Activist’s Guide to

Political
Economy

Jason Mann

Rebel Youth - Vancouver

 Table of Contents
Section One: Introduction
Why Study Political Economy

Section Two: Pre-Capitalism

Pre-Capitalist Political Economy

Section Three: Capitalism

Capitalist Commodity Production
Exploitation Under Capitalism
Distribution of Surplus Value Among Exploiters
Capitalist Reproduction and Crisis
Basic Economic Features of Imperialism
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Introduction:

Why Study Political Economy?

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Activists Guide to Political Economy

Why Study Political Economy

“High wages, union rights, minimum wage and pay equity are bad economics.
Don’t you know that?”

Big business often tries to justify its position claiming, “its simple economics”

Are high wages good or bad? Is unemployment good or bad? Are profits good
or bad? It depends on where you stand in society. Therefore there are two sides
to every question.

The mainstream economics we see in the media, political debate and in

universities represents the view of big business. This book is about the counter
view. The view of workers and students: regular people.

Where does profit come from? What determines wages? What is exploitation?
Has private property always existed? What about human nature?

We are going to look at political economy, the science that deals with the laws
governing the production and distribution of material means of subsistence in
human society at various stages of its development.
Political economy is
the science that This book is meant only as an introduction. Basics only. It’s not a textbook, just
deals with the laws an introduction to Marxist political economy.
governing
production and
distribution of Big business tries to hide the fact the progress of human society is governed by
material means of objective laws.
subsistence in
human society Struggling against globalization, war, exploitation and for a better life we need
to understand capitalism. We need to know what makes it tick, what it’s all
about and what its economic laws are. To understand capitalism we will look first
at where it came from, where it fits in history. Then we will look objectively at
the economic laws of capitalism. What are commodities? What is meant by
exploitation? Where do profits come from? We need to know our enemy to
defeat it.
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Pre-Capitalist Political Economy

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Activists Guide to Political Economy

Pre Capitalist Political Economy

To understand capitalism we have to understand how it came about and where
capitalism fits in history.

Mainstream economists, giving the position of big business, tell us that capitalism
is here to stay and will never change because private property and the economic
laws of capitalism and are a result of “human nature”.

The historical outlook of political economy tells a different story. Capitalism is a

mode of production that hasn’t been around very long at all.

There have been five different modes of production in history so far:

Primitive Communal – Slave Owning – Feudal – Capitalist – Socialist

Like modern capitalists, slave owners also claimed their system was the
expression of human nature.

Aristotle, a philosopher and Greek slave owner asked, “…but is there any one
thus intended by nature to be a slave? … There is no difficulty in answering this
Like modern question, on grounds of both reason and fact. For that some should rule and
capitalists, slave others be ruled is a thing not only necessary, but expedient; from the hour of
owners also their birth, some are marked out for subjection, others for rule. “
claimed their
system was the
expression of Feudal lord also claimed that their system of exploitation was an expression of
human nature nature.

They asserted their right to exploit was natural because they received their power
from the king and the king received his power from God.

So it should not be surprising that those who defend capitalism and private
property argue it represents “human nature”. A materialist examination of
history shows otherwise.
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In Review:

- Primitive Communal, Slave Owning, Feudal, Capitalist and Socialist are the five
different modes of production in history so far
- Slave owners claimed their power to exploit was natural. Some were meant to
be slaves, others slave owners
- Feudal lords claimed their power to exploit was natural. It was given to them by
the king, who received his power from God
- Defenders of capitaliism claim that capitalist exploitation and private property
are part of human nature

Primitive Communal Society

The primitive communal mode of production existed for most of human history.
It’s lasted through tens of thousands of years, through the stone age, bronze age
and iron age. It was a system without private property, classes or exploitation.

Therefore it’s not true at all that class society, exploitation or private property are
just “part of human nature”.

Exploitation of man by man was not possible under primitive communal society
because human labour could only produce enough for bare subsistence.
The seeds of slave holding society existed within primitive communal society.

As productive forces developed, advances in farming and live stock breeding

made it possible for human labour to produce a surplus above subsistence levels.

Prisoners became the first slaves. Eventually the poor and indebted in society also
became slaves, property of a slave owner.
The development of private property gave way to the first class based society:
Slavery

In Review:

- The primitive communal mode of production has existed for most of human
history and had no classes, exploitation or private property
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Activists Guide to Political Economy

- Exploitation became possible once human labour could produce enough to

provide a surplus above bare subsistence

Slave owners
Slave Owning Society
lived off the
surplus created
by slaves Slavery was the first and most open form of exploitation of man by man. It was
the mode of production of ancient societies such as the Egyptians, Greeks and
Romans. It was a class society divided between slaves and slave owners.

Slave owners lived off the surplus created by slaves who could be bought, sold or
killed at anytime at the whim of the master.

