Economics in brief
The science which, treats of the production and distribution of wealth is termed political economy, and has been described as the “dismal science”—which name the contradictions and confusion of the orthodox economists render not inapplicable. To study these economists is like studying astronomy without a knowledge of gravity. But just as astronomy was brought out of chaos by that discovery which enabled us to understand the movements of the heavenly bodies, so about fifty years ago political economy was placed on a firm foundation by Karl Marx, the founder of scientific Socialism.
In his work “Capital” Marx brought to light certain facts which the orthodox economists could not accept without admitting truths which quite upset their teachings. And the dissemination by the university professors of the Marxian teaching that the capitalists live upon the exploitation of the workers would surely have resulted in their removal from their posts, just as Prof. Thorold Rogers was deprived of an office “for tracing certain social mischiefs to their origin.”
Many of the older economists made no fundamental distinction between modern production and that of former epochs. But to Marx the production of wealth under capitalist society differs from all previous production in that the wealth under former systems was produced primarily or solely for use, while under modern conditions it is produced for the purpose of exchange. But this is not all, for no one to-day enters into the production of commodities, as goods created for exchange are termed, simply for the purpose of exchanging them for other commodities. And to understand the motive for which industry is carried on we must for a moment glance at the modern manufacturer and see why he is a manufacturer.
He starts out with a certain sum of money with which he purchases his plant, raw material, and other things essential to his particular line of business, and the finished commodities are exchanged for money. But if the object aimed at is achieved, then not only the original sum of money is returned, but an excess also. It matters not what class of goods is produced, how many or what quality, unless this surplus appears at the close of the cycle, the manufacturer is said to have failed.
The question then arises, how does this excess of wealth come about ? It is obvious that it does not arise in the process of exchange, for what one capitalist would gain another would lose. We must therefore look elsewhere for this source of profit.
The wealth used in modern society for the purpose of obtaining profit we call capital, and its owners capitalists. When the commodities of the industrial capitalist are produced they are placed upon the market for exchange, and the amount of other commodities he will receive for them does not depend upon his “will,” but upon conditions beyond his control. Once on the market his goods come face to face with other commodities of similar nature, and if our capitalist asks for his articles more than the average usually given, he will not sell them. Therefore he has to accept the average that society will give. Should, however, the market become overstocked, as it does periodically owing to the anarchical nature of present-day production, then each capitalist, in order to dispose of his particular commodity, will accept less than usual, while if, on the other hand, there is a greater demand for those articles they will ask and obtain more than the average.
Now these fluctuations take place round a certain point, but if a modification in the process of production takes place, then that point shifts. For instance, according to Babbage (“Economy of Manufacture”) the price of a sheet of plate glass 50″ x 30″ was in 1771 £24 2s. 4d., and in 1832 £6 12s. 10d., while small sheets (for a reason to be explained later) rose in price. The fall in price was due to the adoption of improved methods in producing largesheete, which reduced the time necessary to accomplish the operation.
We see, then, that the reduction in the time necessary for the production of a commodity results in a fall in its value, therefore what determines the value of a commodity is the time needed to produce it–not the time taken by the individual, but the average time taken to produce that particular line of commodities.
Commodities taking on the average the same time to produce will be equal in exchange, e.g., if A takes on the average 10 hours to produce and B also takes 10 hours, then they will both possess the same exchange value—one will exchange for the other. But if the time necessary for the production of B falls to 5 hours, then A will exchange for 2 Bs.
The direct exchange of one commodity for another without the intervention of any intermediary is a very primitive form of exchange and is known as barter. In primitive communities, where exchange takes place on a very small scale, where articles are produced primarily for use, and only the surplus is exchanged, barter is the common practice, but later an intermediary comes between the goods exchanged. This we term the medium of exchange, and many things have been used at different times for this purpose, such as salt, cattle, shells, copper, silver and gold. But this medium is not a thing outside the world of commodities. It is in itself a commodity whose value is known to society, and which will be accepted by all those desiring an exchange.
In modern society gold is used as the medium of exchange, having been selected as being convenient, portable, fairly constant in value, and as containing great value in small bulk.
When we say that a certain commodity is worth £1 we do but express the fact that the same quantity of human labour measured by time has been expended on the average in the production of each, and we say that the £1 is the price of this commodity.
But let us look a little farther. We will say that a gun is equal in value to £1, that is to say they each represent the same amount of human labour time. If the time necessary for the production of the gun falls by half, it is obvious that on our theory it will be worth only 10s. But now let us assume that no alteration takes place in the value of the gun, while the time necessary to produce the £1 falls by half, £2 would now be required to equal the value of the gun. Although no alteration has taken place in the value of the gun, its price has risen through a fall in the value of gold.
A fall in prices is generally looked for on the introduction of quicker methods of producing a commodity, but our second case seems to be in comprehensible to most people, and all sorts of theories are put forward to explain a general rise in prices.
It was the fall in the value of the medium of exchange that explains the increased price of the small sheets of glass referred to above, and the fact that the price of the larger sheets fell informs us that the fall in their value was greater than the fall in the value of the coin.
So far we have presumed that the owner of the commodities was their producer. Such an assumption might have sufficed in the handicraft system, where the producer owned the tools he used and the goods he produced. But under capitalist production the basis of our analysis is incomplete. We must therefore follow our capitalist into business again.
