent serves to measure the exchange value of the other. The contradiction is not eliminated, it is reproduced on a higher level in the money form.

This is exactly what we do when we weigh things. We know both the things we want to compare are completely unlike in every respect but one. To be comparable, they must have some common property. They both have weight (mass). There is no such thing as weight that we can isolate and measure independently of objects with weight. Likewise with value we can't just add up the quantities of labour congealed in the product at different stages of production. In the case of weighing something we start off by placing one object on a set of scales and finding it equal to the item on the other side, say a lump of metal. At a later stage, as we start weighing things regularly, we will probably ascribe a conventional measure to the lump of metal (for example ten kilograms). This, of course, is how money emerged from the exchange process.

What we are doing in assessing value is essentially the same. First we know both commodities are products of the pool of social labour. So they have this common substance. Now let's move away from Marx's example and go with ten biros equals one pint of beer (both cost £2). Why? Marx's example might give the impression that artisans made the commodities from scratch - herded the sheep, carded the wool, tailored the coat. In that case you might think the artisans could say to themselves, 'this coat contains X hours of my work.' This was never Marx's intention. He was not analysing petty production - he was examining the commodity as a first step in the critique of capitalist production. Now in the case of our more recent example it should be evident that even a 20p ballpoint pen is the product of a world division of labour. And it is the product of large-scale capitalist production. The plastic is manufactured by enormous ethylene crackers by oil that has first been to a refinery. The crude oil may come from the North Sea, extracted by derricks twice the size of Nelson's column. Or it may come from the Gulf states, or Mexico, or Nigeria, or Brunei or anywhere else. We don't know. The metal tip - where does that come from? How much time did it take to extract the ore, refine the metal and shape the tip? It is overwhelmingly obvious that we cannot possibly work out how much labour time is involved in the production of even such a simple object as a cheap pen. Marx's value theory is often presented as a simple costs of production theory, where we add up labour value-added in the various stages of production to come up with a final value. Actually Adam Smith's value theory was one where he tried to assess the 'contribution' of each 'factor of production' to the value of the final product. Ricardo and Marx, on the other hand, resolved the value of a commodity into congealed labour time and then examined the struggle of the classes claiming to personify the factors of production over the value produced.

Just as we don't know how much weight an item has except by comparing it with something else, so we can't assess value except by comparison made in exchange. Exchange value is the phenomenal form of value. And the value of commodities is determined by the labour time socially necessary for their production.

The dynamics of capitalism

Why do we need a theory of value? How does it help us analyse the dynamics of capitalist society? Here's an example. The first ballpoint pen was produced by the Reynolds International Pen Company in 1945. As is usual in capitalist innovation, Reynolds did not invent the ballpoint. He just bought the patent off the shelf. The price was set at $12.50 but the cost of production was just 80c. The novelty value of the pens caught on and production, and profits, expanded sharply. Rivals cashed in, with Eversharp and Schaeffer both marketing pens at $15. By now Reynolds had pioneered mass production methods and unit costs had fallen to 60c. The cosy relationship with Schaeffer, Eversharp and Reynolds not treading on each other's toes came to an end as the Ball-point pen Company of Hollywood marketed a $9.95 model and David Kahn announced plans for the $3 pen. Reynolds retaliated with a $3.85 ballpoint, though production costs were now about 30c a go. By Christmas 1946 there were 100 manufacturers, some selling pens for $2.98. By February 1947 the cutting edge price was 98c and the following year saw the 39c ballpoint costing just 10c to mass-produce. In 1951 prices had fallen further to 25c as the ballpoint effectively replaced the fountain pen (remember them?) in everyday use.

Why did ballpoints get cheaper? Because it took less labour time to produce each one. That's obvious. It's equally obvious that Reynolds and his fellow capitalists were not using labour time calculations. They were just chasing a fast buck. And they decided, in competing with one another, that the best way to sell things cheaper than the opposition is to make them cheaper - that is with a smaller expenditure of labour time. That is precisely how the law of value asserts itself behind the backs of the individual actors.

