The Mystery of the Origin of Profit, Interest, and Rent (1976)

Ernest Mandel was a Marxist theorist and avowed Trotskyist who as a teenager fought in the underground resistance against the Nazis during the occupation of Belgium, and survived imprisonment in a German concentration camp after capture. After the war he went on to become a well-known and prolific academic economist. This text comprises sections 6, 7, and 8 of his “Introduction” to Capital Volume I (Penguin, 1976). I thought they worked very nicely together, as a lucid and compelling stand-alone excerpt. ^[1]

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Contents

• Marx’s Key Discovery: The Theory of Surplus Value
• Marx’s Theory of Capital
• Marx’s Theory of Accumulation of Capital

Marx’s Key Discovery: The Theory of Surplus Value

The classical school of political economy, including Ricardo, saw profits as a residual net income, once wages had been paid. Indeed, so strict was their adherence to this concept that Ricardo believed that only increases or decreases in production costs in the wage-good industries could influence the rate of profit. Whatever happened to the luxury goods industry, or even to raw materials, would not affect the global rate of profit.

This view is incomplete and therefore incorrect, but it was at least an attempt to come to grips with the problem of income distribution between social classes as a function of what happens in the course of production. The exponents of post-Ricardian ‘vulgar’ economic theory, and especially the neo-classical marginalists, do not bother to ask the question ‘why?’, they are content just to answer the question ‘how?’. They simply note that ‘factors’ (labour, capital, land) get different ‘prices’ on the market, and limit themselves to a study of how these prices fluctuate. To consider the origins of profit, interest and rent; to ask whether workers must abandon part of the product of their labour when they work for an alien entrepreneur; to examine the mechanisms through which this appropriation occurs as a result of an honest-to-god act of exchange, without any cheating or plotting: it was left to Marx to unravel these basic questions about the capitalist mode of production.

The origin of the income and consumption of the ruling classes in pre-capitalist societies is no matter of speculation. Anybody knows that, from an economic point of view, they were the results of appropriation of part of the fruits of the producers’ labour by the ruling class. When the medieval serf worked half the week for his own livelihood on the land of his manse, and the other half of the week without remuneration on the estate of the noble or the church, one could argue that, from a ‘moral’ point of view, he was offering unpaid labour ‘in exchange’ for the ‘service’ of profane or divine protection. But nobody would confuse this ‘exchange’ with what goes on in the market place. It was in fact no economic exchange at all, in any sense of the word, no give-and-take of anything which can be ‘priced’, in even the most indirect way. The ‘service of protection’ is not ‘bought’ by the serf any more than a small Chicago businessman ‘buys a service’ from a gang of hoodlums. It is an extortion imposed upon him by the social set-up, whether he likes it or not. The origin of the social surplus product accruing to the pre-capitalist ruling class is, therefore, obviously unpaid labour (whether in the form of labour services, or of physical products of these labour services, or even of money-rent) expended by the producers.

In the case of slavery, the context is as clear if not clearer, especially in those extreme examples where even the miserable pittance of the slave was not provided by the masters, but had to be provided by the slave himself on the seventh day of the week. Indeed, regarding these slave plantations, even the most sceptical critics of historical materialism will find it hard to doubt that the whole social product, the part which fed the slaves as well as the part which fed the masters, had but one origin: social labour expended by the slaves and by them alone.

When, however, we look at the capitalist mode of production, everything seems much more complicated and much more obscure, to say the least. No brutal force, personified by an overseer with a whip or some group of armed men, appears to force the worker to give up anything he has produced or owns himself. His relationship with the capitalist appears to be based upon an act of exchange which is identical to that of a small artisan or a farmer, owners of commodities they themselves have produced, who meet in the market place. The worker appears to sell his ‘labour’ in exchange for a wage. The capitalist ‘combines’ that labour with machines, raw material and the labour of other men to produce finished products. As the capitalist owns these machines and raw materials, as well as the money to pay the wages, is it not ‘natural’ that he should also own the finished products which result from the ‘combination of these factors’?