Slave owners enforced their dominance over slaves through the state, which
made laws defending the rights of slave owners and used violence to keep slaves
in line. This organized class domination led to the development of the first states.

The slave owning system also contained the seeds of its own demise and the
growth of a higher mode of production, feudalism.

This is because slave labour is unproductive. People held in slavery have no

interest in increasing productivity. Slave owners also had no interest in
introducing more productive techniques of production because of the wide
availability of slave labour.

As slave labour grew to larger and larger proportions of the total economy, the
development of productive forces came to a halt due to low productivity and
slave uprisings. The development of the feudal system arose from the downfall of
the slave owning mode of production.

In Review:

- Slave owning society was an open form of exploitation of slaves by slave

owners
- Slave owners used the state to establish their dominance over slaves
- The slave owning mode of production came to an end because of low
productivity and slave uprisings
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Feudal Society
The lord enforced
Feudalism, like slavery and capitalism, was a mode of production based on
his dominance
over his serfs exploitation. Feudal lords received their power from ownership of land given to
through the state, them by the king, a higher lord or the church.
which wrote laws
protecting the Lords lived of the surplus generated by serfs, the other main class of feudal
rights of the
feudal lord society, who worked on the land.

Feudal lords appropriated the surplus produced by serfs by forcing them to pay a
rent of goods or money, and forcing them to work part of the week on the lord’s
private plot of land.

The lord enforced his dominance over his serfs through the state which wrote
laws protecting the rights of the feudal lord.

As slave societies developed within the primitive communal mode of production

and feudalism developed from slave societies, capitalism developed within the
feudal mode of production.

A growing and developing merchant capitalist class took advantage of a situation

where serfs, faced with high levels of feudal exploitation, rose up to overthrow
their feudal masters. The capitalist class seized power and with them came a new
mode of production: Capitalism.

In Review:

- Feudalism was a mode of production based on exploitation

- Feudal lords appropriated the surplus generated by serfs
- Capitalism developed within the feudal mode of production
- As we continue to study the capitalist mode of production, keep in mind the
context, that capitalism is just a particular stage of development.
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Activists Guide to Political Economy

Discussion Questions
1. Who were the main social classes in primitive communal
society, slavery and feudalism?

2. What made these groups classes? Why did these classes

struggle?

3. Discuss this quote: “It is not the consciousness of men that

determines their being, but, on the contrary, their social being
that determines their consciousness. “ -Marx
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Notes
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Activists Guide to Political Economy Notes
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Capitalist Commodity Production

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Activists Guide to Political Economy

Capitalist Commodity
Production
Commodities, Use Value and Exchange Value

Capitalist commodity production didn’t suddenly appear, it developed within

pre-capitalist society.

In addition to producing goods for personal use, small producers and

craftspeople often engaged in simple commodity production, producing goods
for sale.

These small producers did not hire workers and owned their own simple
instruments of labour.

Simple commodity production relies on the labour of the producer, where as

capitalist commodity production relies on the labour of workers.

Commodities

Commodity production is the dominant form of production under capitalism. To

A commodity is a
product of labour, understand capitalism, we must start our investigation at the level of the
produced for commodity. But what is a commodity?
exchange
A commodity is a product of labour, produced for exchange.

Use Value of a Commodity

“usefulness” of a In order to be exchanged a commodity must be useful to someone. It should
commodity is called satisfy a human want. This “usefulness” of a commodity is called use value.
use value
Umbrellas keep you dry in the rain, Aspirin relives headaches and socks keep your
feet warm on cold nights. All commodities have use value.

But not everything with use value is a commodity!

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Sunlight and oxygen both satisfy human wants, but are not commodities,
because commodities are only goods produced for exchange.

That means the milk you buy in the grocery store is a commodity but the milk a
farmer produces for her family is not. One is produced for exchange. The other is
produced for personal use.

Exchange Value of a Commodity

Bottles of milk and umbrellas are not only useful, they also have value in
exchange, or exchange value.

Exchange value and use value are different.

Quantitative: Exchange value is quantitative (think quantity). This means you can measure
of, relating to, or definite quantities or amounts. A fur trader might expect to get a certain
involving the quantity of gold in exchange for a fur. Fur pelts and gold can be quantitatively
measurement of
quantity or amount compared based on how much of one we can exchange for another, ie: 1 pelt =
3 ounces of gold.

Use value is qualitative (think quality). It depends on the qualities, shape, size, etc
of a commodity. A quality of a broom is it can sweep a wooden floor.

Unlike exchange value, use value can not be quantitatively measured because the
Qualitative:
involving satisfaction obtained from a broom, for example, is completely subjective; it
distinctions based varies from person to person.
on qualities
We can’t quantitatively measure a broom’s ability to sweep a wooden floor
because that quality is only useful to people with wooden floors but not useful to
people without.

What Determines Exchange Value?

How can we measure the value of a commodity?