Big business

Every year the 'Financial Times' publishes its 'Global 500', its list of the biggest companies in the world. Businesses are ranked by market capitalisation, which basically means total share price. In 2001 the biggest firm was General Electric (not to be confused with the British-owned General Electric Corporation). General Electric is a conglomerate with a finger in all sorts of pies - though not, these days, electricity. Its market capitalisation comes to $474,955 million. Its sales were $110,832 million, but profits were higher than Microsoft's at $15,942 million. Capital employed was again greater at $119,198 million. In many ways General Electric is more typical of the biggest business. It employs 340,000 workers. In fact if you were to rank big business by the number of workers Wal-Mart would come top with 1,140,000 on the payroll.

Jack Welch was the Chief Executive Officer of General Electric till he retired last year. He must have worked very hard. He collected $40 million in remuneration in 1997. Jack therefore got 1,400 times as much as the average blue-collar GE worker in the US. One reason the firm gave him so much is that he saved the owners (the shareholders) lots of money. He saved money by sacking loyal American operatives and 'downsizing' work to Mexico. Jack earned 9,571 times as much as the average Mexican employee. But don't get the idea Jack is basically on a wage. Most of his wedge came from stock options - the right to buy the company's shares. In the roaring stock market of the 1990s it was a one-way bet for the rich. Chief Executive Officers got 85 times as much as the rest of the workforce in 1990. By 1999 it was 475 times as much, and stock options were the crowbar opening up the gap between rich and poor. In 1979 the top 1% were hanging on to 20.5% of American income. Twenty years later it's over 40%.

In 2000 the biggest firm was Microsoft, with a market capitalisation of $586,196 million. That is nearly $600 billion! Microsoft's turnover (sales) was $19,747 million in 1999. Its pre-tax profit was $11,891 million. The figure for capital employed was $24,438 million. It should be explained that share capitalisation is an assessment of expected future profitability of the company, for that is what speculators are interested in when they buy the shares. It is not a stocktake of the assets. Most of the assets of Microsoft are in any case intangible. They are monopoly rights to intellectual property, like the Windows system itself, rights jealously guarded by high-paid lawyers. Microsoft employs 'only' 31,000 workers - though readers who know how the firm operates realise that plenty more are subcontracted into the global 'team'.

The great question of our age is how these gigantic corporations got rich and stay rich at the expense of the rest of us. That question is answered by Marxist economics. Let's first look at classes in capitalist society. We'll use the definitions in the 'Communist Manifesto'. Our enemy is the bourgeoisie "the class of modern capitalists, owners of the means of social production and employers of wage labour." These days the means of production are owned in the form of shares. Even Bill Gates, the world's richest man, is not the sole owner of Microsoft, though he is reckoned to have a controlling interest in the company. But General Electric is more typical in this respect. No one shareholder owns more than a tiny fraction of the total stock - remember we're talking about almost $500 billion. What does this show? It shows how capital has accumulated. Big business has grown enormously since the time of Marx, when most firms were family-owned.

Classes in capitalist society

Then there's us. "By proletariat" (we mean) "the class of modern wage-labourers who, having no means of production of their own, are reduced to selling their labour power in order to live." Why? In 1817, at the dawn of the capitalist era, the Tory parson Townsend put it this way, "Legal constraint (to labour) is attended with too much trouble, violence and noise…whereas hunger is not only a peaceable, silent, unremitted pressure but, as the most natural motive to industry and labour, it calls forth the most powerful exertions." We work for them because it's the only way we can make a living.