We said he starts out with a certain sum of money which we call his capital, with which he purchases his plant and raw material. This is termed constant capital, because its value does not alter during the process of production. It is true the plant deteriorates in value, as does also the quantity of the raw material, as production proceeds, but its value is not lost, but transferred to the finished commodities.
Obviously the constant capital cannot create even the smallest amount of value, for no matter how long it was left it would remain inoperative, and there would be no increase in value until another factor was introduced.
The manufacturer, therefore, has to have more capital with which to obtain this other factor in order to set this machinery in operation, and as the modern methods of production are far too vast for the owner to operate them by himself, even if he desired to do so, he has to seek the aid of others.
The capitalist purchases, not the worker, but his energies, his power to labour, and what the worker receives in return for this labour power we call wages.
Now there is a constant struggle going on amongst the workers for the jobs, which prevents wages rising, on the average, above a certain point. The large army of unemployed, the necessary adjunct of capitalist society, in their eagerness to obtain work, are prepared to accept a wage just sufficient to cover their cost of subsistence. The result is that those who are in employment have to accept the same or give way to those who will. Thus competition keepa wages, on the average, at the subsistence level. In other words, wages are governed by the cost of living.
The capitalist, then, has to purchase the requisite labour-power to operate his tools of production. And when this labour-power is expended in the production of useful articles a further value is created.
Now the value the workers create does not depend upon the wages they receive, which, we have seen, is determined by the cost of living. Hence it does not matter how much value they create, their wages remain the same. And it is obvious that if they do not create a value at least equal to that they receive in wages the manufacturer’s capital would soon become exhausted. But if this was all that could be obtained there would be no inducement for the capitalist to enter into business at all. The workers must, therefore, produce a value greater than their wages in order to ensure their continued employment.
This “surplus value,” as the excess of value over and above their wages created by the workers is called, increases with the increase in the productivity of labour. The more the workers produce the more goes into the pocket of the capitalist. And as the wages of the former are determined before ever they commence work, they will be unaffected by any alteration in the amount of value they create.
The appropriation of the surplus value by the capitalist is his sole motive for entering into production. But he is not able to retain the whole of this surplus value for himself : he has to make certain payments in the form of rent and interest.
We have said that the values of commodities are determined by the average amount of human labour time necessary to produce them. Equal quantities of labour time will, on the average, produce equal values. We have said further that the constant portion of capital does not create value, and therefore does not create surplus value.
Now the production of some commodities necessitates the use of a larger proportion of constant capital in proportion to the amount of labour employed. If all commodities were sold at their value it would mean that those capitals containing a larger percentage of constant capital would obtain less surplus value than those con-taining a smaller percentage.
For example, a certain capital, say £1,500, is composed of constant capital £1,000 and variable capital (that portion used for the payment of wages) £500, and the labour employed creates a value of £1,000. The total value of the product will be composed of constant capital £1,000 plus £1,000 created by the workers, making a total value of £2,000. The cost in money to the capitalist of producing the commodities will have been £1,500, leaving a surplus value of £500, or, roughly, 33 per cent. on the outlay.
Now we will take another illustration. Another capitalist also commences business with £1,500 of which he spends only £500 in constant capital and £1,000 in the purchase of labour power. Equal quantities of labour power produce equal values, hence the value of the product will be composed of £500 constant capital plus £2,000 created by the workers, making a total value of £2,500. The cost price to the capitalist will have been the same as in the previous illustration, viz., £1,500. The surplus in this instance will be at the rate of just over 66 per cent. on the outlay.
Now when analysing the capitalist mode of production we have always to remember that it presupposes competition in all its ramifications. And if all commodities were sold at their value capital would be withdrawn from those spheres of production which necessitated a large percentage of constant capital and invested in those which needed a smaller percentage. The withdrawal of capital and the consequent reduction in the competition in one sphere would allow of an increase in the prices of the commodities while in that sphere in which the influx of capital took place the increased competition would force down prices, thus causing an increase of profit in one sphere and a decrease in the other.
This competition is continually going on between the different capitals seeking investment, reducing the price of commodities in some spheres of production below their value and in other spheres raising the price above their value, at the same tiuw and through this process bringing about an average rate of profit through out society.
The fact that there is a tendency to tlie formation of an average rate of profit in society resulting in commodities being sold at prices varying from their value does not in the least alter the Marxian theory of value as explained in the first volume of “Capital.” And although there is a deviation of price from the value of individual commodities, yet the total value of the commodities of society will equal the sum of their prices.
The point in political economy that is of paramount importance to the working class is the fact that they are robbed of the wealth they create over and above the cost of their subsistence. This robbery takes place because a certain class of people are allowed to own all the means for producing and distributing wealth—the land, mines, railways, factories, machinery, etc.
We of the Socialist Party, recognising this, are organising to wrest the means of life from the hands of these people and make them common property. When this is accomplished, then for the first time since the dawn of chattel slavery the exploitation of human labour-power will cease. Each member of the community capable of assisting in the production and distribution of wealth will be expected to perform his share of the necessary labour, and the wealth that is created will be the common property of the whole people.
The system of society based upon such a property condition we call Socialism.
H. A. YOUNG