The Online Library of Liberty

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• Preface to the English Edition
• Book I: Utopias and Communistic Experiments
• Chapter I: Plato’s Romance
• Chapter II: The Kingdom of the Incas
• Chapter III: Sir Thomas More’s “utopia” and Its Applications
• Chapter IV: AndreÆ and Campanella
• Chapter V: Paraguay
• Chapter VI: Morelly and the “code De La Nature“
• Chapter VII: Robert Owen and “new Harmony“
• Chapter VIII: Fourier and the American Phalanx
• Chapter IX: The Oneida Community
• Chapter X: Cabet and the American Icarians
• Chapter XI: American Experiments
• Book II: Socialistic Theories
• Chapter I: Saint Simon
• Chapter II: Pierre Leroux and the “circulus“
• Chapter III: Louis Blanc and the Organization of Labour
• Chapter IV: The Labour Conferences At the Luxembourg and the National Workshops
• Chapter V: The Right to Work
• Chapter VI: Proudhon's Theories
• Chapter VII: Proudhon's Proposed Decrees and the Bank of Exchange
• Book III: The Postulates of German Socialism
• Chapter I: “true” Socialism
• Chapter II: The Claims of Marx and Engels
• Chapter III: The Sources of German Socialism
• Chapter IV: Formula B and the “iron Law of Wages“
• Chapter V: Formula A. Work the Measure of Value
• Chapter VI: Karl Marx and FormulÆ A, B, and C
• Chapter VII: The Discoveries of Karl Marx and the Facts
• Chapter VIII: The Two Classes
• Book IV: The Distribution of Capital
• Chapter I: Bernstein and the Concentration of Capital and of Industry
• Chapter II: The Poor Become Poorer
• Chapter III: Financial Feudalism
• Chapter IV: Real and Apparent Income
• Chapter V: The Distribution of Inheritances In France
• Chapter VI: The Distribution of Landed Property In France
• Chapter VII: Marx' Principles and Small Properties
• Chapter VIII: Limited Liability Companies
• Chapter IX: Cartels and Trusts
• Book V: The Distribution of Industries
• Chapter I: Marx' Theory and the Concentration of Industries
• Chapter II: The Distribution of Industries In the United States
• Chapter III: The Distribution of Industries In France
• Chapter IV: The Distribution of Industries In Belgium
• Book VI: The Inconsistencies of Scientific Socialism
• Chapter I: “scientific” Prophecies
• Chapter II: The Prophets of “catastrophes”
• Chapter III: Admissions of the Apostles
• Book VII: Collectivist Organisation
• Chapter I: Collectivist Organisation and Its Economic Conditions
• Chapter II: The Class War and Political Conditions
• Chapter III: The Deflections of Administrative Organs
• Chapter IV: The Impossibility of Collectivism
• Book VIII: The Actual Class War
• Chapter I: Strikes and Trade Unions
• Chapter II: The Sovereignty of the Strikers
• Chapter III: The Nation At the Service of the Strikers
• Chapter IV: The Electricians' Strike
• Chapter V: The Tyranny of Minorities
• Chapter VI: Destruction of Property and Plant and the General Strike
• Chapter VII: Labour Exchanges In France
• Chapter VIII: The American “labor Unions“
• Chapter IX: The Exploitation of Intimidation
• Chapter X: Compulsory Arbitration
• Book IX: Socialism and Democracy
• Chapter I: The Programme of the International Association
• Chapter II: Socialism Versus Democracy
• Chapter III: How Many Are There
• Chapter IV: The Havre Programme and M. JaurÈ' Solutions
• Chapter V: Social and National Policy
• Chapter VI: Positive and Negative Policy
• Chapter VII: Tactics of the Social War
• Chapter VIII: Against the Law
• Chapter IX: Depressing Effect Upon Wealth
• Chapter X: The Impotence of Socialism

CHAPTER VI

Karl Marx and FormulÆ A, B, and C

• i Ricardo's formula and Marx' amendment—A third mysterious quantity—“Labour power”—Definition of value—Surplus value.
• ii Variable capital and surplus-value — Example—1,307.69 per cent.—Total surplus value proceeding from 2.50 per cent. of capital—The vampire.
• iii Disinterestedness of the “vampires”—Destruction of surplus value by establishment.
• iv The elements of profit—Marx' assertion that establishment is not a factor in profit.
• v Raw material—Definition of profits.
• vi Variation in surplus-value — Marx' and Engels' qualifications—The theory abandoned—Profit is derived, not from the quantity of unpaid labour, but from the management of the enterprise.

