The capitalist economy functions according to a series of characteristics which are peculiar to it. Amongst these we will mention the following:

(a) Production essentially consists of commodity production – that is, production destined for sale on the market. Ipf the commodities produced are not sold above a given price, the capitalist firms and the bourgeois class as a whole cannot get their hands on the surplus value produced by the workers and contained in the value of the commodities which have been made.

(b) Production is carried out in conditions where the means of production are privately owned. This private ownership is not only a legal category but above all an economic one. It means that the power to dispose of the productive forces (means of production and labour power) does not belong to the collectivity but is fragmented between separate firms controlled by distinct capitalist groups (individual and family concerns, limited companies and financial groups). Decisions to invest, which to a large extent condition the economic conjuncture, are also taken in a fragmented manner, on the basis of the private and separate interests of each capitalist unit or group.

(c) Production is carried out for an unlimited market. It is regulated by the imperatives of competition. From the moment when production is no longer limited by custom (as in primitive communities), or by rules and regulations (as in medieval corporations), each individual capital (each private owner, each capitalist firm or group) attempts to achieve the highest turnover, to corner the biggest share of the market, without bothering about the overall results of similar decisions taken by other firms operating in the same field.

(d) The aim of capitalist production is to maximise profit. The pre-capitalist owning classes lived off the social surplus product, generally consuming it in an unproductive manner. The capitalist class also consumes unproductively part of the social surplus product, part of the profits it acquires. But it must be able to sell the commodities in order to acquire these profits. This implies that it must offer them on the market at a lower price than that of its competitors. In order to do this it must lower the production costs. The most efficient way of lowering the production costs (the cost price) is to enlarge the basis of production – in other words, to produce more, with the aid of more and more sophisticated machines. But this constantly requires larger amounts of capital. It is therefore under the whip of competition that capitalism is obliged to seek a maximisation of profit, so as to develop productive investments to the maximum. 

(e) Thus capitalist production appears to be production not only for profit but also for the accumulation of capital. In fact, the logic of capitalism requires that a major part of the surplus value be productively accumulated (transformed into supplementary capital, in the form of supplementary machines and raw materials, and extra workers), and not consumed unproductively (private consumption by the bourgeoisie and its lackeys). 

Production which has as its aim the accumulation of capital leads to contradictory results. On the one hand, the increasing development of mechanisation implies an expansion of the productive forces and a rise in the productivity of labour, creating the material foundations for the liberating of humanity from any need ‘to work by the sweat of its brow’. That is the progressive historical function of capitalism. But on the other hand, the development of mechanisation (caused by the imperative need to maximise profit and constantly accumulate capital) implies a more and more brutal subordination of the worker to the machine, of the mass of workers to the ‘laws of the market’ which periodically deprive them of both their skills and their jobs. Therefore the capitalist expansion of the productive forces implies a growing alienation of the workers (and, in an indirect manner, of all the citizens of bourgeois society) from the instruments of their labour, from the products of their work, from their working conditions, and quite simply from their living conditions (including the conditions governing their use of ‘free time’), and from real human relations with their fellow citizens. 

2 The functioning of the capitalist economy

In order to obtain the maximum profit and develop the accumulation of capital as far as possible, the capitalists are forced to reduce to a minimum the part of the new value produced by the labour force which is returned to it in the form of wages. This new value, this ‘value added’ or ‘national income’, is in fact determined in the productive process itself, independent of any factors on the distribution side. It is measurable by the sum total of the labour done by the total number of wage-earning producers. The larger the slice represented by the real wages paid out of this cake, the smaller is the slice left for surplus value. The more the capitalists try to enlarge the share taken by surplus value, the smaller the part left for wages must necessarily become.

The two essential means by which the capitalists try to increase their part – that is, the surplus value – are:

(a) The lengthening of the working day without any increase in the daily wage (which took place from the Sixteenth to Nineteenth Centuries in the West, and still continues to this day in many colonial and semi-colonial countries); the reduction of real wages; the lowering of the ‘vital minimum’. This is what Marx called the growth in absolute surplus value.

(b) The increasing of the productivity of labour in the consumer goods sphere (this predominates in the West from the second half of the Nineteenth Century onwards). After a rise in the productivity of labour in the consumer goods industries and in agriculture, the average industrial worker reproduces the value of a determined number of these consumer goods in (say) three hours of labour instead of five, so the surplus value which they create for their boss can then increase from the product of three hours to the product of five hours of labour, while the working day remains fixed at eight hours. This is what Marx called relative surplus value.

