5.Profit.
The mass of surplus value appears to the capitalist in the shape of profit. Surplus value is a Marxian scientific term which exactly expresses the principle of profit. Profit is a commercial expression which describes surplus value as it appears in practical life as a subject of experience, i.e., empirically.
The distinction between the Marxian theoretical and the commercial empirical conception is, however, not so simple: it arises from the different conceptions of the influence of capital and labour in the economic process. Let us explain it more distinctly.
As is known, Marx divided the capital embarked in industrial enterprise into two parts: into constant(technical means of production) and variable (living labour power, wages). He assumed that only the living labour power (wage labour) creates surplus value, whilst the constant capital only adds its own value to the new products.
The capitalist divides his capital outlay otherwise: into fixed (buildings and machines) and circulating (raw materials and wages) capital. The fixed capital is only used up slowly and only passes entirely into production during a series of years—let us say 15 years: thus of a fixed capital of £75,000, £5,000 would each year be consumed in the production of commodities, and written off in the balance sheet. On the other hand, the circulating capital (raw materials and wages) are wholly consumed in every period of production, and must be renewed at the beginning of a new period of production.
Suppose an industrial undertaking about to be started requires a capital expenditure of £105,000: £75,000 fixed capital (for buildings and machinery), £20,000 for raw materials, £10,000 for wages. For convenience sake, we will suppose that the period of production lasts a year, and that the rate of surplus value amounts to 100 per cent., that is, the labour power receives a payment of £10,000, and produces a value of £20,000. At the end of the year, the capitalist reckons an expenditure of £5,000 on account of fixed capital, and £30,000 of circulating capital: the commodities produced cost, therefore, a net outlay of £35,000. This is the cost price, without adding profit. According to Marx, cost price signifies (c) and (v), therefore without (s), (surplus value).
But the capitalist knows that the manufactured commodities represent a greater value than the costprice. According to Marx, the surplus value amounts to £10,000 (as the variable capital of £10,000 creates surplus value at the rate of 100 per cent.); but the capitalist adds to the cost price a profit which includes the gains of the enterprise and interest on the capital outlay. If the capitalist were alone in the market, his profit might suck up the whole of the surplus value of £10,000; but he has to reckon with competition and the state of the market. The cost price, plus profit, is the production price as established by the capitalist. But according to Marx, that is, in pure theory, the production price is equal to the cost price, plus surplus value. There is thus a quantitative distinction—a difference in the amount of money—between the theoretical and practical production price, as well as a qualitative distinction between the notions of the capitalist and Marx respecting the source of profit. The capitalist believes that profit is the result of the portion of capital which he has put into the process of production, combined with his own commercial ability. On the other hand, Marx asserts that the capitalist can only extract a profit because the wage workers (the living labour power) create a surplus value in the process of production for which they receive no payment.
We assumed that the surplus value amounted to 100 per cent. measured with variable capital, and that £10,000 expended on wages produced £20,000. The annual balance sheet, however, would show the percentage of profit to the total outlay. Consequently, we must spread the £10,000 surplus value over the £35,000 which have been expended. The surplus value of an undertaking spread over the total capital(c) Marx calls the rate of profit, or shortly, s/c = 10000/35000 = 28.58 per cent.
As a rule, the capitalist cannot sell under cost price without becoming bankrupt, but he can quite easily sell under the production price, and mostly does so. In the example already given, his rate of profit amounts to over 28 per cent. According to the degree of competition, or by reason of other circumstances which we will examine in the next chapter, he can content himself with a rate of profit of 10, 15, or 20 per cent., which will serve him partly as an income and partly be expended in the development of his enterprise. The 28 per cent. profit generally forms a circle within which he fixes his manufactured price. Under favourable circumstances he can add the whole 28 per cent, to the price; under less favourable, only 20, 15, or 10 per cent. Accordingly, several portions of surplus value remain in the commodities which are not yet realised. What happens to them? The remaining portions of profit or of surplus value fall to the large or small traders who are interposed between producer and consumer, or go in the form of interest to the banking institutions, in the event of the capitalist operating with borrowed money. As the profit is only realised in the process of circulation (in commerce and exchange) and there divided amongst the various economic classes and sections, most people believe that profit arises in commercial transactions. They do not know that the price of a commodity can only be increased in trade because its manufactured price was fixed below its price of production or its value, that is, because the commodities contain surplus value which is only gradually realised in the process of circulation.