This is what appears to occur under capitalism. However, probing below the surface, Marx comes up with a series of striking observations which can only be denied if one deliberately refuses to examine the unique social conditions which create the very peculiar and exceptional ‘exchange’ between labour and capital. In the first place, there is an institutional inequality of conditions between capitalists and workers. The capitalist is not forced to buy labour-power on a continuous basis. He does it only if it is profitable to him. If not, he prefers to wait, to lay off workers, or even to close his plant down till better times. The worker, on the other hand (the word is used here in the social meaning made clear precisely by this sentence, and not necessarily in the stricter sense of manual labourer), is under economic compulsion to sell his labour-power. As he has no access to the means of production, including land, as he has no access to any large-scale free stock of food, and as he has no reserves of money which enable him to survive for any length of time while doing nothing, he must sell his labour-power to the capitalist on a continuous basis and at the current rate. Without such institutionalized compulsion, a fully developed capitalist society would be impossible. Indeed, once such compulsion is absent (for example where large tracts of free land subsist), capitalism will remain dwarfed until, by hook or by crook, the bourgeois class suppresses access to that free land. The last chapter of Capital Volume 1, on colonization, develops this point to great effect. The history of Africa, especially of South Africa, but also of the Portuguese, Belgian, French and British colonies, strikingly confirms this analysis. ^[2] If people are living under conditions where there is no economic compulsion to sell their labour-power, then repressive juridical and political compulsion has to deliver the necessary manpower to the entrepreneurs; otherwise capitalism could not survive under these circumstances.

The function of trade unions, be it said in passing, is immediately clarified in the light of this analysis. Workers who combine to set up a reserve fund can be freed at least for some weeks from the compulsion to sell their labour-power on a continuous basis at the given market rate. Capitalism does not like that at all. It is contrary to ‘nature’; if not to human nature, then at least to the deeper nature of bourgeois society. That is why, under robust nascent capitalism, trade unions were simply banned. That is also why, under senile capitalism, we are gradually returning to a situation in which workers are denied the right to strike — the right to abstain from selling their labour-power at the offered price whenever they like. In this instance, Marx’s insight is clearly confirmed by the highest authorities of the bourgeois state: under capitalism, labour is fundamentally forced labour. Whenever possible, capitalists prefer hypocritically to cloak the compulsion under a smokescreen of ‘equal and just exchange’ on the ‘labour market’. When hypocrisy is no longer possible, they return to what they began with: naked coercion.

Marx, of course, was perfectly well aware of the fact that, in order to organize production in modern factories, it was not enough to combine the social labour-power of manual and intellectual workers. It was necessary to provide for land, buildings, energy, infrastructural elements like roads and water, machinery, a given fabric of organized society, means of communication, etc. But it is obviously absurd to presume that, because factory production is impossible without these conditions of production, roads and canals therefore ‘produce value’. It is no more logical to assume that machines ‘produce’ any value, in and by themselves. Of all these ‘factors’ it can be said only that their given value has to be maintained and reproduced, through incorporation of part of it in the current output of living labour, during the production process.

We come nearer to the truth when we note that property titles (private appropriation rights) to land and machinery lead to a situation where these ‘factors’ will not be incorporated into the process of production without their proprietors receiving an expected ‘return’ over and above the compensation for the wear and tear of the ‘factors’. This is obviously true. But it does not follow at all that such ‘returns’ are then ‘produced’ by the property titles. Nor does it imply that owners of such property titles meet the owners of labour-power on an equal footing. Only if we were in a ‘capitalistic slave society’, where owners of slaves hired out labour-power to owners of factories renting land from landed proprietors, could one say that institutional equality existed between all owners — though, of course, not between owners and slaves! Obviously, in that case, the slave owners would hire out their slaves only if they received a ‘net return’ over and above the upkeep of the slaves.

In the second place, the social situation in which a small part of society has monopolized property and access to the means of production, to the exclusion of all or nearly all direct producers, is in no way a product of ‘natural inequality of talents and inclinations’ among human beings. Indeed, it did not exist for tens of thousands of years of social life on the part of homo sapiens. Even in the relatively recent past, say 150 years ago, nine-tenths of the producers on this planet — who were in their overwhelming majority agricultural producers — did have direct access, in one way or another, to their means of production and livelihood. The separation of the producer from his means of production was a long and bloody historical process, analysed in detail by Marx in Part Eight of Capital Volume 1, ‘So-Called Primitive Accumulation’.