Every capitalist tries to obtain the maximum profit. But to do this they must also attempt to increase production to the maximum, and ceaselessly lower the retail and cost prices (expressed in stable monetary units). Because of this, competition operates a selection process among the capitalist firms in the medium term. Only the most productive and the most ‘viable’ survive. Those who sell at too high a price not only fail to achieve the ‘maximum profit’ but also end up with no profit at all. They go bankrupt or are absorbed by their competitors.

The competition between capitalists leads therefore to an equalisation of the rate of profit. In the end most firms have to be content with average profits, determined in the final analysis by the total mass of social capital invested and the total mass of surplus value created by all the productive wage-earners. Only those firms enjoying a large increase in productivity, or some situation of monopoly, obtain super- profits – that is, profits above this average. In general, capitalist competition prevents super-profits or monopolies from existing for an unlimited period.

It is principally the divergences from this average profit which govern investment in the capitalist mode of production. Capital leaves the sectors where profit is below average and floods into the sectors where profit is above average (for example, it flooded into the automobile industry during the 1960s and left this sector to flood into the energy industry in the 1970s). But by flooding the sectors where the rate of profit is higher than the average, capital provokes acute competition in these sectors, followed by over- production, a lowering of the retail price, and a lowering of profits, until the rate of profit is established at more or less the same level in all industries.

3 The evolution of wages

One of the characteristics of capitalism is that it transforms human labour power into a commodity. The value of the commodity labour power is determined by its costs of reproduction (the value of all commodities which must be consumed in the reconstitution of labour power). This is therefore a matter of objective fact, independent of the subjective or haphazard estimations of groups of individuals, whether they be workers or bosses.

However, the value of labour power has a specific characteristic in relation to all other commodities: as well as a fixed stable element, it includes a variable element. The stable element is the value of the commodities needed to reconstitute labour power in a physiological sense (allow- ing the worker to recuperate the calories, vitamins and capacity to release a determined amount of muscular and nervous energy, without which it would be impossible to work at the ‘normal’ rhythm required by the capitalist organisation of labour at any given moment). The variable element is the value of the commodities incorporated in the ‘normal vital minimum’ at a given epoch in a given country, over and above the physiological minimum. Marx called this part of the value of labour power its ‘moral and historical’ element. This means that it too is not determined by chance. It is the result of a historic evolution in the balance of forces between capital and labour. It is at this precise point in Marxist economic analysis that the results of past and present class struggle become a co-determining factor of the capitalist economy.

The wage is the market price of labour power. Like all market prices it fluctuates around the value of the commodity under examination. The fluctuations in wages are mainly determined by the fluctuations in the industrial reserve army – that is, in unemployment – and this is so in a triple sense:

(a) When a capitalist country experiences permanent and large-scale unemployment (while it is industrially under- developed), wages are in danger of remaining constantly under or at the level of the value of labour power. This value threatens to approach the vital physiological minimum.

(b) When massive permanent unemployment declines in the long term, mainly as a result of in-depth industrialisation and mass emigration, wages can, in a period of upturn, rise above the value of labour power. In the long term, working class struggles can bring about the incorporation into this value of the equivalent of new commodities (the socially recognised vital minimum can rise in real terms, that is, can include new needs).

(c) The highs and lows in the industrial reserve army do not only depend on demographic movements (birth and death rates) and on the international movements of emigration of the proletariat. Above all they depend on the logic of the accumulation of capital. In fact, in the struggle to survive competition, the capitalists have to substitute machines (‘dead labour’) for workers. This substitution constantly throws workers out of production. Crises play the same role. On the other hand the industrial reserve army is re-absorbed in a period of upturn and ‘boom’, when the accumulation of capital proceeds at a feverish pace.

There is, therefore, no ‘golden rule’ which governs the evolution of wages. The class struggle between capital and labour determines it in part. Capital tries to bring down wages to the vital physiological minimum. Labour tries to increase the historical and moral element of wages by including more new needs in it. The degree of, organisation, solidarity, combativity and also class con- sciousness of the proletariat are all factors involved in the evolution of wages. But in the long term one can discern an unquestionable tendency towards the relative pauperisation of the working class. The part of the new value created by the proletariat which goes back to the workers tends to decline (this can, however, be accompanied by a rise in real wages). The gap tends to grow between, on the one hand, the new needs created by the development of the productive forces and the growth of capitalist production and, on the other hand, the capacity to satisfy these needs with the wages earned.