The social significance of this doctrine is far-reaching. If it is correct, then all the social sections which are not engaged as manual and brain workers in the process of production, or in the transport of raw material, lead a parasitical life and consume the surplus value which is squeezed by the capitalist class out of the proletariat and appropriated without payment.
Quite otherwise are capitalist ideas. According to them, profit is the result both of the spirit of the enterprise and the ability of the capitalist, added to that portion of the capital which is put into the process of production: the machines and buildings and raw materials which are used up, and the labour power, all of which are bought at their proper exchange value. It is only fit and proper that the trader and moneylender should receive a portion of the profit so created, for they assist in realising the exchange value by bringing the commodities to the consumer, and thus rendering possible the process of production.
Surplus value or profit? Labour or Capital? Behind this question lurks the great class struggle of the modern social order. No wonder the Marxian doctrine of value and surplus value was the occasion for an extensive controversy, in which the famous problem of the average rate of profit played a great part.
6.The Average Rate of Profit.
According to Marx's doctrine of value and surplus value only variable capital creates fresh value and surplus value. An industrial undertaking of a lower organic composition, which thus employs much variable capital and little constant capital, mustconsequently create a greater surplus value or more profit than an industrial undertaking of higher composition which may employ the same total capital, but composed of greater constant and smaller variable portions than the former. Let us take two industrial capitals of £35,000 each. One expends £15,000 on the constant elements (machinery, raw materials) and £20,000 on the variable element (wages of labour). The other shows £20,000 constant part and £15,000 variable part. With an equal rate of surplus value—100 per cent.—the first capital would produce £20,000 surplus value (profit) and the other only £15,000 profit. Experience shows, however, that equal amounts of capital—in spite of temporary differences in profits—tend to produce equal profits. From this, it would appear that it is actually the capital expended and not the labour employed which determines the magnitude of the surplus value (profit), that the concrete results of the capitalist process of production do not confirm the Marxian theory of value, that the facts directly contradict the theory. It was Marx himself who drew attention to this problem. After he had constructed his theory of surplus value in the form of a scientific law, he continued: "This law clearly contradicts all experience based on appearance. Everyone knows that a cotton spinner, who, reckoning the percentage on the whole of his applied capital, employs much constant capital and little variable capital, does not, on account of this, pocket less profit or surplus value than a baker, who relatively sets in motion much variable and little constant capital."
How, then, can the equal rate of profit in the case of capitals of different organic composition be harmonised with the theory of surplus value?
Marx concedes that equal capital sums whose organic parts are unequally employed give an equal rate of profit, although the volumes of surplus value created are different. Two capital sums of £50,000 each, one of which, for example, represents £40,000 constant and £10,000 variable capital, and with a rate of surplus value of 100 per cent. gives £10,000 surplus value, while the other is composed of £10,000 constant and £40,000 variable capital, and with an equal rate of surplus value gives an amount of £40,000 surplus value, will nevertheless yield an equal rate of profit, although theoretically they would be unequal if the rate of surplus value directly determined the rate of profit. In the first case, the rate of profit would amount to 20 per cent. and in the second to 80 per cent. In reality both undertakings yield an equal rate of profit.
How is this explained, according to Marx? By means of competition, the different rates of profit are levelled to a general rate of profit, which is the average of all the various rates of profit. Thus the capitalists do not realise the surplus value as it is created in any particular factory, but in the form of average rate of profit as it is produced by the operations of the total capital of society. The average rate of profit may be lower or higher than the individual rate of profit, for the "various capitalists," as Marx explains, "so far as profits are concerned, are so many stockholders in a stock company in which the shares of profits are uniformly divided for every 100 shares of capital, so that profits differ in the case of the individual capitalists only according to the amount of capital invested by each of them in the social enterprise,according to his investment in social production as a whole, according to his shares."
While thus the individual rates of profit do not proportionately coincide with the rates of surplus value, i.e., while the degree of exploitation of the worker in the individual factory, and the volume of surplus value thus individually created, do not directly determine the individual rate of profit, it is the total mass of social surplus value which is the source of the average rate of profit. If the mass of the surplus value be large, the average rate of profit will also be great. Marx says: "It is here just the same as with average rate of interest which a usurer makes who lends out various portions of his capital at different rates of interest. The level of his average rate depends entirely on how much of his capital he has lent at each of the different rates of interest." The higher the various individual rates of interest, the higher will be the average rate of interest at which his capital has been put out.