In the third place, the worker does not sell the capitalist his labour, but his labour-power, his capacity to work for a given period of time. This labour-power becomes a commodity under capitalism. ^[3] As such it has a specific value (exchange-value), as any other commodity does: the quantity of social labour necessary to reproduce it — that is to say the value of the consumer goods necessary to keep the worker and his children in condition to continue to work at a given level of intensity of effort. But it has a special quality, a special ‘use-value’ for the capitalist. When the capitalist ‘consumes’ labour-power in the process of production, the worker produces value. His labour has the double capacity to conserve value — that is, to transfer into the finished product the value of the raw material and of a fraction of the machinery used up in this process of production — and to create new value, by spending itself. The whole mystery of the origin of profits and rents is over once one understands that, in the process of production, the workers can (and must — otherwise the capitalist would not hire them) produce value over and above the value of their own labour-power, over and above the equivalent of the wages which they receive. We are back where we started in pre-capitalist societies, and we have been able to eliminate the cobweb of apparent ‘exchange equality’: like feudal rent or the slave-owner’s livelihood, capitalist profits, interests and rents originate from the difference between what the workers produce and what they receive for their upkeep. Under capitalism this difference appears in the form of value, and not of physical output. This fact prevents the process from being immediately transparent. But it does not make it fundamentally different from the exchange taking place between feudal lord and serf.

It is therefore incorrect to state, as does Blaug, following other academic critics of Marx, that Marx’s theory of surplus-value is a theory of ‘unearned increment’. ^[4] It is an appropriation or deduction theory of the capitalists’ income, as was the classical labour theory of value. Capitalists appropriate value which the workers have already produced, prior to the process of circulation of commodities and of distribution of income. No value can be distributed — from a macro-economic point of view, in other words viewing bourgeois society as a whole — which has not been previously produced.

Marx himself considered the discovery of the concept of surplus-value, representing the sum total of profits, interests and rents of all parts of the bourgeois class, as his main theoretical discovery. ^[5] It ties together the historical science of society and the science of the capitalist economy, explaining both the origins and content of the class struggle and the dynamic of capitalist society. ^[6]

For once we understand that surplus-value is produced by workers, that surplus-value is nothing but the age-old social surplus product in money form, in the form of value, we understand the historical leap which occurred when that social surplus product no longer appeared essentially in the form of luxury goods (of which consumption is necessarily limited, even under conditions of such extreme extravagance as during the Roman Empire or in the eighteenth-century French court) but in the form of money. More money means not only additional purchasing power for such luxury goods, but additional purchasing power for more machines, more raw materials, more labour-power. Here too Marx discovered an economic compulsion. Private property, the fragmentation of social labour among various firms, that is, the very nature of generalized commodity production — capitalism — implies a compulsion to compete for shares of the market. The need to accumulate capital, the need to increase the extraction of surplus-value, the unquenchable thirst for surplus-value which characterizes capitalism, it is all here: the accumulation of capital = the transformation of surplus-value into additional capital.

Again, as for value, we should note what this is all about: command over fractions of the total disposable quantity of social labour. It is sufficient to recall this basic fact to understand how misplaced are criticisms of the theory of surplus-value which speak about the ‘productivity of capital’, capital being understood as machines. ^[7] Machines can never, in and by themselves, hire any fraction of the disposable social labour force, except in science fiction. In the more prosaic world in which we live, men owning machines can, for that reason, hire and fire other men. How the product of the labour of these men is then divided, and why, is what Marx seeks to explain.

Of course, Marx did not ‘deny’ that machinery could increase the social productivity of labour. On the contrary, if one reads Chapter 15 of Capital Volume 1, one will see immediately that he was more aware of that potential of technology than any economist among his contemporaries. But the question which most of his critics and other exponents of ‘vulgar’ economics overlook is very simple, namely, why should the results of the increased productivity of labour be appropriated by the capitalist? Why should the combined productivity of many men working together — the famous ‘collective labour potential of the factory’ to which a key analysis is devoted in the original Part Seven (‘Chapter Six’) omitted from the published version of Capital Volume I ^[8] — the combined productivity of scientists and technologists, workers by hand and brain, inventors of machinery and flexers of muscle, increase the profit of the owners of machinery? Surely not because that machinery has some mysterious quality of ‘creating’ value, that is of ‘creating’ quantities of socially necessary labour? ^[9] Surely rather because the owners are in a position to appropriate the products of that combination. So we are back to Marx’s theory of surplus-value.