OK, so owning the means of production means owning shares. It follows that owning no means of production means owning no shares. Is that right? Not quite. It's actually quite hard to be a worker in Britain these days without owning shares - directly or indirectly. The state pension has been and is being progressively run down by governments both Labour and Tory. If you're not in a company scheme and you can afford it, you'll probably feel the need to sign up to a Personal Pension Plan. In this mysterious financial institution the investment fund manager will muck around with ouija boards or throw darts at the shares pages of the 'Financial Times' - and buy shares for you. If you're part of a company scheme they'll also have an investment fund manager who'll do the same. If you need insurance, or feel you want to save up for any other reason, your money will probably end up being lobbed at the Stock Exchange in some form. With all the privatisation share give-aways under the Tories there are millions of workers with a few BT shares tucked behind the clock on the mantelpiece. They're not capitalists. They're just the sort of people who pick up fivers [five pound notes] when they see them lying on the pavement, that's all. So you can't really get away from holding shares. But you're only a capitalist if you make most of your money for owning a share in the means of production. And however you stretch the definition that's a tiny proportion of the population. Even if you include all their hangers-on the ruling class is no more than 10% of the people. The rest of us are all on the other side. It's time we all realised it! There are other classes whose interests are discussed in the Manifesto. But capitalist and worker are the polar classes slugging it out for control to decide what sort of economic system rules our globe for future generations.

Marx and Engels mention the middle class, "The lower strata of the middle class - the small tradespeople generally, the handicraftsmen and peasants - all these sink gradually into the proletariat, partly because their diminutive capital does not suffice for the scale on which modern industry is carried on, and is swamped in competition with the large capitalists, partly because their specialised skill is rendered worthless by new methods of production." This is one of the dazzling predictions from a document over 150 years old (the Communist Manifesto). This middle class heavily outnumbered the workers in all countries (with the possible exception of Britain) in 1848, Since then they have been progressively destroyed by the advance of large-scale capitalist production first in manufacturing, then in their last hide-outs of peasant agriculture and retail shops. Worker and capitalist are the polar classes in modern society, because we work, because we have to make a living - we do not own the means of production. Our oppressors do no work because they make a very good living at our expense. The middle class in Marx's sense own their own petty means of production and, like us, they have to work. When the common market was set up forty years ago 30% of the population of most European countries were peasants. They owned their own farms and worked the land themselves. Now this class has virtually disappeared all over the continent. The modern use of the phrase middle class really means middle layers. Marx was not talking about people who try to live colour-supplement life styles. But, people like university lecturers (who fifty years ago would definitely have described themselves as middle class) make a living by working for a wage Since they are workers, their employers have been as concerned as their private sector equivalents to cut wage costs and, the formerly privileged position of professionals like them has been eroded as a result. The inevitable result of these attacks has been for such people increasingly to identify themselves as working class. The great trend of the past 150 years has been a proletarianisation of these intermediate layers.

The capitalist class maintains their hold over us through their ownership of the means of production. The factories and offices where we have to earn our daily bread are in their hands. Previous ruling classes in history have also perpetuated their dominance through a collective monopoly of the means of production. In the Middle Ages the feudal lords owned the land. Further back the slaveholders owned slaves, who did all the hard work. Capitalists start with money. But in a market economy money is wealth and allows its owner to buy arcane pieces of paper which represent titles of ownership to the means of production. We are different too. As workers for a wage we are free. We can collect our cards and quit working for one capitalist but we can't give up working for them as a class. Social security levels in all capitalist countries are carefully crafted so as not to provide us with a standard of living we regard as normal. In any case they won't let you just chuck your job in and go on the dole.

Exploitation

Workers are exploited under capitalism. But how? What does this mean? The law of value analyses the circulation of commodities as an exchange of equivalents. Marx poses the problem this way (Capital Vol. 1) "The transformation of money into capital is to be explained…in such a way that the starting point is an exchange of equivalents. Mr. Moneybags, who is as yet only an embryo capitalist, must buy his commodities at their value and must sell them at their value; and nevertheless at the end of the process he must draw more value out of circulation than he puts into it at starting…This is the nut we have to crack!"