The individual price of production signifies, therefore, cost price plus the average rate of profit, and not plus surplus value: it does not necessarily correspond with the total amount of the constant and variable portions of capital employed in an individual enterprise, plus the mass of the surplus value: the prices and magnitudes of value of commodities are not manifestly equal, as Marx has often pointed out. Of course, the total profits of the capitalist class coincide with the total surplus value extracted from the working class, provided, of course, that the supply of commodities corresponds with the social needs.
Thus the law of surplus value, in spite of all deviations and refractions, holds good in the last resort. "In theory," observes Marx, "it is assumedthat the laws of the capitalist mode of production develop freely. In reality, there is always only an approximation."
And the more capitalist production develops, the greater will be the degree of approximation in particular cases, for the progress of Capitalism signifies a continuous increase of constant capital, a more mechanical character being given to industrial processes, and a reduction of variable capital to the necessary minimum, so that the differences in the organic composition of capitalist undertakings become less, thus bringing the average rate of profit and the rate of surplus value nearer to each other.
This indirect and difficult method of realising profits involves the fact that the capitalist does not distinctly observe the exploitation of wage labour practised by him, but he believes that the profit is owing to his own commercial ability.
This difficult section of the outlines of the economic doctrines of Marx can be most fitly concluded by quoting the comprehensive observations of Marx himself upon this subject, which he gives at the end of his book.—("Capital" (German), Vol. III., 2, pp. 355-6.)
"In a capitalist society, this surplus value or this surplus product (leaving aside accidental fluctuations in its distribution and considering only the regulating law of these fluctuations) is divided among the capitalists as a dividend in proportion to the percentage of the total social capital held by each. In this shape the surplus value appears as the average profit, which in its turn is separated into profits of enterprise and interest, and which in this way may fall into the hands of different kinds of capitalists. Just as the active capitalist squeezes surplus labour,and with it surplus value in the form of profit out of the worker, so the landlord in his turn squeezes a portion of this surplus value from the capitalist in the shape of rent. Hence when speaking of profit as that portion of surplus value which falls to the share of capital, we mean average profit.... Profits of capital (profits of enterprise plus interest) and ground rent are merely particular constituents of surplus value.... If added together, these parts form the sum of the social surplus value. A large part of profits is immediately transformed into capital." In this way, capital grows, or, as Marx says, accumulates.
7.Surplus Value as Social Driving Force.
It has been said already that capital is that portion of wealth which is devoted to the object of increasing wealth, of gain, the extraction of profit or surplus value. This object dominates the capitalist class; the desire for surplus value is the leading impulse and principle motive of their activity. Goaded by this desire and exclusively occupied with their special interests, this class unconsciously and unintentionally develops the entire capitalist system and leads it to ever higher and more comprehensive stages.
Surplus value is thus the driving force of the history of modern capitalist society. This principle is rigidly followed out by Marx in his theoretical system, which aims at showing the rise and growth of Capitalism.
The capitalist is no scientific investigator: he is not clear himself whether profit is created by a portion of the capital, or is the result of personal productive forces, but he knows one thing—without living labour power, without the wage worker, his whole capital remains dead and does not increase; all the fixedcapital and raw materials are of no use to him so long as they are not set in motion by living labour power and transformed into commodities. His efforts are, therefore, primarily directed to making proper use of the living labour power. Historically considered, little constant and relatively much variable capital was employed in the primitive stage of the large scale industry: there was as yet little machinery, and the chief thing was the living labour power. The workers were not yet factory proletarians in the modern sense, but artisans who had lost their independent existence.
The capitalist harnessed them and utilised their labour power and special ability. Consequently, he strives to lengthen the working day, in order that as many commodities and as much profit as possible may be produced.
If previously the wage worker had laboured ten hours, of which five were devoted to the production of the value of his wages and five to surplus value, he is now obliged to work for twelve hours, which increases the period for surplus labour to seven hours. The surplus value which is extracted through the lengthening of the working day is called by Marx "absolute surplus value."