A clear indication of this relative pauperisation is given by the growing divergence in the long term between the growth of the productivity of labour and the growth in real wages. In the first seventy years of the Twentieth Century, the productivity of labour in the USA and West and Central Europe in industry and agriculture rose five- or six-fold. The real wages of workers have risen only two- or three-fold in the same period. 

4 The laws of motion of capitalism

Because of the characteristics of its functioning, the capitalist mode of production evolves according to certain laws of motion (laws of development) which are therefore intrinsic to its nature:

(a) The concentration and centralisation of capital – in competition the big fish devour the little ones, large enterprises defeat smaller ones who have fewer means at their disposal and who cannot profit from the advantages of mass production, and cannot introduce the most advanced and expensive techniques. Because of this fact the average size of these big firms grows incessantly (the concentration of capital). A hundred years ago firms with 400 employees were an exception. Today there are already firms employing more than 100,000 wage-earners. At the same time, many companies destroyed by competition are absorbed by their victorious competitors (the centralisation of capital).

(b) The progressive proletarianisation of the working population. The centralisation of capital implies that the number of small bosses working on their own account diminishes all the time. The fraction of the working population which is obliged to sell its labour power in order to subsist grows continually. Here are the figures relative to this evolution in the USA, which confirm this tendency in a striking fashion:

Evolution of the class structure of the USA [as a percentage of the total population in work]  wage earners entrepreneurs and self-employed

1880 62 36.9
1890 65 33.8
1900 67.9 30.8
1910 71.0 26.3
1920 73.9 23.5
1930 76.8 20.3
1940 78.2 18.8
1950 79.8 17.1
1960 84.2 14.0
1970 89.9 8.9 

Contrary to a well-known myth, this proletarian mass, although highly stratified, is increasing rather than decreasing in its degree of homogeneity. The difference between a manual worker, a bank employee and a low-grade civil servant is less today than it was half a century or a century ago with regard to their standard of living, their willingness to join trade unions and to go on strike, and their potential for acquiring an anti-capitalist consciousness.

This progressive proletarianisation of the population under the capitalist system mainly arises from the automatic reproduction of capitalist production relations, which stems from the bourgeois division of income already mentioned above. Whether wages be high or low, they only serve to satisfy the immediate and longer term consumer needs of the proletariat, who are incapable of accumulating fortunes. Moreover, the concentration of capital means that the cost of setting up a business constantly increases, barring the immense majority of the petty bourgeoisie as well as the whole of the working class from access to the ownership of large industrial and commercial enterprises. 

(c) The growth in the organic composition of capital. The capital of each capitalist, and therefore the capital of all capitalists, can be divided into two parts. The first serves to buy machines, buildings and raw materials. Its value remains constant throughout production; it is simply preserved by the labour power, which transmits a part of it into the value of the products being manufactured. Marx called this constant capital. The second part is used to buy labour power, to pay wages. Marx called this variable capital. It is this part alone which produces surplus value. The relation between constant and variable capital is both a technical relation – in order to use a set of machines in a profitable manner they must be fed a given quantity of raw materials, and must be used by a given number of workers – and a value relation: a certain amount spent in wages to buy the labour power of X number of workers so as to work W number of machines costing Y pounds and transforming Z pounds worth of raw materials. Marx sums up this dual relationship of constant and variable capital by the formula: the organic composition of capital.

With the development of industrial capitalism this relation tends to grow – that is, a growing mass of raw materials and a growing number of machines (which also become more and more complex) are used by one (10, 100, 1,000) worker. A higher and higher tendential value spent on machines, raw materials, energy and buildings will correspond to the same mass of wages.

(d) The tendency of the average rate of profit to decline. This law follows logically from the preceding one. If the organic composition of capital increases, the profit will tend to decline in relation to the total capital, because only variable capital produces surplus value, produces profit.

In this context we are speaking of a tendential law and not of a law which is applied in such a ‘linear’ manner as that of the concentration of capital or the proletarianisation of the active population. In fact there are various factors which cut across this tendency, of which the most important is the raising of the rate of exploitation of the wage-earners, the raising of the rate of surplus value (the relation between the total mass of surplus value and the total mass of wages). We must note, however, that the tendential decline of the average rate of profit cannot be lastingly neutralised by the growth in the rate of surplus value. There is in fact a limit beneath which neither the real nor the relative wage can fall without calling into question the possibility or willingness of the work-force to produce, while there is no limit on the growth in the organic composition of capital (this can increase to infinity in automated enterprises).