First, to measure anything we need a property that can be objectively measured,

that is a common property to all items
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Activists Guide to Political Economy

There are two properties common to all commodities: they are useful (have use
values) and are products of human labour.
To measure
anything we need: Neo-liberal economists claim that commodities can be measured in value by their
1. A property that use value. This is impossible simply because there is no common unit of
can be objectively
measured measurement for usefulness.
2. Which has
common units of Water can be measured in litres, heat can be measured in degrees, distance can
measurement be measured in meters, but there is no common unit for how useful something
is.

Use value also fails the test of being objectively measurable. In distance, a meter
is always exactly the same length. There cannot be longer meters and shorter
meters. A left handed can opener, on the other hand, is very useful to some
people but absolutely useless to others. It is subjective based on who you ask.

The property that all commodities are products of labour is something that is
objective and does have common units of measurement.

The exchange value of a commodity can be measured by the amount of labour

time required to produce the commodity. Labour time is the only property of a
commodity that is both objective and has common units of measurement.

A commodity that takes 10 hours of labour time to produce is worth twice as

much as a commodity that takes 5 hours of labour time to produce.

Labour time is the Socially Necessary Labour Time

only property of a
commodity that is This does not mean that a commodity produced by an inefficient worker, taking
both objective twice the normal time required to produce a good, produces commodities worth
and has common
twice as much.
units of
measurement
It does not matter how much time it takes a particular worker to produce a
commodity. It’s the time it normally takes that matters.
 15

In Karl Marx’s words, what matters is the average time “… required to produce
an article under the normal conditions of production and with the average
degree of skill and intensity prevalent at the time.”

Concrete and Abstract Labour

It is not the specific type of work preformed that matters, it’s the expenditure of
Concrete labour is labour in general that is important.
the specific type of
work This division between the type of work and amount of labour in general is called
concrete and abstract labour.
Abstract labour is a
measure of labour in
general. Concrete labour is the specific type of work. As in, carpentry or weaving.

Abstract labour is a measure of labour in general. Part of the labour force of

society as a whole.

In terms of quality and quantity:

concrete labour is the qualitative type of labour performed
abstract labour is the quantitative amount of labour in general performed.

The concept of abstract labour lets us compare different types of labour such as
carpentry and weaving.

Skilled and Unskilled Labour

Obviously it matters if the labour we are measuring is skilled or unskilled. Skilled

labour produces more value.

The scientific term for this distinction is simple and complex labour.

One hour of skilled labour creates value that unskilled labour would require
several hours to duplicate.
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Activists Guide to Political Economy

Example: if one hour of skilled labour can produce as much value as five hours of
unskilled labour, we could say that one hour of skilled labour is equivalent to five
hours of unskilled labour.

Or to use the technical terms, in this example, one hour of complex labour is five
hours multiplied simple labour.

In review:

- Commodity production is the dominant form of production under capitalism

- A commodity is a product of labour, produced for exchange
- Use value is the quality of a commodity to satisfy a human want. i.e.:Can
openers open cans
- Exchange value is a quantitative measure of a commodity that compares how
much of one commodity is exchanged for another commodity
- All commodities have two common properties: they are useful (have use values)
and are products of human labour
- Usefulness can not be objectively measured because it varies from person to
person. The amount of labour time taken to produce a commodity however, can
be objectively measured
- It doesn’t matter how much labour time it takes to produce a particular
commodity, but how much time it normally takes of the labour force as a whole
This is the amount of time that is “socially necessary”
- The type of work performed (concrete labour) doesn’t matter, what matters is
that labour in general (abstract labour) was performed
- The skill of the labour matters. We can think of one hour of skilled labour
(complex labour) in terms of several hours of unskilled labour (simple labour)
- You would be well advised to read over this section again to master your
understanding of a commodity. You maybe wanting to get to a ‘more exciting’
topics of exploitation or imperialism right away, however, mastery of this section
will greatly increase your understanding of all future concepts in this book as the
commodity is the basic unit of capitalism.
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What is Money?
Origin of money

Money has not always existed. There was a time when people had no use for
Simple barter was
used for most of money at all! Simple barter was used for most of human history before money.
human history
before money Barter is the exchange for one good directly for another. You probably did this
on the playground as a child exchanging your milk for someone’s apple juice.

Barter is not very effective.

If you want to trade milk for someone’s apple juice, it only works if the people
with apple juice wants good that you are offering.

Barter works ok in primitive communal societies with few types of commodities,

but with the development of commodity production and specialization, barter no
longer was effective, money was required to facilitate the exchange.

Functions of Money

In capitalist society money serves the following functions:

1. Measure of value
2. Medium of exchange
3. Means of payment
4. Means of accumulation

1. Measure of Value

Walking through a grocery store it’s very unlikely you will see signs advertising
how much socially necessary labour time was used to produce the fruit and
vegetables.