Meanwhile, the capitalist learns by experience that if the workers are so organised as to co-operate with one another, the productivity of labour increases. From this arises the mode of labour which Marx calls Co-operation, or a reorganisation of the workplace, which raises the entire production of commodities to a higher level. The co-operation of the workers in the process of production soon leads to the discovery that, if the worker does not himself create the whole product, but only a part thereof, he loses less timeand becomes quicker and more skilful in his work and produces more than previously. This discovery leads to the "division of labour," which indeed reduces the worker to the position of an automaton, or a living machine, but considerably augments commodity wealth. Division of labour again demands finer tools; mechanical problems arise to be solved by mechanicians and engineers. This favours the progress of mechanics. The growing commodity wealth, and the pressure to realise it profitably, renders necessary more extensive markets; the need for extension comes up against transport difficulties; transport problems arise, to be solved by road and canal engineers. The increasing variety of the labour process and the categories of commodities which are produced results in new metallurgical, physical, and chemical problems. Natural science flourishes.
Meanwhile, things are not so peaceful in the places of manufacture. The lengthening of labour the closer strain on their nerves and muscles, as well as the arrangement of the work, cause the workers to combine and struggle for improved conditions of labour. This struggle, together with the progress of natural science, of technology, and the expansion of markets, result in the discovery of machine technology, of steam and electricity, the foundation of large-scale industry.
The capitalist is impelled, on the one hand, to make himself as independent as possible of living labour-power; on the other hand, to increase the volume of his profits. The means thereto are offered him by the new technical discoveries. Those workers who still possessed some pride in handicraft, or as expropriated small peasants were not able to submit to factorydiscipline, and showed themselves rebellious, were partly replaced by the labour of women and children, and partly curbed and made pliable. The labour time is repeatedly lengthened, and the exploitation of the labour of women and children assumes terrible proportions. The wage worker, who entered into the manufacturing premises of the employer full of the pride of his calling and often with his own tools, became then a small cog in a gigantic, relentless piece of working machinery.
In this extensive and hitherto unprecedented social transformation the old forms of handicraft disappear: whole sections of society, which are the representatives of the disappearing forms of handicraft, sink into poverty, and augment the class of proletarians. The progress of the industrial revolution extends also to agriculture: the greed for surplus value (ground rent) leads to enclosure of common lands by the great landlords, the independent yeomanry is decimated, the small proprietor and small tenant are made proletarians. A transmutation of social classes takes place; the urban population grows rapidly, the country districts are depopulated: out of the revolutionary process the outlines of two classes become more and more distinct: Capitalist and Proletarian.
Both the factory proletariat and the other social sections which adopt a hostile attitude towards Capitalism react against the health-destroying exploitation, and struggle for a normal working day.
The working time is curtailed and bounds are set to the efforts of the capitalist to lengthen the working day and obtain surplus value, but soon the progress of machine technique compels the worker to labour more intensely in the shorter working time: theaccelerated movement of the machine determines the pace and necessitates a sharper straining of the nerves. Henceforth, the worker must compress into a working hour as much effort as was previously expended in an hour and a half. The surplus value which is extracted in this way Marx calls "relative surplus value." The struggle of the workers to secure a shorter working day is a powerful incentive to the manufacturers to perfect their machinery, in order to increase the amount of relative surplus value. The intensification of work or the creation of relative surplus value is one of the most immediate effects and one of the most striking features of advanced Capitalism. The understanding of this new phase is a preliminary condition to the comprehension of the Marxian system. In this matter, Marx goes considerably beyond the anti-capitalist theoreticians who followed upon Ricardo.
What happens when the capitalist observes that the extraction of absolute surplus value comes up against an insurmountable obstacle? He sets himself to fit up his enterprise with the newest and most costly machinery, in order to supplant living labour-power and to work more intensively the living labour-power which he employs.
As, however, less living labour-power brings forth less exchange value and less surplus value, he is obliged to multiply production, in order to cover the fall in surplus value by a larger mass of commodities: if the single commodity brings him less profit, he produces it in such large quantities that the profit thereon is the same, or even greater, than formerly. The more complicated machinery, the greater quantities of raw materials consumed, and the relativelysmaller amount of labour-power signify obviously an alteration in the organic composition of capital: the constant portion (machinery, raw materials) preponderates more and more over the variable portion. If, previously, the composition was 50 per cent. constant and 50 per cent. variable, it becomes now something like 80 per cent.: 20 per cent. At the same time, the initial capital is also increased greatly, as machines and large quantities of raw and auxiliary materials demand such increase of capital. If, for example, the initial capital previously amounted to £100,000, divided into £50,000 constant and £50,000 variable capital, it would now amount to £500,000, comprising £400,000 constant and £100,000 variable. This organic composition signifies: that relatively smaller masses of labour set in motion large masses of technical means of production; labour is more productive because more intense; the sum total of commodities is increased; the profit on single articles is smaller, but the total profit is greater; the reconversion of profits into capital proceeds rapidly.
