A Short Introduction to Marxist Economics
The laws of capitalist economics are accessible to anyone who wants to understand Marx’s analysis of capitalist economy. However, it takes a reasonable amount of interest and effort. What follows is a very short introduction to an understanding of the fundamental contradiction of capitalist economy: the falling rate of profit.
First, on the economic laws governing wages and profit and the contradictory relation between these two key categories of capitalist economics:
Wages are the price of a given quantity of labor power. Their value is determined by how much it costs workers to buy enough of life’s necessities for themselves and their dependents. Without a wage high enough to support workers and their families they would be unable to raise the next generation of workers to supply the future needs of capitalists. Not to mention the capitalists’ need to ensure that their workers are alive and healthy enough to come back to work hard the next day.
If they are paid too little, workers cannot survive, much less continue working for their employer for very long. However, because capitalists, like any other buyers, will not pay more than what the market demands, they assiduously strive to keep wages down as close to subsistence levels as they possibly can.
Let’s assume that workers reproduce the value of their wages in around four hours on average. Workers are fully able to work much longer than what Marx calls “the necessary labor time.” But the capitalist—all other things being equal—is not compelled to pay a higher wage for a day’s labor consisting of eight hours than he would have to pay for a day lasting four hours or 12 hours, since the amount needed for one day’s subsistence doesn’t substantially change.
If workers on average are compelled to work eight hours for a day’s pay, the boss gets the value produced in the extra four hours for free! And if they work 12 hours, the boss gets twice as much free labor!
To be sure, in real life there is a never-ending struggle between labor and capital over how much a day’s labor is worth. That varying amount depends in great part on what the worker thinks his labor power is worth. And that conception is a result of the history of the given working class’s success in winning a living wage which varies from country to country and from region to region. That’s one of the reasons why Marx calls the part of capital that goes toward wages variable capital.
It varies because workers and capitalists have a diametrically opposed opinion on what is a living wage. (That’s what the class struggle is all about.)
We come now to the contradiction between the two components of invested capital, what Marx calls constant and variable capital. The tendency of the rate of profit to fall is the fundamental contradiction that will bring the entire structure of world capitalism tumbling down. Here is how the contradiction is manifested:
Constant capital—that is, the portion of capital invested in factory buildings, machines, and raw materials—is merely reproduced in commodities, creating no new added value.
On the other hand, as has been briefly indicated above, variable capital, the portion spent on labor power, tends always to be less than the value of the surplus product produced by the worker. Thus, workers both reproduce the value of their wages and add new value to the commodities produced.
In other words, machines can do no more than transfer the portion of their value used up in the course of the production of commodities since even automatic machines can’t produce anything unless there are humans to turn them on and off, maintain them, transport the commodities, and distribute them to wholesalers and retailers. And even if completely automatic production were achieved, there would be no workers, no wages, no money to exchange for the goods produced, and thus zero surplus value and zero profit.
Consequently, long before the rate of profit falls to zero, a massive crisis of overproduction is inevitable.
For those whose appetite for further understanding has been whetted by the preceding contributions and who wish to learn more, there is no substitute for reading Marx’s Capital itself. Even a serious study of the first and most difficult chapter in the first of three volumes of this most important of Marx’s many contributions to the science of society will bring a reward in higher understanding that would be well worth the effort for those who think the world needs changing and want to help change it for the better.
—Socialist Viewpoint, May 2001, Vol. 1, No. 1