Before a commodity can be bought or sold its value must be measured and
expressed in money.
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Activists Guide to Political Economy

Price is just the exchange value of a commodity in terms of money. Every

commodity has a price because every commodity has an exchange value.

2. Money as a Medium of Exchange

If you owned a lemonade stand on the side of the road, you would not be selling
lemonade just to get green paper, but to purchase either more lemons or maybe
the latest comic book.

Money is not the final goal in this case; it’s just a link between the sale of
lemonade and a later purchase.

Start with Lemonade → Get Money → Purchase a Comic Book

or in general
Commodity → Money → Commodity

3. Money as a Means of Payment

It is possible to buy a commodity without any cash available. Commodities are

often purchased or sold on credit. If a purchase is made that the buyer will pay
for later, money serves as the means of payment for this repayment.

Rather than being directly involved in the transaction, money is used later as a
means of repayment. Personal cheques work in this way as do most financial
loan transactions and credit cards.

4. Means of Accumulation

You can accumulate wealth in any commodity but money serves as the most
effective way to accumulate wealth.

It’s easier to accumulate wealth in money rather than another commodity, such
as salmon. It should be obvious why salmon is not a good commodity to
accumulate wealth in. Over time, salmon rapidly deteriorates in value and smells
absolutely terrible.
 19

In review:

- Money has not always existed. Money developed with the expansion of private
property, specialization and more advanced forms of commodity production.

- Money serves as
1. Measure of value
2. Medium of exchange
3. Means of payment
4. Means of accumulation

The Law of Value

Value and Price

We know that exchange value (or simply value) of a commodity is determined by

the amount of socially necessary labour time used in the production of the
commodity.

Price is just the exchange value of a commodity in terms of money. Putting a

dollar figure to the value.

Prices often fluctuate around the value of a commodity; they can be slightly
higher or lower.

Prices tend to rise above value in boom times and fall below value in a bust.
Commodity prices can also deviate from values for reasons such as:
Price is just the - a shortage or overproduction of commodities
exchange value of - inflation or deflation of currency
a commodity in - monopoly control of industry
terms of money - booms and busts
- union organizing
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Activists Guide to Political Economy

Discussion Questions
1. What is Use Value? What is Exchange Value?

2. What determines the labour time that is socially

necessary to produce a certain commodity?

3. Why is it convenient to use money as a means of

exchange?

4. Who primarily accumulates monetary wealth? How is this

accumulation of wealth related to classes under
capitalism?
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Notes
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Activists Guide to Political Economy Notes
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Exploitation Under Capitalism

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Activists Guide to Political Economy

Capital and Labour

Before Capitalist Accumulation of Capital

Primitive accumulation of capital helped create conditions for the rise of

capitalism.

Though plunder and looting of overseas colonies, a vast wealth was accumulated
in the hands of a few people. At the same time, a propertyless working class was
created by driving people off of their land.

This primitive accumulation lead a situation where the bulk of the means of
production were owned by the capitalists, to be used as capital, and where
working people were forced to sell their labour power to survive.

What is Capital

Mainstream economists claim capital has been around forever, this is a lie!
Like money, capital has not always existed.

Capital is not just an object. It is not the raw materials or machines themselves.
Capital is not a fixed thing, but rather represents a social relationship in
capitalism between the owners of the means of production and the working
class.

The raw materials, machines, etc become capital only when they are used in
production, as a means of exploitation. (Means of explanation is one way to
think of capital) Only in capitalist production does this social relation of capital
Capital is a means emerge. Tools and instruments of labour have existed for a long time going back
of exploitation
to simple agriculture and simple commodity production, but only under
capitalism did they take on a special nature as a means of exploitation.

Why else would a capitalist want to own capital? He can’t eat his factories. He
doesn’t buy raw materials and machines for the joy of owning rubber and steel
alone. The only way capital is used is as a means to bring workers under the
control of his wealth.
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What is Labour Power

Unless you lay on the beach all day receiving dividend cheques in the mail,
chances are you are one of the majority of people who have to work to survive.

People have always preformed labour. But only under capitalism did the ability to
work itself become a commodity that can be bought and sold.

Labour power then, is the commodity which represents the capacity or ability to
work.

Labour power is
the commodity Exchange Value of Labour Power
which represents
the capacity or Labour power (capacity to work) like every commodity, has exchange value and a
ability to work price and the price of labour power known as a wage.

A workers ability to perform labour (labour power) can be sold by the hour for
hourly paid workers, or by the month or year for those paid on a salary or by the
task those paid on a piece rate.

And like all other commodities, the value of labour power is determined by the
amount of socially necessary labour time required to produce it.

What goes into producing a worker? To produce labour power requires

commodities to keep workers in a capacity to work, produce a future generation
of workers and provide necessary training required for the job.

These are items like food, shelter, clothing and expenses related to raising and
educating children. What is considered necessary varies according to the level of
class struggle. What is considered necessary in one country may be considered a
luxury in another.