The scale of production is more and more extended, and the amount of initial outlay becomes ever greater, because only large capitals are capable of creating relative surplus value in sufficient sums to assure a profit on the enterprise and payment of interest, and thus assist the accumulation of capital.
The more extended scale of production is not possible to the less powerful capitalist undertakings. They partly disappear and partly combine in joint stock companies. The first alternative gives rise to the concentration of the means of production in fewer hands, and the second to the centralisation of the means of production. This is the effect of the neworganic composition of capital on the capitalist class.
The effect on the working class is not less profound. As long as the hand-worker still played an important part in the works premises, as long as the variable part was superior or equal to the constant part in the organic composition of capital, as was the case prior to and at the beginning of large-scale industry, the accumulation of capital meant an increased demand for wage-labour. The position was changed as Capitalism developed, in the manner just described. Although the mass of capital grows, there is a relative decrease in the demand for workers. For this growth of capital refers chiefly to the constant part (machinery and raw materials), while there is a relative shrinkage in the variable part; that means the worker is obliged to consume a much greater quantity of raw material than formerly.
And whereas the prices of commodities fall during the phase of the high organic composition of capital, the period of necessary labour (the hours needed for the reproduction of wages) becomes shorter, while the period of surplus labour becomes longer. The great industrial development therefore signifies for the worker: intensive exploitation and relative over-population, a reserve army of labour-power, which is absorbed by industry in times of prosperous trade, and is speedily demobilised when the slump comes. In times of good business the reserve army serves to check the wage demands of the workers regularly employed, and in times of bad trade it serves to depress wages. The outcome for the workers is as follows:
"Within the capitalist system all methods for raising the social productiveness of labour are broughtabout at the cost of the individual labourer; all means for the development of production transform themselves into means of domination over, and exploitation of, the producers; they mutilate the labourer into a fragment of a man, degrade him to the level of an appendage to a machine, destroy every remnant of charm in his work, and turn it into a hated toil; they estrange from him the intellectual potentialities of the labour-process in the same proportion as science is incorporated in it as an independent power; they distort the conditions under which he works, subject him during the labour-process to a despotism the more hateful for its meanness; they transform his life-time into working-time, and drag his wife and child beneath the wheels of the Juggernaut of Capital. But all methods for the production of surplus value are at the same time methods of accumulation; and every extension of accumulation becomes again a means for the development of those methods. It follows, therefore, that in proportion as capital accumulates, the lot of the labourer, be his payment high or low, must grow worse. Accumulation of wealth at one pole is, therefore, at the same time accumulation of misery, agony of toil, slavery, ignorance, brutality, mental degradation at the opposite pole, i.e., on the side of the class that produces its own product in the form of capital."—("Capital" (German), Vol. I., pp. 660-1.)
The result of the capitalist social order is the unfolding of the productive forces, the efflorescence of science, the expansion of material civilisation, the dividing of society into antagonistic classes, the conferring of economic power on the few, and the enslavement and degradation of the many.
8.Economic Contradictions. Decay of Society and its Reconstruction.
As the ripening of the capitalist social order to its highest point proceeds, its innate contradictions develop, and announce distinctly the fact that Capitalism has outlived its usefulness, while new life, a higher form of society, is emerging from its womb. The most important contradictions are:
The driving force of the capitalist is to obtain the largest measure of surplus value or profit. The latest stage of Capitalism is, however, marked by the fact of the high organic composition of capital, which means that living labour-power, the source of surplus value, has relatively decreased. The decrease of variable capital signifies manifestly a lower rate of profit. Capitalism in normal times exhibits a tendency towards a lowering of the rate of profit. Therefore it gives rise to a phenomenon which contradicts the aim of the endeavours of the capitalists. The capitalist strives to accumulate capital, but as variable capital and the rate of profit relatively decrease, a tendency towards the depreciation of capital is revealed. The capitalist endeavours to counteract this tendency, and to achieve his object by extending the scale of production, so that the mass of commodities will compensate him for what he loses on them singly. But while he furthers this object by resorting to a higher organic composition of capital, he squeezes out the middleman, reduces the numbers of workers in employment, and creates a relative over-population, a reserve of those who are only employed intermittently; there is a substantial shrinkage in the demand for commodities, as the impoverished masses of the people have obviously less purchasing power.The capitalist extends production, and at the same time contracts the market. The upshot is over-production, under-consumption—crisis: wasting of capital, restriction of production, paralysis of the productive forces. And if Marx lived to-day he would add: the developed economy of large-scale capitalism, that is, the high organic composition of industrial capital, requires enormous quantities of raw materials, which, in part, are only to be had from tropical and sub-tropical countries, and also from eastern Asia; the struggle for these sources of raw materials, and for access to them, leads to wars in which capital sums of unprecedented amount are destroyed. Since 1894 these wars over raw materials and trade routes have broken out every few years. Economic crises and imperialist wars; immeasurable destruction of capital and productive forces. This is a consequence which stands in sharp contradiction to the historical task of the economic order of Capitalism, and to the immediate aims of the individual capitalists.
