Classical and Radical Economics'

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Classical and Radical Economics.
Lecture 10
Exploitation or How Capitalism Works
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Necessity of Profit
System is competitive capitalist v capitalist No
profit, little investment Little investment, no
competitiveness No competitiveness, no survival
System is privately owned Capitalists can
withdraw their wealth if profit disappears as an
incentive
Capitalist system of circulation of money often
seen by Marx as M C M Where M gt M
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Profit and exchange
Profits cant come from exchange
If exchange is fair then no profits made
If exchange unfair then profit to winner losses
to loser, so no systemic profits
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Marxs Theory of profits starts with his LABOUR
THEORY of VALUE
Goods under capitalism are COMMODITIES Have USE
VALUE Have EXCHANGE VALUE Latter dominates
commodity fetishism
Value of a good is the socially necessary
abstract labour time needed to produce it
Ie the time its takes to make it (somewhat
qualified)
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Example of labour theory of value
Ie if it takes 10 hours to make a table, its
value is 10hours
If it takes 5 hours to make a shirt, the shirts
value is 5 hour.
The relative price of tables cf shirts is 10/5 2
Production time includes depreciation of value
machinery and value of raw materials
Once a monetary system, eg , is determined, then
the relative price of the table will be 2
(assuming the shirt is the base of the currency
ie its money price is 1.
This was the prevailing orthodoxy in economics
when Marx was first writing
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How can profits come about?
Must be something in the system that creates more
value than it costs
Marx says this is LABOUR POWER
Worker works longer than his/her own value
ie VALUE of LABOUR POWER lt Value CREATED by
labour power
Workers WAGE (value of labour power in money
terms) is less than the value the worker adds to
good
Difference is SURPLUS value, or measured in money
terms, PROFIT
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Profit and Surplus value and society
Worker works 10 hours, but makes enough goods to
cover her wage costs in say 5 hours.
SURPLUS value 5 hours
Money value of the goods produced in those 5
hours is PROFIT
Marx claimed that, logically, there can be no
other source of profit.
The LABOUR PROCESS necessary to enforce the
exploitation is the KEY to understanding the M o
P, economy, economic crisis and broader society.
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Prices and Values
Marx showed in vol.3 of Capital that IF
different sectors of an economy have a different
capitallabour ratios AND there was a uniform
rate of exploitation (proportion of the working
day taken up producing surplus value) across all
sectors AND all goods sell at their labour
values THEN the rate of profit (ratio
profitcapital) cannot be a uniform across all
sectors.
However, a truly competitive capital market would
produce a uniform rate of profit
Marxs solution to this quandary was that the
capital market would force equilibrium prices of
goods to levels that would equalise profit rates
across all sectors. THUS goods would not sell,
immediately, at their labour values.
BUT Marx then showed that in overall, or general,
equilibrium, prices of production in capital
intensive sectors would be greater than labour
values, prices of production in labour
intensive sectors would be less than labour
values. HOWEVER deviation of equilibrium
prices from labour values in capital intensive
sector deviation of equilibrium prices from
labour values in labour intensive sector ie
labour theory of value still determines prices IN
AGGREGATE
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Effect of producing surplus value at work
Labour must act under the discipline of
management (itself acting for the owners)
Otherwise workers would not make surplus value
no incentive for them to do so
Notice again that it is real autonomous people
who are acting, each as they think suits their
class interest. Managers must persuade, cajole or
threaten workers into producing surplus value.
There is nothing automatic or mechanical in
this process
There is an inverse relationship between wages
and surplus value (ie profit) The more profit,
the less wages This is the source of the basic
divergence of class interest in capitalism
As productivity rises, surplus value rises
Sources of productivity increase Intensification
of exploitation Extension of exploitation Use of
better technology
But these are all SOCIAL and POLITICAL not
simply technological and NOT mechanical people
dont automatically accept the bad effects of
exploitation
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Capital and Technology
Capital is seen as exploitative
But capital as a use value increases human
potential wealth
And capital also product of labour
Paradoxs of capital Capital is produced by
workers (in the past) BUT re-emerges to exploit
them Capital increase total wealth but doesnt
benefit workers Alienation Attitude to science
and technology
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Capital and crisis
Paradoxes causes contradiction and dialectical
processes so possible social change
These processes are primarily seen as economic
crisises
Marx sees many reasons for economic crisis, but
the following reason is conceptually the most
important in that it arises from the nature of
capital and capitalism
Tendency for rate of profit to fall
Also Monopolisation Immisseration
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Falling rate of profit
Rate of profit Profit/value of capital
surplus value/value of capital
Surplus value is limited
value of capital can be unlimited
So eventually the value of capital expands faster
than surplus value
So the rate of profit falls
There can be soft and hard interpretations of
this
Soft interpretation there is no automatic
relation between profit and investment because
the amount of surplus value is determined by
social and political and human factors, as
discussed earlier, therefore investment is not
automatically profitable as suggested in
conventional economics
Hard interpretation surplus value limited.
Workers can only work 24 hours per day (in fact
less if allowing for sleep, feeding, having and
looking after children, being educated etc.) if
these hours were already mostly producing surplus
value, there could be little or no possibility of
producing extra surplus value to match the
investment
Complex tendency many factors (counteracting
tendencies) brought into play
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Exploitation and Society
In order to maintain the discipline required to
make profits, Marx argues consistently with his
overall framework that SOCIETY as a whole will
be organised around the need to exploit workers
Law, culture, tradition, relationships and all
other aspects of society will be affected his
theory of alienation
But this is not a mechanical theory people
resist both work discipline and alienating forces
inside and outside work. Hence class and other
struggles
So we return to Marxs overarching intention
theorising (and organising for) social change.