I

Ricardo said: “The value of a commodity depends upon the amount of the labour necessary to produce it.” This definition has the advantage of simplicity, and therefore did not suit Karl Marx, who adopted Ricardo's definition, with the substitution of the expression “labour-power” for “labour,” and this constitutes his great discovery to the admiring eyes of Engels.1 But he does not always make use of this complementary expression.

In order to establish his proposition, Karl Marx starts with the elementary arithmetical truism that two quantities which are equal to a third are equal to one another. Let us see how this truism becomes distorted by Karl Marx's dialectical method.

A given quantity of corn is equated to some quantity of iron. What does this equation tell us? It tells us that in two different things there exists in equal quantities something common to both. The two things must therefore be equal to a third, which in itself is neither the one nor the other. Each of them must be reducible to the third, independently of the other.1

In exchange, these two commodities are equal to the reciprocal desire of their two owners to exchange them, and in proportion to such desire. As money serves as the common denominator in exchange, these two quantities are equal to a certain quantity of money. Karl Marx does not care to take the facts leading to this conclusion into account. He supposes that this third quantity is the mysterious quantity of labour which is incorporated in the corn and the iron. His great discovery is then complete:—

“The value of each commodity is determined by the quantity of labour expended on and materialised in it, by the working-time necessary, under given social conditions, for its production.”2

In Karl Marx' view, value cannot be the relation between the desire and the need of two individuals. He declares that “value only consists in articles of utility, in an object.” Still labour-power is not an object; it is the expression of an effort which may even possibly remain without any result. In order to meet this objection, Karl Marx declares that “man himself, viewed as the impersonation of labour-power, is a natural object,”3 and further that “the real value of a commodity is not its individual value, but its social value.”4 Value is defined as “a definite social manner of expressing the amount of labour bestowed upon an object.”5 Karl Marx takes care to call attention to the importance of this conception of value, “the discovery of value marks an epoch in the history of the development of the human race.”1 Nevertheless Engels subsequently said that even if Marx' law of value ought not to be considered as inaccurate, it is too vague, and is capable of being laid down with greater precision, and he recognises that it fails to correspond with actual facts. Werner Sombart declares that “the law of value is not an empiric fact, but a fact founded upon ideas, a stimulus to our minds.” Another disciple, Bernstein, looks upon it as a “subjective conception,” and Karl Marx in his third volume recognises that it is entirely removed from reality by saying that “the cost of production includes not only labour-power and work-time, but also the intermediate profit of the capitalist.”

Karl Marx then invokes the aid of formula “B,” called by Lassalle “the iron law of wages,” and transforms it into his theory of “surplus labour.” The value of the working day is determined by the working time necessary for the production of the means of subsistence that are daily required for the production of labour power. If this costs six hours, the labourer must work on an average for six hours. During these six hours he is working for himself, but by working for twelve hours he gives six hours of extra labour or surplus labour or unpaid labour, which constitute the profit of the capitalist, and this is what Karl Marx calls “surplus-value.” Reducing all this to a ratio we have

This proportion determines the rate of surplus-value. The total amount of necessary labour and of surplus-labour forms the grand total of labour-time or in other words a working day.

II

Karl Marx places capital employed in production in three categories. Fixed capital, representing establishment or plant; constant capital, representing rent, raw material, heating and lighting; and variable capital, representing wages.

The variable capital of a capitalist is the expression in money of the total value of all the labour-powers that he employs simultaneously. Its value is, therefore, equal to the average value of one labour-power, multiplied by the number of labour - powers employed.1

Why should capital be constant when it is a question of raw material and variable when it is one of wages? The price of the former is subject to more rapid and more frequent fluctuations than that of the latter. Karl Marx recognises that the price of cotton may rise in the market from sixpence at the time when it enters a factory to a shilling during the process of manufacture, and that this rise in price may become incorporated in the product, but “this charge is independent of the increment or surplus value added to the value of the cotton by the spinning itself.”