Further, the capitalist tries from the beginning to create docile and unresisting masses of workers, and yet unites and combines them by the creation of large centres of production; the factories become centres for the organisation of the workers, and for the welding of the individual wills of the proletarians into a class will; they abolish the scattered and antagonistic interests of single sections of the workers, and consolidate them into a unified class interest. Finally, the whole economic process, which began by resting on individualist principles, has assumed a common character; thousands upon thousands of hand and brain workers engage in production in economic undertakings upon a single and uniform plan, withthe aid of productive implements which can only be used in common.
The significance and tendency of these contradictions are sketched by Marx in the great finale, which properly belongs to the concluding chapter of the third volume:
"As soon as this process of transformation has sufficiently decomposed the old society from top to bottom, as soon as the labourers are turned into proletarians, their means of labour into capital, as soon as the capitalist means of production stands on its own feet, then the further socialisation of labour and further transformation of the land and other means of production into socially exploited, and therefore common means of production, as well as the further expropriation of private proprietors, takes a new form. That which is now to be expropriated is no longer the labourer working for himself, but the capitalist employing many labourers. This expropriation is accomplished by the action of the immanent laws of capitalist production itself, by the centralisation of capital. One capitalist always kills many. Hand in hand with this centralisation, or this expropriation of many capitalists by a few, develop on an ever-extending scale the co-operative form of the labour process, the conscious technical application of science, the methodical cultivation of the soil, the transformation of the instruments of labour into instruments of labour only usable in common, the economising of all means of production by their use as the means of production of combined, socialised labour, the entanglement of all peoples in the net of the world market, and with this, the international character of the capitalist regime. Along with theconstantly diminishing number of the magnates of capital, who usurp and monopolise all advantages of this process of transformation, grows the mass of misery, oppression, slavery, degradation, exploitation; but with this, too, grows the revolt of the working class, a class always increasing in numbers, and disciplined, united, organised by the very mechanism of the process of capitalist production itself. The monopoly of capital becomes a fetter on the mode of production, which has sprung up and flourished along with it, and under it. Centralisation of the means of production and socialisation of labour at last reach a point where they become incompatible with their capitalist integument. This integument is burst asunder. The knell of capitalist private property sounds. The expropriators are expropriated."—("Capital," Vol. I. English edition, chap. 84.)
[7]Compare M. Beer, "History of British Socialism," Vol, I., pp. 245-270.
[7]Compare M. Beer, "History of British Socialism," Vol, I., pp. 245-270.
An appreciation of Marx can only be arrived at by adopting the Marxian method. We must judge him in the same way as any other towering figure in the realm of thought or of action. Marx was a child of his time, and his system is a logical conception of certain economic and social phenomena of his age, owing something to the pioneer work and thinking of some of his predecessors.
Two important events dominated his thinking: the French Revolution and the English Industrial Revolution. Even apart from the statement of Arnold Ruge that in 1843-44 Marx had collected a vast amount of material for a history of the French National Convention, we know from the work he did between 1844 and 1852 how profound was the influence of the French Revolution on his intellectual life. Still deeper, however, were the traces left upon his mind by the studies he made on the economic transformation of England during the period 1700-1825. Both events are obvious, catastrophic expressions of class movements and class conflicts, in which the middle class, as the representative of a higher economic order, gains the victory over autocratic forms of feudal authority and oligarchic systems of organisation through State regulation, in which, however, at the same time, a new class—the working class—raises its head and begins to make a stand against the victor.