Nothing could be simpler than to explain the profits of the capitalist in terms of them adding a bit on the price for themselves. And capitalists like the ballpoint magnate Reynolds probably did operate with the notion of a standard mark-up. However Reynolds and the other market leaders had to drastically revise their notion of what that mark-up might be as they were confronted with the prospect of a full-scale price war in the 1940s, as the technology for producing ballpoints became standardised. Capitalists continually try to rip each other and the working class off by pushing up their prices, and therefore their profits. But first they come up against limits imposed by the law of value, the regulator of their system. Secondly marking-up prices is quite simply a zero-sum game for the boss class as a whole. What one gains, the other loses. It just cannot explain the steady unremitting flow of new income into the pockets of the rich, as they sit at home and wait for the dividends to plop on to their doormats.

The historic dispossession of the ancestors of the modern working class, such as peasants and artisans, from their means of making a living gives the capitalists the whip hand. Marx goes on, "If, then, the owner of money is to transform his money into capital, he must find in the commodity market a free worker, free in a double sense. The worker must be able to dispose of his labour power as his own commodity; and, on the other hand he must have no other commodities for sale, must be 'free' from everything that is essential for the realisation of his labour power."

Labour power

What is all this about labour power? We have all been led to believe we are paid for the work we put in. After all, if we work overtime or weekends, we expect to get paid more. If we're put on short time or laid off, we expect to lose money. Some of us are on piece work, where what's in our pay packet is directly linked to the effort we put in. That's certainly the way it looks. We'll be investigating the wages form later on. But Marx's discovery was that capitalists don't buy a determinate lump of work done. What they buy is a capacity, and they have to sweat the most out of it they can. Modern bourgeois economists use an efficiency wage theory to explain why some workers are paid more than the minimum market rate. It's because the bosses want to hang on to scarce skills. In turn workers may accord the firm some loyalty and commitment if they think they have a secure future there. Efficiency wage theory accepts that what the boss is getting is a capacity. It also argues that productivity can depend on the wage level paid. This turns neo-classical theory (which attempts to relate wages to productivity, so 'we get paid what we're worth') completely on its head.

Marx explains, "I use the term labour power or capacity for labour, to denote the aggregate of those bodily and mental capabilities existing in a human being, which he exercises whenever he produces a use-value of any kind"… "The value of labour power, like that of every other commodity, is determined by the labour time necessary for the production, and consequently for the reproduction as well, of this specific article as well. In so far as it has value, labour power itself represents nothing more than a definite amount of average social labour which has been incorporated in it. Labour power only exists as a capacity of a living individual; its production presupposed his existence; and therefore the production of labour is dependent upon the worker's reproduction of himself, upon the worker's maintenance."

What the worker is being paid for is not the work he or she does. It is his/her keep. In a market economy everything is swapped around with money. The capitalist comes along with money hires the worker and puts her to work. He can do this because the worker has no independent access to the means of production, owned by the capitalist class as a whole. The worker is paid a sum of money, enough to keep body and soul together at whatever had become the normal standard of living for workers in that society. For workers in an advanced capitalist country that standard might be quite high by historic standards - a nice house full of electronic kit, a car in the driveway and a freezer full of food. But however much living standards may have improved over time and in the course of struggle, the gap between workers and capitalists in the age of Bill Gates is more than it ever was before. Workers will hang on to that standard of life only so long as they hold on to that job with the capitalists, in so doing providing the latter with a never-ending stream of unearned income.

The value of labour embodied in the product of our labour and the value of the labour power, the worker's subsistence, are two different things. Imagine a farmer who keeps a horse to plough a field and sow oats. The farmer feeds the horse some of the oats and sells the rest. It would be pointless for the farmer to keep a horse if it only ploughed up enough soil to feed itself. Horses have traditionally been used in agriculture because they can provide farmers with a surplus above their own subsistence. That is also why capitalists employ workers. It's easy to see what's happening in the case of the horse; you can actually divide a crop up into oats for subsistence and oats for sale. It's more difficult with the worker. The worker comes in to produce commodities, which very often are consumed neither by labourers or capitalists. The commodities are sold on the open market. The worker is paid off with a wage, which he or she is free to spend as he/she thinks fit. That's the theory. Really you have to pay the rent, and you have to eat. By the time you've paid out on essentials all you have left is pocket money. Meanwhile the boss trousers the surplus left over in money form.