Use Value of Labour Power

Not only do all commodities, have exchange value, they also have use value.
Labour power is no exception.
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Activists Guide to Political Economy

The use value of labour power is that it creates new value. Labour power is the
only commodity that can produce new value.

In Review:

- Primitive capital accumulation helped create a capitalist class, who owned the
means of production, and a working class that had to sell its labour power to
survive
- Capital isn’t a fixed object but a social relation between owners of the means of
production and the working class
- Only under capitalism do raw materials, machines etc, become a means of
exploitation, or capital
- Under capitalism, workers sell their labour power as a commodity.
- The exchange value of labour power is determined by the value of commodities
required to sustain a worker and produce a future generation of workers
- Labour power’s use value is that it can create value

Surplus Value
There once was a capitalist who wanted to make a profit selling hockey pucks.

With his money, the capitalist built a factory, bought machinery, rubber, and
chemicals. He climbed a ladder to the highest spot on the factory gate and put
up a sign that read “Open for Business!”

He waited a month. Nothing happened…

No hockey pucks produced, no value created, no profit.

This is because factories, machines and raw materials are all completely
unproductive unless labour is applied to them.

You could even do a scientific experiment if you liked, and put machines and raw
materials in a white sterile room for 100 years and the result would be the same.
Only labour can generate new value.
 27

So the boss hires some workers to set up the factory and others to work in the
factory, operating the machines and using the raw materials to produce finished
hockey pucks for sale.

Hockey pucks are now being produced

In this factory, a worker can produce 1000 hockey pucks a day which are sold at
$2 a piece.

Each day the capitalist pays workers $100 in exchange for 8 hours of labour
time.

Producing 1000 hockey pucks costs:

$1500 of raw materials
$100 of depreciation to machinery
-------------------------------------———-------
$1600 – cost of raw materials and depreciation

New value created:

$2000 value of hockey pucks:
$1600 cost of raw materials and machines
-----------------------------------------------------
new value created by labour = $400

In 8 hours, one worker created $400 worth of new value that previously did not
exist. That works out to $50 of new value per hour.

However, even though each worker produces $400 worth of value in a day, they
each only get paid a wage of $100 a day, the value of their labour power.

Since the worker produces a new value equal to $50 per hour, only two hours of
her labour are actually necessary to create enough value to cover the wage of
$100 per day.

The two hours of the working day necessary to produce the value equal to 8
hours of labour power is called the necessary labour.
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Activists Guide to Political Economy

But the workers don’t get to go home after 2 hours, they have to stay for the
rest of the day or they will be fired!

The other six hours of the working day, where the new value created goes to the
factory owner is called the surplus labour. Essentially, this is time worked without
pay!

This surplus labour is the source of all profit to the capitalists.

The value created by unpaid surplus labour is surplus value. In the example of the
hockey pucks, the surplus value created is $300. (Six hours unpaid labour x $50
new value per hour)

In Review:

- Raw materials, machines, hammers and saws are all inanimate objects that are
unproductive unless labour is applied to them
- Labour is the source of all value
- Workers do not get paid for the value they create, but for the value of their
labour power
- The surplus value generated is appropriated by the capitalist and is the source
of all profit.

Constant and Variable Capital

Constant Capital

The value of raw materials and depreciation used in production is included into
the value of the new commodity directly.

For example if $1600 of rubber is required for 1000 hockey pucks, then the value
of 1000 hockey pucks increases by exactly $1600.

Because the amount of value transferred is constant, this type of capital is called
Constant Capital.
 29

Examples of constant capital are raw materials, factory depreciation, and

machine depreciation, all which transfer their value 1:1 into the value of the new
commodity.

Variable Capital

The other part of the cost of production is variable capital, which is the amount
of money spent on wages to buy labour power.

It is called variable capital because the amount of new value added to the
commodity varies from the price of labour power the capitalist buys.

By purchasing $5 worth of labour power, the labour of one worker might raise
Rate of the value of a commodity by $7, $10, $15 or more.
Exploitation and
Rate of Surplus How much value is added for each dollar of labour power purchased is
Value are the
determined by the rate of surplus value. (Also known as rate of exploitation)
same

In Review:

- Constant capital is made up of raw materials, depreciation of machines etc

- The value of consumed constant capital transfers at a constant rate of 1:1 into
the value of the new commodity
- Variable capital is the price of labour power
- Its called variable capital because one dollar of labour power can produce a
value greater than $1. It varies

Rate of Surplus Value (Rate of Exploitation)

The goal of the capitalist is to squeeze as much surplus value as possible from a
worker because surplus value is the source of all profits.

The more surplus labour that is extracted in a day compared to the necessary
labour, the more intense is the level of exploitation.
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Activists Guide to Political Economy

Picture an eight hour work day broken into two parts:

4 hours : 4 hours
Necessary Labour Surplus Labour

The bigger the chuck of day devoted to surplus labour compared to necessary
labour, the higher the rate of surplus value.