Marx was led to interpret these events in this way and to make them the basis of his conception ofhistory chiefly through the influence of Hegel, Ricardo, and the English anti-capitalist school following upon Ricardo. To the end of his life he clung to the opinion that dialectic, as Hegel had formulated it, was indeed mystical but, when materialistically conceived, contains the laws of the movement of society. "The mystification which dialectic suffers in Hegel's hands in no wise hinders him from presenting in a comprehensive and intelligible manner its general processes."—(Preface to second German edition of "Capital," 1873.)
The splitting up of the concept into contradictories, and the attainment of a higher positive through the negation of these contradictories, that was what, to Marx's mind, constituted the essence and the deepest meaning of the French Revolution and of the English Industrial Revolution. Society, the positive, split up into feudal and bourgeois, into two sharply divided contradictories, the bourgeoisie appearing as the negation, to be supplanted by the proletariat and so to make room for a Communist society, the higher synthesis.
What he got from Hegel in a mystical form found an economic expression in Ricardo and the anti-capitalist school. Ricardo's writings, which belong to the second decade of the nineteenth century and which formulate, in the guise of a system of economics, the antagonisms and the conflicts between industry and landed nobility, presented themselves as a practical demonstration of the validity of dialectic. The fundamental idea of Ricardo's system may be expressed as follows:
Capital is the motive force of society and the creator of civilisation, but the fruits of its activity are enjoyednot by capital but by the landed nobility. That is the thesis; now for the proof. The value of all commodities which can be made in any quantity desired consists in the quantity of labour which is expended for the purpose of producing them. The value is expressed in the costs of production, the most important components of which are wages and profit. Wages and profit stand in opposition to one another: if wages rise, profit falls, and conversely. Wages consist in a definite quantity of the necessaries of life, sufficient to keep the worker effective. Wages must obviously rise whenever the cost of living rises. The facts show that this is actually the case. The following reasons make this clear. In consequence of the civilising effects of capital, there is an increase in the opportunities for work and in population, resulting in an increased demand for the necessaries of life. Agriculture must be extended, but agricultural land is limited and of varying quality. The extension of agriculture brings into use the inferior kinds of land, which demand a greater amount of labour for their cultivation. And as the amount of labour determines the value of the commodity, the cost of living increases, and there is a rapid rise in ground rents. The workers demand higher wages, whereby the profits of the employers are diminished. But there is still another circumstance to be taken into consideration. Whereas the prices of agricultural products rise, those of industrial products fall, since, in consequence of the invention of machinery and of the superior division of labour, smaller quantities of labour are required to produce manufactured goods. The result of the entire working of capital for the civilised community is accordingly the reduction ofprofits, the depreciation of capital, and the increase of wages. This latter, however, is of no advantage to the workers, for food prices rise higher and higher; on the contrary, the whole advantage falls to the landed nobility, who do nothing for the furtherance of civilisation, but who, through ground rents and protective tariffs, receive everything.
We have, then, in Ricardo a system of economic contradictions between profit, wages, and rent, or between bourgeoisie, proletariat, and nobility, in which the antagonism between bourgeoisie and proletariat is still undeveloped.
The year of the publication of Ricardo's "Principles" (1817) is the year which witnessed the rise of English Socialism. In that year, Robert Owen, in a public meeting in the City of London, declared himself a Socialist. Three years later appeared the first criticisms of Ricardo's political economy. In these it was argued that, according to Ricardo, labour is the source of value, yet he considers capital as the creative factor of society and the working class as a mere appendage of capital. It must be the reverse; for the workers create values together with the surplus products which are appropriated by capital. In 1817, Robert Owen openly declares himself a Socialist; four years later appears the anonymous letter to Lord John Russell; Percy Ravenstone publishes his "Criticism of Capitalism," John Gray his Lecture, and Hodgskin his pamphlet on the unproductive nature of capital, in which he establishes the existence of a raging class struggle.
The deep impression which these writings made on Marx is clearly seen in the second and third volumes of his "Theories on Surplus Value." And he linkson to them. He completed what Ricardo hinted at and what the anti-capitalist school deduced from Ricardo. How Marx continued and elaborated these deductions we haw already seen in Chapter 3, "Outlines of Marx's Economics," and Chapter 7, "Surplus Value as the Motive Force of Society," where capital is shown to be the mass of surplus value of which the workers have been deprived.