That part of capital which is represented by the means of production, by the raw material, auxiliary material, and the instruments of labour, does not, in the process of production, undergo any quantitative alteration of value. I therefore call it the constant part of capital, or, more shortly, constant capital.

On the other hand, that part of capital, represented by labour-power, does, in the process of production, undergo an alteration of value. It both reproduces the equivalent of its own value, and also produces an excess, a surplus-value, which may itself vary, may be more or less according to circumstances. This part of capital is constantly being transformed from a constant into a variable magnitude. I therefore call it the variable part of capital, or, shortly, variable capital.2

Profit is derived from the fact that the capitalist is able to sell a thing for which he has not paid, namely surplus labour. Consequently a ratio can be established between variable capital representing labour and the excess of that value obtained by the finished goods.

Let us examine the consequence of these notions in the light of an example1 given by Marx. He takes the case of a spinning mill containing 10,000 mule spindles for a week in April, 1871, and applies this to a year's working, without regard to any question of credit.

Proportion per cent:

Calculating these elements upon the total circulating capital of £2,500, we have £2,182 constant capital and £318 variable capital. The total amount expended annually in wages is 52 × £52 = £2,704, so that the variable capital of £318 has turned itself over almost exactly 8½ times in the year. The profit for the whole year is 80 × 52 = £4,160, which, in relation to the total capital of £12,500, yields 33.28 per cent. This is the rate of profit. Profit is arrived at by comparing the surplus-value of labour or of variable capital with the total capital, but this is not the profit which is apparent. The surplus-value of the variable capital is only to be compared with the variable capital, that is with the amounts paid to the workmen. We now have £80 of surplus-value, divided by £52 = 153 1113 per cent. But inasmuch as the variable capital (£318) is turned over 8½ times in the year we have:—

This figure of surplus-value is the figure of surplus-labour, the rate of remuneration of this vampire, capital. When the employer pays £100 in wages, he makes a profit of £1,307, when he pays £1, his profit is £13.

Karl Marx and his followers have every advantage in denouncing such an exploitation of labour by capital; a declamatory socialist does not analyse the method by which this proportion was arrived at. He challenges mathematicians to demonstrate that Marx's authentic calculations are incorrect, and because no one takes up the challenge, he concludes from their silence, that Marx has proved, not in accordance with an hypothesis in the air, but by the example of an English spinning mill, that an employer made a profit of more than £13 for each pound spent in wages, during a week in 1871; that those £13 are derived from the £1 spent on labour; that they represent the surplus-value of human labour which is absorbed by capital, and that they stand for labour which has not been remunerated. Marx continues:—

The total capital is divided into £12,182 of constant and £318 of variable capital, a total of £12,500, or 97½ per cent. of constant and 2½ per cent. of variable capital. Only a fortieth part of the total capital is employed in paying wages, but it serves this purpose more than eight times a year.

The whole surplus-value, therefore, according to Marx's theory, is derived from these 2½ per cent. And he concludes by saying that:—

Capital is dead labour, that, vampire-like, only lives by sucking living labour, and lives the more the more labour it sucks.1

III

Instead of denouncing the rapacity of the vampires who grow fat on labour for which they do not pay, Karl Marx ought to have made fun of their absurd disinterestedness. According to the above computation, the portion of capital set apart for wages is only 2½ per cent. of the total capital; if then the profit be derived entirely from this fraction, why do employers continually seek to keep it down, instead of increasing it? Why improve their plant instead of increasing the number of their wage-earners? If unpaid human labour be the sole element of profit, why substitute mechanical labour for it? How can they have failed to realise their mistake, when Karl Marx has pointed out to them the means of obtaining unlimited profits by making unlimited additions to their staff of labour?

Logically, in order to make a fortune the capitalist has only to take the greatest possible number of workmen and to make them work, not as usefully as possible, but for the greatest possible number of hours. An employer should never buy a machine, and should destroy all those that he possesses. If navvies had neither picks, spades nor wheelbarrows, the number of them necessary for a particular job would have to be largely increased, and by virtue of the law of surplus-value they would earn far larger profits for the contractor if they were to scrape the ground up with their nails and carry it in their hands.