The worker adds value in the process of production. That is a well recognised fact. The Inland Revenue can compute value added in order to calculate how much VAT they should be getting. This product of the worker's labour undergoes a two way split. If we look at every day, every hour, every minute of time or every piece of work done value added can be divided in two. Marx called these necessary and surplus labour. Necessary labour is what goes to maintain the workers' labour power - it is paid labour and goes towards the workers' wage. Surplus labour is labour which goes to keep not just your immediate boss, but the whole class of hangers on, in idleness. This is unpaid labour.

Hostile commentators often attribute to Marx the notion that workers could only get an absolute subsistence minimum wage. This, of course, is the prelude to 'proving' that Marx was wrong, or at least completely out of date. Actually Marx and Engels were scornful of contemporary theories of the 'iron law of wages' as was put forward by Lassalle, an opponent of theirs in the German labour movement. Quite logically Lassalle contested that, since wages were fixed, trade union activity and strikes were a waste of time. Marx, as head of the International Working Men's Association, vigorously argued the opposite. The International actually spent most of its time and effort raising funds for workers on strike and issuing leaflets in different languages and appeals against the danger of international scabbing. Marx was also one of the nineteenth century economists most aware of rising standards of living for the workers. Moreover he saw these early faltering steps of the labour movement in gaining an improved standard of living through struggle as the necessary first stage in the process of self-emancipation of the working class. "The comprehensiveness of what are called 'needs', and the method of their satisfaction, are likewise historical products, depending upon the stage of civilisation a country has reached; and depending, moreover, to a very considerable extent upon what conditions, and therefore with what habits and claims, the class of free workers has come into existence. Thus the value of labour power includes… a historical and a moral factor."

Paid and unpaid labour

The division of the working time into paid and unpaid labour is not a feature of capitalism alone. All ruling classes in history have maintained themselves by exploiting the oppressed class. "Surplus labour was not a new discovery made by capital. Wherever a part of society has a monopoly of the means of production the worker, whether free or bond, must supplement the labour time necessary for his own maintenance by surplus labour time in which he produces the means of subsistence for the owner of the means of production, whether this owner be an Athenian devotee of the Good and the Beautiful, an Etruscan theocrat, a Roman citizen, a Norman baron, an American slave owner, a Wallachian boyar, a modern landlord or a capitalist." The difference is that, under capitalism, exploitation is not obvious. Under feudalism the peasants often worked three days on their own strips of land and three days on the lord's land. The product of the first three days' work would be consumed in the peasant household while the product of the next three days labour was harvested and taken to the castle for the lord and his retainers. Whatever the contemporary religious or traditional justification of this practice, it would not have been necessary for medieval revolutionaries to have written erudite tomes explaining that this was exploitation. Likewise with the slave. Actually it would seem here that all the slave's labour was unpaid. In fact if the slave was producing a commercial crop such as cotton or tobacco, the slave owner would have to put aside a part of his revenue to buy food for the slaves. The same division of the product of work into paid and unpaid portion takes place in all forms of class society.

The reality of exploitation under capitalism is complicated by several other factors. First the medieval peasant is likely to harvest a crop with his own hands. It is obvious that the food he eats is the fruit of his own labour. Under capitalism there is a division of labour within the workplace as well as the division of labour imposed by production for the market. No one worker can point to the product and say 'this is mine'. A commodity such as a mass-produced car passes through the hands of hundreds of detail workers. It is the product of the collective labour of the factory 'hands'. This is a broader concept than just assembly-line workers. A big factory is likely to hire separate cleaning staff. The alternative, of course, would be to stop work while the production line workers clean up. Likewise the Coventry toolroom agreement recognises maintenance engineers as productive workers by cutting them in on any bonuses or piece work agreements.

