Production of commodities, its circulation and the resultant rise of money forms the foundational aspect of capital, as elaborated by Marx in his Capital, Volume 1. The money is the first form in which capital arises because this money in the form of wealth is invested further for the production of commodities. The Simple Commodity Production circuit is given by C-M-C, where the producers sell their commodities, earn money and use this as a medium to buy commodities from the market. Here, the objective is sale and purchase of commodities, hence signifying the difference in the quality of use value where C at the beginning is different from the end C. However, the Production Circuit of capitalist is given by M-C-M where money is the starting and the end goal. Producers go to the market and buy raw materials and labour using the money and through its production in the market, they earn money as an end process, hence signifying the motive of exchange value. However, capitalist won’t undertake production when the end value M is equal to the Starting M, causing no material gains to them. Hence, the modification of the circuit to M-C-M’, where M’>M and the difference M’-M is the surplus value. However, the money in this circuit is not intact and its value rises as the surplus value is added and converts the M at the beginning into capital during the circulation process.
Marx explains that conversion of money into capital cannot take place by mere circulation of commodities. Circulation in itself doesn’t add value to the equivalent commodities that are exchanged and there’s hence a hidden process of creating capital which is not visible in the simple circulation process. By giving an example of leather and boots, Marx explains that the value of leather is defined by the value of labour used in its production. Commodity owner of leather cannot expand its value, rather create or add more value to leather by using extra labour power and hence transform leather into boots. Here, the value of leather hasn’t expanded it itself. But it is the extra value that has been added into leather to make boots such that this surplus value creation helps create capital from money. Unless there’s an interaction of the producers with other commodity owners, creation of capital is impossible with the circulation process. Thus, it is not outside the circulation and not just the circulation where we the see the creation of the same.
Marx differentiates between labour and labour power that is used for value addition. As per him, it is the labour power and not the labour which is used as a commodity i.e. labourer sells his labour power as a commodity which is bought by the capitalist such that a product of use-value can be produced. Marx has termed the labourers as ‘doubly free’ i.e. free in double sense. One, they are the owner of their own commodity in terms of choosing the capitalist they wish to work under. Second, they have no other alternative commodity to be sold i.e. they can choose to change the capitalist they wish to work under but have to be associated with the capitalist class, leaving so would make them free to starve. Marx defines the system of capitalistic production as ‘social relation’ under which not only goods are exchanged but it is governed by the relation between producers where one sells their labour power and other buys the same to undertake production.
The value of the labor time is dominantly conditioned by the necessary subsistence level of the labourers which includes the subsistence of their substitutes i.e. their family members and children and their wants which has been shaped by the historical conditions of the country. Capitalist objectifies to not only produce a commodity of use value but a commodity with additional value that is greater than the value of the factors of production employed which has been referred to as the ‘surplus value’. In other words, the difference between the value of the commodity that the labourer produces and the value of the labourer himself at which he is bought determines the surplus value to the capitalist. Marx makes a very important statement regarding the commodity that is produced using the labour power. Though it has both, use as well as exchange values, they do not accrue to the labourer. All he receives is the exchange value and has to give the use value to the capitalist.
Marx notion of capital has been contested by various mainstream economists on following grounds:
-Adam Smith coherently asserted that there is only quantitative relation between the producers in terms of exchange values. It was Marx who identified that capitalism is linked to social relations between the producers and brought out the qualitative aspect of the same. Adam Smith believed that division of labor and commodity production had a two way causality i.e. both is the necessary and the sufficient condition for the other. However, according to Marx, for division of labour, commodity production was not a necessary condition because we cannot synonymously use economic activity as commodity production. There are other constituents of economy too. Rather, Marx stressed that division of labour is a necessary condition for commodity production and not vice versa.
-The classical system, original form of mainstream economist, firmly believed in the Population Theory given by Malthus. According to them, when the population would increase, reserve army of labor that was available would deplete in size, hence, with the capital accumulation, demand for labourers would increase and there would be no check on the rise of wages. This would result in low profits for the capitalist and hence, the process would see its end, bringing an end to innovation and progress. John Stuart Mill questioned the stagnation of the population and the impossibility for capitalism to rise under this scenario. As Malthusian Principle proved itself incorrect against the forces of nature by the end of nineteenth century, theory propounded by Marx was a triumph as he substituted theory of population with Reserve Army of Labour.
-John Bates Clark gave one of his orthodox theories of capitalism in the late nineteenth century where he stated that the factors of production received the exact value of the commodity that was produced by them. However, as per the Marxian perspective, we see that labourers only received the exchange value of the commodity they produced and not the use value. Also, John mentioned that factors received the income that was desired by them. However, under the Marxian theory we see that they received only the amount equal to the subsistence level and the rest was acquired as surplus of capitalist.
-Orthodox economists and Marx differentiated in terms of determination of the level of employment and the concept of surplus. According to former, economy was always at the full employment level, irrespective of the stock of capital available. Rather, the latter believed that it was stock of capital which determined the number of labourers engaged in the production process. With regard to surplus, Marx considered wages and replacement cost of capital as the cost which the production industry had to incur and rent, interest and profit was considered as the components of profit. However, for the mainstream economist, surplus was only the rent from land which was considered as a ‘gift from nature’ as there was no cost incurred in return. Rent, interest and profits were earned on account of the efforts of the individuals, hence weren’t counted under the surplus concept.
-Orthodox growth theories also undermined the role that investment played in accumulation of capital stock. They believed in the exogenous factors and not investment for bringing economic progress. However, Marx entirely focused on the role of investment or capital accumulation as bring economic or technical progress.
-Marx refuted the Abstinence Theory of Nassau W. Senior, according to which consumption will only be postponed if the reward of postponement i.e. the rate of interest is higher. As per Marx, the benefit at the end of accumulation and consumption is the same and either can be abstained for the other. He was also against the Waiting theory of Alfred Marshall which proposed that capitalist’s end goal is consumption of the entire wealth they earn. However, they postpone their consumption because future consumption can be met with the additional rate of interest which is added to the wealth. This theory questioned the foundation of Marx’s theory of capital i.e. never ceasing urge of capital accumulation by the capitalist such that surplus can be created and further invested.
Though Karl Marx’s ideas on capital and labour may have few takers in the global economy, his theory as proposed in his book ‘Capital’ continues to encourage students, faculty and academic community to debate and discuss benefits that under-privileged might accrue in certain circumstances.
– Bishakha Jajodia (Freelancer)
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