Karl Marx found the following answer. There are three methods by which the capitalist can increase surplus-labour: by reducing wages, that is to say the hours of necessary labour, a reduction which is limited by the means of subsistence, or by increasing the hours of labour, but in this he is encountered by obstacles of a physiological, moral, and legal nature. There remains, therefore, but one method, that of perfecting the means of production.

The capitalist who applies the improved method of production, appropriates to surplus-labour a greater portion of the working-day than the other capitalists in the same trade….

There is immanent in capital an inclination and constant tendency to heighten the productiveness of labour, in order to cheapen commodities, and by such cheapening to cheapen the labourer himself.1

This is how Karl Marx explains the capitalist's passion for machinery. But this explanation is insufficient for the following reason. If machinery increases the labour of the individual, it diminishes the number of individuals necessary for a like amount of production; it therefore destroys that human surplus-labour which is the sole source of surplus-value, and which alone produces a profit for capital; the capitalist, therefore, by substituting machinery for manual labour, condemns himself to famine and commits himself to suicide, and all progress in industrial production is actually the destruction of surplus-value.

A capitalist owns a machine of ten horse-power, worked by two mechanics, each of whom is paid 6 francs a day. The result is as follows:—

Multiplying this by 2, you find that the capitalist vampire has appropriated surplus-value to the value of 6 francs. If, however, he had employed the 210 men who are the equivalent of 10 horse-power, he would even, if the surplus-value was reduced from 3 francs to 1.50, to 0.50, or to 0.25, have 210 francs, 105 francs, or 52 francs respectively, instead of the 6 francs obtained from the two mechanics.

These vampires are madmen: they destroy with their own hands the surplus-value which is their only profit.

IV

Karl Marx' fallacies rest upon this proposition that that which is greater than a particular magnitude cannot constitute a portion of such magnitude. Profit cannot therefore form a fraction of the capitalist's outlay. From this he draws the conclusion that profit is merely the result of unpaid human labour, and in fact falls into the old error of all protectionists, he has eyes only for production. Now production is valueless without consumption. The profit of a business is derived from its customers. The demand for a commodity or for services, the net cost at which a commodity is produced, the ease with which it is placed at the service of a purchaser, such are the constituent elements of profit. Capital is one of the coefficients of net cost. Karl Marx asserts that in the eyes of the capitalist the price of the commodity is exclusively deter mined by the labour for which he pays. The capitalist knows perfectly well that return on capital is one of the elements in the net cost of a commodity and in the example cited by him this return is an item which he takes into consideration. He waxes indignant because the owner of the capital obtains some return on it, but if the capitalist derived no profit from its employment, he would refrain from employing it. But, says Karl Marx, profit cannot form a fraction of the capitalist's. If he had taken the trouble to observe actual facts, he would have arrived at the following conclusions.

A manufacturer purchases a spinning mill, worth a particular sum of money. It is obvious that, if he were to empty it of its contents or to leave it standing idle, he would reap no profit from it. Of course, standing by itself this mill would confirm the truism that “that which is greater than a particular magnitude cannot constitute a portion of such magnitude.” But the manufacturer supplies this mill with cotton of which a quantity is spun, representing a particular sum of money, and it is for the facilities which he affords for converting raw cotton into thread that the capitalist is able to obtain a sum sufficient to pay off the cost of the mill; when this cost has been paid, the profit obtained by the manufacturer out of the work produced by this mill is increased by the paying off and recovery of the purchase price. Here we have an element of profit. As between two undertakings, the one which succeeds the more rapidly in paying off the purchase price of its mills will obtain the greater profit, and its profit will be greater during the time subsequent to the paying off than it was during the time which preceded it. Fixed capital has drawn no profit from itself. A mill does not produce a mill and a quarter or a mill and a half. But the use of the mill produces utility, and utility produced in the shape of the manufactured product enables the manufacturer to pay off its prime cost and to renew his plant. To say that the mill does not contribute to the profit is equivalent to saying that it does not contribute to production.

V

Karl Marx' fallacies leave out of account the existence of raw material. Undoubtedly the truism to which he appeals, that that which is greater than a particular magnitude cannot constitute a portion of such magnitude, is applicable to all raw material, which is incapable by itself of producing any profit. If it is not used it even runs the danger of deteriorating, and the capital employed in acquiring it would lose its utility.