You can think of it as

Necessary Labour : Surplus Labour

Or
Paid Labour : Unpaid Labour

Or
(V) Variable : (S) Surplus Value

It is all the same

The rate of surplus value is the ratio of the total amount of unpaid labour
performed (or surplus value) to the total amount of wages paid (or variable
capital)

S Surplus Value
V Variable Capital
The formula for the rate of surplus value is

Take the hockey puck example:

$300 Surplus Value
$100 Variable Capital
= 300% rate of surplus value

The capitalist’s goal is to increase the rate of surplus value as high as possible.
There are a few ways to do this.

Take an average eight hour work day made of two hours of necessary labour
(labour time required to compensate the cost of labour power) and six hours
surplus labour
 31

8 Hour Work Day

2 6

One way to increase the rate of surplus value is to try and reduce wages, which
reduces the amount of necessary labour required in a day

Reduced Wages

1 7

Increasing output per hour through speedups or increasing productivity also has
the effect of lowering the amount of necessary labour time required to
compensate the value of labour power.

Speedups

1 7

Lengthen the work day without increasing wages

10 Hour Work Day

2 8

In each case the interests of workers and bosses are diametrically opposed:

- Workers want to increase wages : Capitalists want to decrease wages

- Workers want to stop speedups : Capitalists want to increase the speed and
intensity of labour as high as possible

- Workers want to decrease the work week with no loss in pay : Capitalists want
to increase the work week
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Activists Guide to Political Economy

These conflicting interests are part of capitalism. The defence of capitalism is the
defence of the right of the capitalist to exploit the working class. Exploitation can
only be ended, therefore, with the end of capitalism and the building of
socialism.

In Review:

- Capitalists want to squeeze as much surplus value as possible out of workers

S Surplus Value
V Variable Capital
- The formula for the rate of surplus value is or
- Capitalists can increase the rate of surplus value by trying to lower wages,
speed up production, or increase the work day

The rule of
capitalism is
“grow or die” The Growth of Capital and the
Working Class

Capitalist Accumulation of Capital

Having looked at primitive accumulation of capital, let’s examine capitalist

accumulation.

No matter how rich a capitalist is or how large his profits are, he always wants
more. The rule of capitalism is “grow or die”. If you don’t accumulate more and
more capital you will be crushed by larger capitalists. There is no other option.

Two Main Ways to Accumulate Capital:

1. use surplus value to build capital stock larger than your competitors
2. merge with other capitalists and take over smaller competitors
 33

This process of capitalist accumulation ensures that a larger and larger amount of
capital becomes concentrated in fewer and fewer hands.

Relative Deterioration of Working Class Incomes:

The process of capitalist accumulation means the share of the wealth of a

country given to workers becomes small and smaller.

As capital The total income of a country can be visualized in two parts: Wages and Profits
accumulates,
relative income
falls

Profit

Wages

The relative income of the working class represents the size of the income pie
shared by workers.

As more capital is accumulated ↑

The capitalist expands his total profits ↑

Though technology, speedups, extending unpaid labour time, and attacking

organized labour, workers receive less for their labour ↓

Therefore the share of profits increase : Share of wages decrease

Prof it

Wages

Wages Profit

Profit

Wages

The change in ratio between profits and wages represents a relative deterioration
of the working class relative to the capitalists.
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Activists Guide to Political Economy

Absolute Deterioration of Working Class Incomes:

An absolute deterioration of incomes for workers is built right into the economic
laws of capitalism.

You can look at wages in two ways:

1. A nominal wage is how many dollars a worker receives in exchange for her
labour power.
2. A real wage is the amount and quality of goods, food, clothing, etc a
worker can buy with their paycheque.

Real wages are affected by two things: the cost of living and the amount of
money a worker gets for selling her labour power.

As the cost of living increases, the real wage decreases, because the worker can
not purchase as many goods.

As the wage a worker receives decreases, the real wage decrease, as the worker
can no longer purchase as many goods.

There is a tendency for the absolute income of the working class to decline
because capitalists are always pushing for lower and lower wages and the cost of
living is rising and rising.

It’s certainly true there have been periods where the real wages of workers have
increased under capitalism. These are the exceptions that prove the rule.

All of these increases in real wages have come not because of capitalism but by
struggling against it politically and organizing into trade unions!

Capitalists have always opposed efforts to increase real wages or reduce the
working day. Only by organizing into unions and working together for better
work and higher real wages has the working class ever made gains in income
under capitalism.
 35

Growth of Capitalism and Unemployment

Capitalism will never eliminate unemployment because capitalism needs

unemployment and capitalism produces unemployment.

Unemployment is an essential part of capitalism. Even rightwing economists,

who represent the interests of big business, admit that unemployment is a
natural part of a healthy capitalist economy. They call the level of unemployment
required for a healthy capitalist economy the “Non-Accelerating Inflation Rate of
Unemployment”.