An interesting, if somewhat astounding, innovation in apologetics for capitalist profits has recently occurred in the form of the theory of the firm developed by Alchian and Demsetz. ^[10] Owners of different ‘co-operating inputs’ are supposed to have a natural tendency to shirk, because they give some preference to ‘non-pecuniary goods’ (!) such as leisure, attractive working conditions and time to converse with fellow workers. It follows, according to Alchian and Demsetz, that if shirking is to be checked someone must have both the right to monitor the performance of team members and the disinclination to shirk himself. To this end he must have the right to receive the residue after all other inputs have been paid contractual amounts, the right to terminate membership of the team and the right to sell these rights. After having received with great joy the good tidings that he has now been promoted to the status of member of a ‘co-operative team’, on an equal footing with the capitalist, the average worker cannot fail to wonder for what mysterious reason the ‘someone’ who gets all these ‘economically necessary rights’ is always the owner of the ‘input - means of production’ and never the owner of the ‘input - labour-power’. Would it be because the capitalist is free from the human vice of shirking, or has no inclination to leisure or attractive working conditions? Or is it perhaps because Messrs Apologists for Capitalism are trying to argue away the fact of surplus-value appropriation through monopoly ownership of the means of production?

Marx’s Theory of Capital

Capital is thus, from the Marxist point of view, a social relation between men which appears as a relation between things or between men and things. Flowing logically from Marx’s labour theory of value and theory of surplus-value, this is another of the key discoveries which opposes his economic theory radically to all forms of academic ‘economics’.

Marx energetically rejects the idea, as expounded by ‘vulgar’ and neo-classical economists, that ‘capital’ is just any ‘stock of wealth’ or ‘any means to increase labour productivity’. ^[11] A chimpanzee using a stick to get at bananas is no more the first capitalist than a tribal community learning to accrue its wealth through animal husbandry or land irrigation is ‘accumulating capital’. Capital presupposes that goods are not being produced for direct consumption by the producing communities, but are sold as commodities; that the total labour potential of society has become fragmented into private labours conducted independently of each other; that commodities therefore have value; that this value is realized through exchange with a special commodity called money; that it can therefore start an independent process of circulation, being property of a given class of society whose members operate as owners of value looking for increments of value. If, as Adam Smith explained to successive generations of students of economic phenomena, productive (technical) division of labour is a source of increased labour productivity — to a large extent independently from the specific social form of organization of the economy — then capital is not a product of that division of labour, but of a social division of labour, in which owners of accumulated value face non-owners.

Joseph Schumpeter reproached Marx with having elaborated a theory of capital which was unable to explain the origins of capital. ^[12] Nothing is further from the truth. Marx the dialectician perfectly understood the difference between, on the one hand, the production and reproduction of capital on the basis of the capitalist mode of production and, on the other, the origins and development of capital in pre-capitalist modes of production. Indeed, one of the essential objections to the imprecise and unscientific handling of categories by ‘vulgar’ economists was their undifferentiated use of the terms ‘capital’ and ‘capitalism’ as more or less synonymous. Capitalism is the capitalist mode of production, the seizure of the means of production by capital, which has become predominant in the sphere of production. Capital is value (initially in the form of money) becoming an independent operator in the pores of a non-capitalist mode of production. Capital appears initially as usury and merchant (long-distance trade) capital. After a long historical process, and only under specific social conditions, does capital victoriously penetrate the sphere of production in the form of manufacturing capital. (This occurred in the late fifteenth and sixteenth centuries in Western Europe; in the eighteenth century in Japan. In China, isolated elements of manufacturing capital had probably already appeared more than a thousand years earlier.)