But raw material, when brought into contact with other raw material and worked up by means of plant, is transformed into a product, and what is the value which such product acquires? Surely that which is given to it by the consumer who requires it and whom Karl Marx suppresses in order to establish his fallacious argument.

And now what is the part allotted to human labour? The capitalist takes charge of it and provides it with the raw material and the plant necessary to bring it into play, and receives from it either services or products for which he pays, and this payment we call wages. Plant, raw materials and wages result in the production of a commodity, and it is the difference between the net cost and the price at which this commodity is sold which constitutes the profit.

VI

Karl Marx pronounces the doom of his own system in the following passage1 :—

A part from modifications introduced by the system of credit, by the chicaneries in which capitalists indulge with regard to one another, and by the advantages derived by them by the selection of the most favourable markets, while the degree in which labour is exploited by them may be the same, the rate of profit may be very different according as (a) their raw material is purchased more or less cheaply, or with more or less skill and judgment; (b) their plant is more or less productive, effective, and costly; (c) the general organisation of the various stages in the process of production is more or less complete; and (d) the waste of raw material is avoided; and (e) the management and superintendence are more or less simple and effective. In short, given the surplus-value for a particular amount of variable capital, it depends to a great extent upon the individual competence either of the capitalist himself or of his overseers and clerks, whether this surplus-value is to be expressed in a greater or a smaller rate of profit, and consequently whether his actual profit will be greater or less. The same surplus-value of £1,000, the produce of £1,000 spent in wages, may have required a constant capital of £9,000 in undertaking A and of £11,000 in undertaking B. In the case of A the profit is 100010000 10 per cent. In the case of B it is 100012000 8 13 per cent.

Such a difference in the representative value of the same quantity of surplus-value may be entirely due to differences in the capacity of those who direct the two undertakings.

Engels qualifies the illustration in which the rate of profit is given as 1,307 9-13 per cent.1 with the observation that this rate of profit is abnormal and is only to be explained by a temporal and exceptional combination of circumstances (exceptionally low prices of raw and exceptionally high prices of manufactured cotton) which undoubtedly cannot have obtained throughout a whole year. A few lines lower down, he confuses the expressions “profit” and “surplus-value,” and remarks that such a rate of profit is not uncommon in periods of great prosperity, such as have not, however, been experienced for a considerable time.

These two qualifications, it would seem, upset the whole calculation. If the prices of raw cotton as a raw material, and of manufactured cotton as a product play a part in the increase or decrease of profits, it follows that profit is not simply the product of surplus-labour, and the rate of 1,307 per cent. disappears with the appearance of elements in the value of the product other than the element of surplus-labour.

Marx recognises over and over again that the difference in the profits of various industries depend upon the rapidity with which the capital employed in them is turned over. Accordingly the profit of an undertaking does not depend exclusively upon unpaid labour. It is, therefore, not enough for a capitalist to bring a large number of workmen together, to pay them small wages, and to impose severe and protracted labour upon them in order to obtain surplus-value in proportion to the number employed at a minimum rate of wages and a maximum of industry and duration of labour. Marx himself recognises this by saying that a difference in the same quantity of surplus-value may be entirely due to differences in the capacity of those who direct different undertakings.

Hence follows the involuntary conclusion to his theory to which he is forced and which he admits in his own words: “The profits of an undertaking are independent of the quantity of capital employed in it and are not in proportion to the quantity of unpaid labour.”

Profit is derived from the management of the undertaking.

[1]“Das Kapital” (German edition), Introduction to vol. iii.

[2]“Das Kapital,” vol. i., chap. i.

[3]Ibid, vol. i., chap. vii., §2.

[4]Ibid, vol. i., chap. viii.

[5]Ibid, vol. i., chap. vii.

[6]Ibid, vol. i., chap. i.

[7]“Das Kapital,” vol. i., chap. i.

[8]“Das Kapital,” vol. i., chap. xi.

[9]Ibid, vol. i., chap. viii.

[8]“Das Kapital,” vol. i., chap. ix.—vol. iii., chap iv.

[0]“Das Kapital,” vol. i., chap. x.

[0]“Das Kapital,” vol. i., chap. xii.

[0]Das Kapital,” vol. iii., chap. vii. (Appendix).

[0]Supra, p. 119. “Das Kapital,” vol. iii., chap. iv.