Secondly the surplus is not all consumed by your direct employer. Marxists have used the formula - rent, interest and profit - to explain the division of surplus value among the different fractions of the capitalist. Actually it's even more complicated than that, as we shall see. But if the banks raise interest rates or industrial rents go up, that will hit the industrialist's profits quite independently of the struggle of the workers for higher wages, for a bigger share of what they produce.

Finally the capitalist has other costs than labour. For a modern multinational, wages may represent no more than 5-10% of total costs. Though the value added by the worker may be divided into necessary and surplus labour, the value of the commodity comes in three parts. There is surplus value, the unpaid labour of the working class that the capitalists all feed off. Then there is the time put in by the worker to reproduce the elements of his or her own wages. When the capitalist 'advances' this to the worker in the form of a wage, Marx calls this variable capital. It is variable because it is part of the money capital, which is capable of yielding a surplus in the process of production. All the other outlays by the boss, for raw materials, machinery heating light and power, and so on, are called constant capital by Marx. These are called constant capital because they pass their value unchanged to the final product. They contain surplus value from workers further down the chain of production. This is easy to see in the case of raw materials. Nobody thinks that the chocolate coating to a sweet adds any value apart from its cost for the capitalist who buys it. Machinery does aid the productivity of labour but does not itself add value. To take the simplest case, the capitalists (or rather their managers) know a machine will produce one million widgets over a ten year period, by which time it will be clapped out. If the machine costs £1 million they will assess the depreciation on the machine embodied in each widget at £1. So if they put £1 aside every time they sell a widget they will have £1 million when it's time to buy a new machine. In practice capitalists will have to take account of the fact that the machine will probably be obsolescent and have to be scrapped before it is physically worn out, but the principle is clear. Machinery just passes its value unchanged to the final product to the extent that it depreciates. It aids the worker in creating surplus value but does not itself create new value. That is why all the other elements of the production process apart from labour power count for the capitalist as constant capital.

Exploitation in action

Let's look at exploitation in practice. Figures come from the research department of the American textile workers' union, UNITE. If an American woman spends $100 on a dress:-

$54 goes to the shop. But all the retailer does is pass the goods along and hang them up for people to look at. Where does the money come from? The sales effort squanders huge resources in modern capitalism. These resources can only come from the surplus value generated in the productive part of the economy.

$18 goes on materials. The manufacturing firm just buys these in.

$16 is manufacturing overheads and profit. This is a tricky one to analyse in Marxist terms. Heating and lighting are costs, just like fabrics and zip fasteners. But some of the 'costs' will really be a share of the profits. Rent, for instance, is really siphoned off by another section of the property owning class. To keep it simple, we'll assume that $15 of those $16 really are costs and the poor old manufacturer only makes $1 on a $100 dress (a rate of profit of just 1%).

The worker who makes the dress gets $12 back in wages.

Now let's look at this in Marxist terms:-

Constant capital is $33 - $18 for materials, $15 for other production costs.

Variable capital is $12

Surplus value is $55, of which $1 goes to the immediate boss and $54 on Oxford Street rents and the pay of salespeople, who no doubt work very hard, but do not generate new values through their work.

The rate of surplus value or rate of exploitation is the amount of time the worker puts in to reproduce the elements of her wages compared with the amount of time the worker devotes to enriching the capitalist class. In this case the rate of exploitation is more than 450%!

Here's how the rich get rich and the poor stay poor. And it's true whether you work on a farm or in a factory, and whether you dish up burgers or write computer programmes. The rich get rich off our unpaid labour.

Don't you think a rate of exploitation of 450% is good enough for the bosses? Don't you think they'd be happy getting a worker to put in about 11 minutes every hour to get his or her wages back while he/she works the other 49 minutes to keep the capitalist class in clover? Not on your nelly! It's never enough. There is a compulsion on individual capitalists to squeeze more and more out of you. In part the whip is supplied by competition with other firms. If you have to beat the opposition, the best way is to sell the stuff cheaper. The best way to sell cheaper is to make it cheaper - that is with less labour. They call it cutting costs, but that's what it is. Let's see what this race does for the development of the system as a whole.