In simple commodity production, capital does not produce surplus-value. It simply transforms into surplus-value parts of current output and revenue which originate independently from capital. It can appropriate part of the social surplus product normally passing into the hands of pre-capitalist ruling classes (for instance the appropriation, through usury, of part of the feudal land rent). It can appropriate part of the product which normally serves as a consumption fund for the producers themselves. The basic characteristic of these operations of capital under pre-capitalist relations of production is that it will barely increase the global wealth of society; it will neither significantly develop productive forces nor stimulate economic growth. It can only have a disintegrating effect on the given pre-capitalist social order, precipitating the ruin of several social classes. However, by accelerating the transformation of goods produced and consumed as use-values only into commodities, that is by accelerating the spread of money economy, it can historically prepare the ground for an eventual appearance of the capitalist mode of production.

Capital operating in pre-capitalist modes of production refers essentially to a theory of money circulation and appropriation. This is why in Volume I of Capital Marx first introduces capital in Part Two, after having explained the nature of money. Indeed, Part Two is entitled ‘The Transformation of Money into Capital’. Here again, the logical analysis corresponds to the historical process, to which Marx continually refers, albeit for the most part in footnotes. On the other hand, capital operating in the capitalist mode of production, the real object of study of Capital, refers obviously to a theory of production and appropriation of value and surplus-value. Marx explains in Volume 1, Chapter 24, how the law of appropriation of commodities is transformed when we pass from a society of petty commodity producers to a capitalist society. In the first case, the direct producers are owners of the products of their labour; in the second, the owners of capital become the owners of the products of the labour of the direct producers. Apologists for capitalism try to justify this fact by the argument that, after all, capitalists ‘place at the disposal of the workers the tools with which production occurs’. ^[13] But again history allows us to pierce through the hypocrisy of the argument. For capitalism was not born — in the days of manufacturing — with the capitalist ‘putting at the disposal of the producers’ any new machinery. It was born with the capitalists expropriating the tools owned by the producers themselves and assembling these very tools under a common roof. ^[14]

Capital, under the capitalist mode of production, is therefore value constantly increased by surplus-value, which is produced by productive labour and appropriated by capitalists through the appropriation of the commodities produced by the workers in factories owned by capitalists. The way in which this analysis of capital and capitalism hinges on the institution of private property has often been misunderstood or (and) misrepresented, both by critics and by disciples of Marx. It therefore merits some comment.

Historically and logically, capitalism is tied to the private ownership of the means of production, which allows private appropriation of produced commodities, thus private appropriation of surplus-value, and thus private accumulation of capital. It is surely not accidental that the ‘rights of private property’ are thus at the bottom of the whole constitutional and juridical superstructure which centuries of law-making have erected upon the basis of commodity production.

But what we confront when we examine the social relations which lie behind these juridical forms is, of course, something which is not simply formal private property; otherwise the analysis would be reduced to simple tautology. When Marx states that commodity production is only possible because social labour has been fragmented into private labours conducted independently from each other, ^[15] he refers to a socio-economic and not a juridical reality; the latter is only a reflection — and sometimes a very imperfect one! — of the former. What capitalism is about, then, is a specific relation between wage-labour and capital, a social organization in which social labour is fragmented into firms independent of each other, which take independent decisions about investment, prices and forms of financing growth, which compete with each other for shares of markets and profits (of the total surplus-value produced by productive labour in its totality), and which therefore buy and exploit wage-labour under specific economic conditions, compulsions and constraints. It is not simply a general relationship between ‘producers’ and ‘accumulators’, or ‘producers’ and ‘administrators’, for such a relationship is in the last analysis characteristic of all class societies and not specific to capitalism at all.

The content of the economic institution of private capital is therefore the independent firm (whether a small manufacturer or a giant multi-national corporation). Whether the juridical form strictly conforms to that content or not is irrelevant, and often poses complex legal problems. Are stockholders only owners of income titles, or are they owners of fractions of the firm’s ‘assets’ or ‘property’? The bankruptcy laws — which differ in different capitalist countries — can go into the most sophisticated nuances imaginable on this subject. But the vital economic decisions (key investment decisions, for example) are taken by all those firms which are really independent and not subordinate companies. The basic fact of life of the capitalist economy is the fact that these vital decisions are not taken by society as a whole or by the ‘associated producers’.