Capitalists like unemployment because they can use it as a weapon to lower

wages of workers and increase their profits.

unemployment is
built into the “If you don’t work harder for less money there is always someone who can
economic laws of replace you.”
capitalism

Unemployment is not an accident, nor a result of poor economic indicators, nor a

result of the “work ethic” of the unemployed but is built into the economic laws
of capitalist accumulation.
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Activists Guide to Political Economy

Economic and Political Struggle

The development of capitalism creates unemployment and both a relative and

absolute deterioration of the position of the working class.

Workers naturally fight back to defend their economic interests by forming trade
unions. By uniting in unions, workers can fight for better working conditions and
higher wages.

This economic struggle alone can never end unemployment, poverty or

exploitation because these problems are built into the economic laws of
capitalism.

Economic To tackle the root cause of these problems requires political struggle by the
struggle alone working class to overthrow capitalism itself.
has its limits

In Review:

- Capitalists must accumulate more and more capital because the rule of
capitalism is “grow or die”
- Capital can be accumulated by using surplus value to create more capital or by
merging with or taking over other capitalists
- Capitalist accumulation leads to a relative decline in worker’s incomes
- Capitalist accumulation also leads to an absolute decline in worker’s incomes
- Unemployment is a natural part of capitalism
- Capitalists like unemployment because it is a powerful weapon to use against
the working class
- Because unemployment, poverty and exploitation are part of capitalism, to
eliminate these problems requires a political struggle to overthrow capitalism
 37

Discussion Questions
1. How is labour the source of all value?

2. Why do capitalists have to expand their capital all the time?

Can’t they just have enough?

3. Why didn’t primitive communal, slave holding,

feudal and socialist societies suffer from
mass unemployment?
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Activists Guide to Political Economy
Notes
 39
Notes
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Activists Guide to Political Economy
Notes
 41

Distribution of Surplus Value Among

Exploiters
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Activists Guide to Political Economy

Industrial Capitalist
Rate of Profit

The rate of profit is the ratio of profit to production costs of the capitalist.

As we know, surplus value is the source of all profit and variable capital (wages)
and constant capital (raw materials, machines etc) are the production costs to the
capitalist.

Therefore

Surplus Value S
Cons tan t Capital + Variable Capital C +V
Rate of Profit = or

In our hockey puck example

Surplus Value = $400 S

Variable Capital = $100 C +V
Constant Capital = $ 1600
$400
$100 + $1600
The rate of profit is 23.5% (400/1700)

Tendency Towards an Average Rate of Profit

Competition between capitalists tends to equalize profits on equal amounts of

capital.

For example: pretend there are two sectors in an economy: hockey puck
manufacturing and Frisbee manufacturing.

Each year, 100 million dollars worth of capital (constant plus variable) are used in
production of Frisbees and hockey pucks.
 43

Frisbee production produces 10 million dollars of surplus value in a year

Hockey puck production produces 5 million dollars of surplus value in a year

S
C +V
Rate of Profit

Hockey Pucks Frisbees

$5 $10
$100 $100
5% Rate of Profit 10% Rate of Profit

Because Frisbee production generates a higher rate of profit, some hockey puck
producers will stop producing hockey pucks and start producing Frisbees in order
to increase their rate of profit.

Competition increases in Frisbee production ↑

Competition decreases in hockey puck production ↓

With more competition, Frisbee producers will lower the prices for Frisbees.

Profits decrease. ↓

With less competition, hockey puck producers can charge higher prices for
hockey pucks.

Profits increase. ↑

This process continues until the rate of profit is equal for hockey pucks and
Frisbees. Thus competition between capitalists levels profit rates around one
average rate of profit.
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Activists Guide to Political Economy

Tendency for the Rate of Profit to Fall

To get an edge on their competitors, capitalists want to decrease per unit

production costs and increase the rate of surplus value. To obtain higher
productivity, capitalists use their accumulated capital to increase the amount of
machinery and raw materials per worker.

Let’s look at hockey pucks again: To double the amount of hockey pucks a
worker produces an hour would require twice the amount of raw materials.

Surplus Value
Variable Capital
This increases the rate of surplus value because more surplus is
being generated for every dollar spent on labour power.

This change actually lowers the rate of profit.

Example:
Initial production

$500 Constant Capital

$500 Variable Capital
$500 Surplus Value (100% rate of surplus value)

S $500
C +V $500 + $500
Rate of profit = Rate of profit = 50%

To lower costs and increase profits, the factory owner might use accumulated
capital in a new process that increases the rate of surplus value to 150%.
This higher level of productivity means there are more raw materials and
machinery per worker. Now let’s say for every $800 of constant capital, only
$200 of variable capital is required.
 45

Change in production:

$800 Constant Capital

$200 Variable Capital
$300 Surplus Value (150% rate of surplus value: $200x150% = $300)

S $300
C +V $800 + $200
Rate of profit = Rate of profit = 30%

Countering a Falling Rate of Profit

No capitalist wants a low rate of profit. There are many ways they can fight the
tendency of the rate of profit to fall.