Absolute surplus value

The bosses are always out to get that little bit more out of the workers. One obvious way they do that is to get you to work longer hours. Let's stick with the garment industry.

Lina Rodriguez Meza, a clothing worker in New York explains. "When it's busy, we work up to sixty to sixty-three hours. The conditions in the factory are not good. In the factory where I work, almost everyone is from Ecuador. Those people work hard. And since they come very far from their land, they come and are afraid of losing their jobs, so they enslave themselves."

Lina's in a difficult position. Nobody wants to put in over sixty hours in a week. But the basic rate is so low. And in the fashion industry work is completely casual, as she explains. "Last week we only worked for fifteen hours. And now we worked two days in a row, but it seems like we're going to be off again."

Lina actually needs the overtime to make ends meet. She is a worker in the richest country in the world.

What's going on here? As we have seen, there is a compulsion on the capitalist class to try to get more and more out of us, to raise the rate of exploitation. One way to do this is what Marx called the extraction of absolute surplus value. This means exploiting the worker over a longer time. For instance if a worker does four hours to earn their keep and then puts in another four hours to help the boss out, the rate of exploitation is 100%. But if the worker can be induced to slave for ten hours a day, then that extra two hours is a free lunch for their boss. In Marx's time the capitalists just used their class power to lengthen the working day. Since workers were usually paid by the day, the struggle over the length of the working day was a basic form of class struggle.

Critics of Marx say that's all out of date. What is happening to Lina and millions like her shows that the extraction of absolute surplus value is still a very effective way of lining the bosses' pockets. That's why it's still going on in the new millennium - in the heart of New York. We all know the jobs - security guards, caterers, cleaners, drivers, railway workers - where it's understood that you'll have to work overtime to make enough to feed a family on because the basic rate is so low.

Most workers in the United States and the other rich countries did gain better wages and conditions - for a time. They did it by organising in trade unions and threatening the strike weapon. Any strike shows that when the workers stop working, nothing gets done. It's us that produce the wealth.

But now big business is trying to take back all the gains of past struggles. Why? - because they can. Because they can roam the world looking for cheap labour to exploit. Because they can sniff out and batten on to low pay pockets in rich countries. Because if they can use child labour, they will use child labour. Because if they can use slave labour, they will use slave labour.

How does all this affect workers in rich countries such as the United States. In 1973 there were nearly 1.5 million clothing and textile workers in the USA. Some of them have lost their jobs as firms like Nike pull up stakes and go where they can get away with paying workers less. While only 4% of clothing was imported into the States in the 1960s, it's now gone up to 60%.

But 860,000 still work in the rag trade in the United States. American bosses have responded to foreign competition in different ways. One response of textile and clothing companies in the rich countries to foreign competitors has been to make sure that, if they're paying you more than workers in Pakistan or El Salvador, they get more out of you.

Relative surplus value

American clothing bosses have cut costs by mechanising. Whereas only 6% of clothing production in the United States used modern machinery in the 1960s, twenty years later the business was 40% automated. As a result productivity in clothing manufacture has doubled in the rich countries over a twenty year period. In other words workers are producing twice as much as they did before. As a result they are working less time to make up the value of their wages and more time for the boss class. This is what Marx called the production of relative surplus value. Relative surplus value can be increased by raising the intensity of labour (which is what bosses were trying to do to British textile workers in the 1930s - as we see below) or by raising the productivity of labour through mechanisation.

What has happened to American workers' wages as a result of mechanisation? Clothing workers' wages in the USA buy exactly the same as they did twenty years ago. The entire benefits of this increased productivity has gone to the clothing employers.