Again, the content of this economic institution of private property (fragmented social labour) should not be confused with the question of the precise agents who take the independent firms’ decisions. Whether those who take the decisions are individual owners, or representatives of stockholders, or so-called managers, does not in the least change the fact that they are working under the same previously analysed economic compulsion. Some economists today, such as Galbraith and even some Marxists, contend that the contemporary giant corporation has largely freed itself from these constraints. ^[16] This is an illusion, born of an extrapolation from conditions prevailing during a rather lengthy boom. In fact, the idea that any giant corporation, whatever its dimensions or power, could emancipate itself definitively from the compulsion of (monopolistic) competition, that is, could have a guaranteed specific demand for its products, independently of the trade cycle and from technological innovation, could make sense only if it were insulated both from economic fluctuations and from economic uncertainty, that is if the very nature of its output as commodity production was denied. Experience does not confirm such a contention.

The basic distinction which Galbraith, following Baumol, Kaysen and others, introduces between compulsion to profit maximization (true for yesterday’s firms) and compulsion to growth maximization (true for today’s corporations) ^[17] becomes devoid of practical long-term significance once we understand that growth remains essentially a function of profit, that capital accumulation can result in the last analysis only from surplus-value production and realization. The only kernel of truth which remains, then, is the difference between short-term and long-term profit maximization, which is indeed one of the basic differences between competitive capitalism and monopoly capitalism.

The debate on the nature of capital has received a new and significant impetus with the ‘internal’ critique of the theory of the marginal productivity of capital by Piero Sraffa and the Cambridge school. The latter have demonstrated convincingly that the measurement of capital inputs in the neo-classical ‘production function’ is based upon circular reasoning. ^[18] For if the effect of marginal increases or decreases of capital inputs upon output has to be measured, this can only be done in money terms, given the heterogeneous nature of so-called ‘capital goods’. But this process of pricing or valuation of capital inputs presupposes a rate of return on the plant and equipment in question, of which the latter value is the ‘capitalization’; that is ‘one has to assume a rate of interest in order to demonstrate how this equilibrium rate of return is determined’. ^[19] The way out, obviously, is to look for a common substance in all the ‘capital goods’ independent of money, that is to return to socially necessary labour as the measurable substance of the value of all commodities.

Marx’s Theory of Accumulation of Capital

Capital is thus, by definition, value looking for accretion, for surplus-value. But if capital produces surplus-value, surplus-value also produces additional capital. Under capitalism, economic growth therefore appears in the form of accumulation of capital. The basic drive of the capitalist mode of production is the drive to accumulate capital. This is not so because of some mysterious and tautological ‘accumulative passion’ or inclination on the part of capitalists. It is essentially explained by competition, that is by the phenomenon of ‘various capitals’. Without competition, Marx states categorically, the ‘driving fire’ of growth would become extinguished. ^[20] Totally monopolized capital (a single world trust) would essentially be stagnating capital.

But competition is combined with the trend to replace labour by machinery as a driving force for capital accumulation and economic growth under capitalism. If the extension of output maintained the given relationship between inputs of living labour and inputs of dead labour (machinery and raw materials), it would rapidly reach both a physical limit (the total available manpower) and hence a profit limit. Under conditions of permanent full employment, wages would tend to increase and erode profits to the point where capital accumulation and economic growth would gradually disappear.

Under capitalism, however, economic growth is not ‘neutral’ with respect to the relationship between living and dead labour inputs (between variable and constant capital). It is heavily loaded in favour of an expansion of labour-saving devices. Indeed, a permanent tendency to increase the social productivity of labour is the main civilizing by-product of capital accumulation, the main objective service which capitalism has rendered mankind. Capital accumulation takes on the primary form of an increase in the value of plant and equipment, as well as of the stock of raw materials available in industrialized capitalist countries. On a long-term basis, this accumulation is as impressive as Marx could have imagined. The value of all accumulated private non-farm producer durables multiplied more than tenfold in constant dollars between 1900 and 1965 in the U.S.A., and this estimate is certainly undervalued as it is based upon official records biased for reasons of tax evasion.

Capital accumulation is, of course, distinct from the behaviour of pre-capitalist ruling classes. If all surplus-value were to be consumed in the form of luxury goods, no capital accumulation would take place at all. Capital would then be maintained at the level it had already reached. This special ‘limiting’ case was indeed presented by Marx under the name of ‘simple reproduction’, for purely analytical reasons. It does not, of course, correspond to any ‘real’ stage or situation of a normally functioning capitalist mode of production. ^[21] As we pointed out, what characterizes capitalism is precisely the compulsion to accumulate, that is ‘enlarged reproduction’.