(e) The objective socialisation of production. At the start of manufacturing production each enterprise was independent of other units, and established only transient relations with its suppliers and customers. As the capitalist system evolves, lasting technical and social bonds of interdependence develop between firms and industrial sectors in a growing number of countries and continents. A crisis in one sector has repercussions in all other sectors. For the first time since the origin of the human species a common economic infrastructure is created for all humanity, a basis for their solidarity in tomorrow’s communist world. 

5 The inherent contradictions of the capitalist mode of production

From these laws of motion of the capitalist system one can spotlight a series of fundamental contradictions in the mode of production in question:

(a) The contradiction between the increasingly planned and conscious organisation of production within each capitalist firm and the more and more pronounced anarchy of the whole of capitalist production, which results from the survival of private property and generalised commodity production.

(b) The contradiction between the objective socialisation of production and the maintenance of the private appropriation of the products, profits and means of production. It is precisely when the interdependence of firms, sectors, countries and continents is at its most advanced that the fact that the whole system functions on the orders and profit calculations of a handful of capitalist magnates fully reveals its economically absurd and socially abhorrent nature.

(c) The contradiction between the tendency of the capitalist system towards unlimited development of the productive forces and the narrow limits which it is obliged to impose on the individual and social consumption of the mass of workers, since the aim of production remains maximum surplus value, which must necessitate a limitation of wages.

(d) The contradiction between the enormous leap forward in science and technology – with their potential to emancipate humanity – and the harnessing of these potential productive forces to the imperatives of the sale of the capitalist’s commodities and to his enrichment, which leads to the situation where these productive forces are periodically transformed into destructive forces (principally after economic crises, wars and the coming to power of bloody fascist dictatorships, but also as regards the menace to humanity’s natural environment), thus confronting humanity with the dilemma: socialism or barbarism.

(e) The inevitable development of the class struggle between capital and labour, which periodically undermines the normal conditions of reproduction of bourgeois society. This problematic will be examined in more detail in Chapters 8, 9, 11 and 14. 

6 The periodic crises of overproduction

All the inherent contradictions of the capitalist mode of production periodically blow up in crises of overproduction. The tendency to periodic crises of overproduction, to a cyclical motion in production which successively goes through stages of economic recovery, upturn, ‘boom’, crisis and depression, is inherent to this mode of production and to it alone. The size of these fluctuations can vary from epoch to epoch. They are inevitable in the capitalist system.

There were economic crises in pre-capitalist societies (interruptions in normal reproduction); there are in post-capitalist society as well. But in neither case is it a question of crises of overproduction of commodities and capital, but rather of crises of underproduction of use values. The capitalist crisis of overproduction is characterised by a decline in income, the extension of unemployment, the appearance of desperate poverty (and often famine), brought about not because physical production has declined but, on the contrary, because it has grown in an excessive manner in relation to available purchasing power. It is because products cannot be sold that economic activity declines, and not because there are physical scarcities.

At the basis of the periodic crises of overproduction we find the decline in the average rate of profit, the anarchy of capitalist production, and the tendency to develop production taking no account of the limits on consumption by the working masses imposed by the bourgeois mode of distribution. As a result of the decline in the rate of profit, a growing part of capital can no longer obtain sufficient profit. Invest- ment is reduced. Unemployment grows. The sale of a growing number of goods at a loss combines with this factor to bring about a general fall in employment, income, purchasing power and economic activity as a whole.

The crisis of overproduction is both a product of these factors and at the same time puts at the disposal of the capitalist system the means partially to neutralise its effect. The crisis brings about a decline in the value of goods and the bankruptcy of many firms. Total capital is therefore reduced in value. This permits a rise in the rate of profit and the activity of accumulation. Massive unemployment means that the rate of exploitation of the work-force can increase, which leads to the same result.

The economic crisis accentuates social contradictions and can lead to an explosive social and political crisis. It indicates that the capitalist system is ready to be replaced by a more efficient and humane system, which no longer wastes human and material resources. But it does not automatically bring about disintegration of this system. It must be overthrown by the conscious action of the revolutionary class it has engendered- the working class.