What's this all about? We know that a simple and obvious way of raising the rate of exploitation when the labour movement is weak is to make the workers put in more hours to extract more absolute surplus value. Marx showed how this strategy came up against the resistance of the working class in the cotton textile industry in the middle of the nineteenth century. The workers imposed their own limits through strike action and later won a legal limit on the working day. If capitalists can't increase hours without limits to raise the rate of exploitation then they're going to have to make the workers achieve more in the hours when they do have them at their disposal. If a worker is knocking out twice as many dresses in eight hours, then they're reproducing the elements of their wages in two hours instead of four. That leaves six hours for the production of surplus value.

One way of extracting relative surplus value is by raising the productivity of labour. This usually involves the accumulation of capital with more and more machinery behind the elbow of each worker.

Intensification of labour

Another way is by raising the intensity of labour. If you can't lengthen hours, then they make sure they get more out of you while you're there. Two classic ways of getting more sweat out of workers are speeding up the track and getting the workers to mind more machines.

This has been going on a long time. However much you produce for them they always want more. At the time of the great depression of 1929-33, the British cotton capitalists thought it was a good time to put the boot in to textile workers. They demanded that weavers mind six looms instead of four - like Japanese workers. The 'more-looms' dispute, went together with a demand for pay cuts of up to 12 ½ % - more work for less pay! This triggered a walkout of 150,000 weavers in Lancashire. After a bitter dispute in which police baton charges against picket lines became routine, the strike was sold out by the trade union tops.

The accumulation of capital

The process whereby more and more dead labour (constant capital, in Marx's term) is used relative to living labour in the production process is called the accumulation of capital. It is the curse of the individual capitalist that they cannot just consume the unpaid labour of the working class in luxury living (though they don't do badly). They are forced by competition among themselves to plough back a major part of their ill-gotten gains. This in turn raises the productivity of labour. By accumulating capital and creating a mass working class all over the world capitalism is creating the conditions for its own supercession as a system. It is taking us to the threshold of a society of abundance. Yet at the present time half the world's population lives in desperate poverty on $2 a day or less.

The accompanying diagram adapted from the Economist in 1985 shows that the productivity of labour in textile spinning has gone up two thousand times over since the industrial revolution began around 1750 - up to 1980. It's still rising, faster than ever. So they are certainly exploiting us more! We've deliberately used the old-fashioned example of spinning. The reader will probably have been told about the spinning jenny and the industrial revolution at school and Marx dealt with it extensively in his writings. But clearly the most spectacular starburst of productivity is to be seen in industries subject to computerisation. "The speed at which computers are capable of carrying immense computations is almost impossible to grasp. As long ago as the early 1960s, when the space-frame centrepiece of Expo 67 was being designed, a computer was employed for two hours. A mathematical graduate could have performed the same calculations, but would have taken about 30,000 years. This is equivalent to about 1000 mathematicians working for their entire lifetimes." (from Mike Cooley - 'Architect and bee')

Increasing organic composition of capital

So modern textile machinery makes workers enormously more productive than people with distaffs three hundred years ago. Likewise Computer Aided Design means a three dimensional design of a complex piece of machinery can be generated in an instant - whereas twenty years ago a team of draftsmen with 5H pencils and 'T' squares took a week to do the same job. The examples can be multiplied at will. But there is a fly in the ointment. Modern textile machinery costs more than distaffs. A bank of computers costs more than pencils and 'T' squares. It costs a lot more to exploit the workers more. Dead labour progressively replaces living labour in production. Marx called the secular trend for the ratio of constant capital (outlays on plant and raw materials) to rise relative to variable capital (money laid out on wages) an increase in the organic composition of capital. And it's been going on all over. One example: General Motors opened its Saturn plant on a greenfield site in Tennessee. The plant cost $5 billion - that's $5 thousand million. It will employ about 6,000 workers. That's nearly $1 million behind the elbow of each worker in the modern car industry.

You won't stop the bosses exploiting workers. As long as they are bosses, they have to do that. But you'll never stop workers fighting back against exploitation either. As long as they are wage workers they will have to fight for a better future. That means an end to the bosses' system and the socialist transformation of society.