Enlarged reproduction presupposes that not all surplus-value produced by productive labour, and appropriated by the capitalist class, is unproductively consumed. Part of it is transformed into luxury goods and disappears from the process of reproduction. Part of it is transformed into additional capital by being used to buy additional plant and equipment, additional raw materials and additional labour-power. This, then, is the process of accumulation of capital: the transformation of surplus-value into additional capital, which can produce new increments of surplus-value, leading to new increments of capital. The movement develops in the form of a spiral, as Simonde de Sismondi, one of the early ‘romantic’ critics of capitalism, whom Marx quotes approvingly on this question, already understood. ^[22]

The fact that capital accumulation is possible only because part of the surplus-value appropriated by the capitalist class is not socially squandered in luxury goods constitutes the starting point for the so-called ‘abstinence’ theory (more accurately, justification) of profits and capitalist exploitation. ^[23] Historically, there is not an atom of evidence for the assumption that capital somehow grew out of the ‘frugal habits’ of some members of the community, as opposed to the ‘improvidence’ of others, each of them having equal access to resources that were initially comparable. On the contrary, all historical evidence confirms that the sudden appearance of large amounts of ‘capital’ (in the form of a stock of precious metals and other treasure) in a society previously confined almost exclusively to natural economy (to the output of goods possessing only use-value) was the result not of ‘frugality’ and ‘thrift’ but of large-scale piracy, robbery, violence, theft, enslavement of men and trade in slaves. The history of the origins of West European usury and merchant capital between the tenth and the thirteenth centuries, from the piracy in the Mediterranean through the plundering of Byzantium by the Fourth Crusade to the regular plundering razzias into the Slav territories of Central and Eastern Europe, is very eloquent in this respect.

What is unconfirmed by history is even more absurd in the light of contemporary economic analysis. Nobody could seriously argue that Messrs Rockefeller, Morgan and Mellon have to be compensated for their virtue in not squandering tens of billions of dollars on additional yachts, mansions and private jets — the vulgar version of the abstinence theory. But its more sophisticated version, namely the idea that the profits of the owners of capital are just the way in which their ‘fund’ is transformed into the ‘flow’ of long-term capital investment, provides a nice piece of circular reasoning. For whence does the ‘fund’ originate, if not precisely from the ‘flow’, that is to say what else is capital if not accumulated profits? To deny that profits originate in the process of production flies in the face of all scientific as well as practical observation of what goes on in a capitalist economy. Once we understand this, there is no room left for any abstinence theory of profit — only for a subtraction one.

The process of capital accumulation is viewed by Marx in Capital at two different and successive levels of abstraction. In Volume 1, in the framework of ‘Capital in general’, he examines it essentially in the light of what occurs in and flows from the exchange between wage-labour and capital. In Volume 3, he examines capital accumulation (economic growth under capitalism) in the light of what occurs in the sphere of ‘many capitals’, that is of capitalist competition. I shall therefore leave to the introduction to Volume 3 an examination of the main criticisms made of Marx by those who question the validity of the laws of motion of capital accumulation set out in that volume. Here, I shall limit myself to examining the basic effects of capital accumulation on wage-labour.

Unlike many of his contemporaries, including some of the sternest non-Marxist critics of capitalism, Marx did not consider that capital accumulation had a simple and unequivocally detrimental effect upon the situation of wage-labour. Marx had studied the movement of real wages during the trade cycle, and the fact that wages were at their highest level when capital accumulation was progressing at the quickest pace by no means escaped him. ^[24] But, once again, he tried to go beyond such evident facts to study the fundamental modifications in value terms which capital accumulation would exercise upon labour.

It thus became his contention that the very way in which capital accumulation proceeds, the very motive force of capitalist progress — the development of fixed capital, of machinery — contains a powerful dynamic to reduce the value of labour-power. For as this value is the equivalent of the value of a given quantity of consumer goods, supposed to be necessary to restore the capacity of a worker to produce at a given level of intensity, a decrease in the value of these consumer goods resulting from an increase in the productivity of labour in the consumer goods industry leads to a decrease in the value of labour-power, all other things remaining equal.