The deductions made by the English anti-capitalist school from Ricardo signified, politically, the first awakenings of the English workers to class-consciousness, to the struggle against capital. Just as Ricardo's theory of value and rent was the battle-cry of capital against the aristocracy—a battle-cry which created the free trade movement and shattered the economic power of the landed nobility, so the theory of value and surplus value was to become the battle-cry of the proletariat against the bourgeoisie, the declaration of independence, so to speak, of the working class. The English proletariat lacked a philosopher who could work out the idea to its logical conclusion, until Marx applied himself to the problem and solved it, so far indeed as philosophical problems can be solved, by a science which places itself at the disposal of a class movement.
For it is impossible to set aside the view that Marx's theory of value and surplus value has rather the significance of a political and social slogan than of an economic truth. It is for Marx the basis of the class struggle of the workers against the middle class, just as Ricardo's theory of rent was the basis of the class struggle of the bourgeoisie against the aristocracy, or as the doctrines of the social contract and of the natural rights of man formed the basisof the struggle of the middle classes against autocracy and divine right. Such militant philosophies need not in themselves be true, only they must accord with the sentiments of the struggling mass. It is with such philosophical fictions that human history works. Marx's theory of value explains neither the vast and unparalleled accumulation of wealth nor the movement of prices during the last sixty years. Wealth, measured in values, has, in the last few decades, increased by many times the increase in living labour-power. In this connection the old formula can be reversed: wealth increases in geometrical, living labour-power in arithmetical progression. The greatest difficulty in Marx is that the inventors and discoverers, the chemists and physicists, the pioneers and organisers of industry and agriculture, are not regarded by him as creators of surplus values. Thinkers, who by chemical researches and discoveries double the productive capacity of the soil and conjure forth values in millions from the waste products of industry: physicists who place new sources of power and new means of production at the disposal of mankind and multiply the productivity of labour; organisers who co-ordinate the forces of production and introduce new methods of working—all this creative and directive work, demanding, as it often does, an infinite amount of intensive intellectual effort, is not considered to increase the total sum of exchange values of the nation.
However, as far as the distribution of products is concerned, Marx's theory is, generally speaking, correct; distribution is carried out under the capitalist economic system not according to the amount of productive work done, but in proportion to the outlayof capital and the skill in commercial manœuvring which obtains in the sphere of circulation.
Unique as an investigator of the laws of the proletarian movement, eminent and even a great pioneer as a sociologist, Marx is, in respect of economic theory, predominantly an agitator. His system, more than any other system of Socialism or of political economy, is the revolutionary expression of proletarian thought and feeling. His doctrines of value, surplus value, the economic determination of history, the evolution from Capitalism to Socialism, the political and economic class struggle, will for long have the force of truth for the masses and will continue to move them.
Marx's heart must have been filled with joy and gladness when, out of the elements of Hegel, Ricardo, and the English anti-capitalist school, out of his studies of the French Revolution, of the English Industrial Revolution, and of French and English Socialism there arose a unified system whose destiny it was to lead mankind out of the earth-bound history of the past into the new world wherein a spiritual civilisation should fully blossom forth. Man is to quit the realm of necessity and to enter into that of freedom, where he shall cease to be a tool for the profit of others and shall rise to have a purpose of his own, freely associating himself with his fellow men to work in the service of all.
"The realm of freedom, indeed, only begins there where work conditioned by necessity and external utility ceases. According to the nature of the thing, therefore, it lies beyond the sphere of actual material production. Just as the savage must struggle with nature for the satisfaction of his needs, forself-preservation and self-reproduction, so too must the civilised man, whatever be the form of society or the methods of production obtaining. Side by side with his own evolution develops this constitutional necessity, because his needs increase; but, at the same time, the forces of production which satisfy these needs likewise increase. Freedom in this sphere can only consist in this—that men in their social relationship, the associated producers, should regulate this material exchange with Nature in a rational manner and bring it under their united control, instead of being governed by it as by some blind power; it should be carried on with the minimum expenditure of energy and under conditions most adapted to and most worthy of human nature. Yet it remains all the same a realm of necessity. It is beyond this where that development of human power, which may be called independent purpose, begins, the true realm of freedom, which, however, can only flourish upon the basis of that realm of necessity."—("Capital," Vol. III., 2, p. 355.)