This argument implies neither any tendency to a decrease in real wages (on the contrary, it is based upon the assumption of stable real wages in the short and medium term), nor any trend towards ‘growing absolute misery’ of the working class. We shall deal with this theory falsely attributed to Marx in the next section of this introduction. But it does imply that the favourable results of the increase in productivity of labour end by falling, to a large extent, into the hands of the capitalist class, by transforming themselves into supplementary ‘relative surplus-value’, provided that the long-term trend of the industrial reserve army of labour is either stable or increasing.

On a world scale this has certainly been true for as long as capitalism has existed. As Marx predicted, capitalism spread not only by creating new jobs but also by creating new unemployed (by destroying employment of previous wage earners, and especially of previously self-employed small farmers and handicraftsmen). But to calculate a ‘world average value of labour-power’ is of course a meaningless abstraction. Indeed, ever since industrial capitalism in the West started to swamp the rest of the world with its cheap, mass-produced commodities, and at the latest since the eighteen-seventies, a divergent trend has appeared in the world economy: a long-term decline of the reserve army of labour in Western Europe (as a result of exports of both emigrants and commodities) and a rise in the reserve army of labour in the underdeveloped countries. (This latter process included, of course, the transformation of masses of pre-capitalist farmers, cattle-raisers and artisans into uprooted ‘marginalized’ vagrants, migrant seasonal labourers, and forced labourers, following a pattern similar to what had happened a few centuries earlier in Western Europe.)

The dynamics of ‘capital accumulation on a world scale’ have therefore to be seen as those of an organic whole, and not as the simple sum of capital accumulation processes in distinct countries. The operation of the world market as a gigantic syphon to transfer value from the south to the north of our planet (from the countries with lower to the countries with higher productivity of labour) lies at the very root of the imperialist system. While the debate on the theoretical explanation of this phenomenon is still in its initial stages, ^[25] it is important to note that the phenomenon itself is based upon uneven movements (uneven mobility) of capital and labour, and introduces all those dimensions into the analysis of capitalism which Marx reserved for the never-written Volumes 4, 5 and 6 in the original plan of Capital.

The accumulation of capital is the accumulation of wealth in the form of commodities, of value. Value production becomes a goal in itself. Work is degraded to the level of a means by which to receive money incomes. One of the most striking and most ‘modern’ parts of Capital is that which examines the inhuman consequences of capital accumulation for the workers and for work itself. Marx himself added to the second German edition of Volume 1 the note that, under capitalism, labour-power not only becomes a commodity for the capitalist but also receives this form for the worker himself, implying that this degradation of work is both objectively and subjectively the fate of the industrial proletariat. It took ‘official’ political economy a long time, indeed until after the growing revolt of the workers against assembly line speed-ups, to discover what Marx had anticipated from a thorough understanding of the fundamental mechanisms which govern the capitalist mode of production.

Because capital accumulation presupposes production for profit, because it has profit maximization as its very rationale, exact and minute cost calculations entail constant reorganizations of the production process with the single purpose of reducing costs. From the point of view of the single capitalist firm, a worker cannot be seen as a human being endowed with elementary rights, dignity, and needs to develop his personality. He is a ‘cost element’ and this ‘cost’ must be constantly and exclusively measured in money terms, in order to be reduced to the utmost. Even when ‘human relations’ and ‘psychological considerations’ are introduced into labour organization, they are all centred in the last analysis upon ‘economies of cost’ (of those overhead costs called excessive labour turnover, too many work interruptions, absenteeism, strikes, etc.). ^[26]

Capitalist economy is thus a gigantic enterprise of dehumanization, of transformation of human beings from goals in themselves into instruments and means for money-making and capital accumulation. It is not the machine, nor any technological compulsion, which inevitably transforms workers and men and women in general into appendices and slaves of monstrous equipment. It is the capitalist principle of profit maximization by individual firms which unleashes this terrifying trend. Other types of technology and other types of machine are perfectly conceivable — provided that the guiding principle of investment is no longer ‘cost-saving’ by individual competing firms, but the optimum development of all human beings.