Look at the Equation as a mathematical equation:

S
Rate of Profit = C + V

To increase the rate of profit:

S can be increased
C can be decreased
V can be decreased

S: Increasing surplus value can be accomplished by raising the intensity of

exploitation. This can be done through measures such as lengthening the work
day or speeding up production.

C: Constant capital can be lowered by increasing labour productivity in the

production of raw materials machines and lowering the price of constant capital.
i.e: If labour productivity doubles in the production of rubber, then the price of
rubber (as constant capital) to hockey puck producers will be reduced.

Constant capital can also be lowered by exporting capital to countries where

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Activists Guide to Political Economy

labour power is cheaper and where there is less constant capital relative to
variable capital.

Constant capital can also be lowered through war. War destroys existing capital
stocks and creates goods such as bombs which are destroyed upon use.

V: Variable capital can be lowered by busting unions and increasing

unemployment to bring down wages.

In Review:
Surplus Value
- The rate of profit is equal to Cons tan t Capital + Variable Capital
- Competition between capitalists levels profit rates around an average rate of
profit
- The average rate of profit has a tendency to fall as more constant capital is
introduced relative to variable capital
- Capitalists can counter the falling rate of profit by increasing the rate of
exploitation, reducing constant capital costs and reducing wages

Commercial and Loan Capital

Up until now we have only discussed industrial capital as if industry needs no
Surplus is shared loans and as if customers purchased cars, bread and washing machines directly
with Commercial off the assembly line.
and Loan capital
In reality, the industrial capitalist must share his profits with the owners of
commercial and loan capital.

Commercial Capital

A commodity must be sold in order for the industrial capitalist to make a profit.
This task is often delegated to a commercial retailer (commercial capital). In
exchange, the industrial capitalist shares part of his profit by selling the
commodity to the retailer at a reduced price called a factory price (or wholesale
price).
 47

Loan Capital

Some capitalists have money that they can not use immediately.

Price of loan capital Other capitalists may be short on money. They might want to open a new
is known as interest factory but not have enough cash on hand to do it.

Because money not being used commands no profit, the capitalist with a
temporary surplus of money, gives his money to the capitalist who is short of
money in exchange for part of his surplus value later. This payment is known as
interest.

Banks

Banks serve as an intermediary in this transaction as dealers of capital.

Banks take the surplus money of one capitalist, pay them a low rate of interest
and give it to another capitalist in exchange for a high rate of interest.

Separation of Ownership of Capital from Production

In early stages of capitalism, management of production was done directly by the

factory owner.

But with the expansion of banks, loan capital and stocks, managing production
becomes increasingly separated from ownership of capital.

It’s now possible for a capitalist to own vast amounts of stock or other capital
assets and lay on the beach all day doing nothing but collecting unearned surplus
value.

This further shows how unnecessary the capitalist truly is to production. They
exist solely to suck surplus value from workers like a parasite.
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Activists Guide to Political Economy

In Review

- Industrial capitalists share their surplus value with commercial and loan capital
owners
- Commercial capital owners receive surplus value in exchange for selling
commodities to the final consumer
- Loan capital owners receive surplus value through interest payments on capital
loaned to capitalists short of money
- Banks serve as intermediary dealers of capital
- Loan capital, banks and stock ownership allow the separation of ownership and
production
 49

Discussion Questions
1. Why is there a tendency of the rate of profit to fall? Is a fal-
ling rate of profit a problem for capitalists? If so, why and what
can they do about it?

2. What does the declining rate of profit mean for the struggle
between workers and bosses and the capitalist mode of pro-
duction as a whole?

3. Do workers employed by commercial and bank

capital directly produce surplus value?
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Activists Guide to Political Economy
Notes
 51
Notes
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Activists Guide to Political Economy
Notes
 53

Capitalist Reproduction and Crises

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Activists Guide to Political Economy

Simple and Extended

Reproduction Under Capitalism
Producing the
same quantity of
commodities year Production and Reproduction
after year is
simple Commodities are produced and then consumed.
reproduction Every year, for example, food is produced and then eaten.

The next year it’s necessary to reproduce food and other commodities and repeat
Producing a the process of production.
greater number
of commodities
If each year a country produces the same amount of commodities, this is called
year after year is
extended simple reproduction.
production → consumption → production → consumption
reproduction

If a country produces more commodities year after year this is called extended
reproduction.

production → consumption → production → consumption

Under the capitalist mode of production, extended reproduction prevails.

Capitalist Reproduction, the Realization Problem, the

Anarchy of Production and Endless Waste

Production under capitalism occurs without a plan. There is an anarchy of

production. This is a problem because production is a social process and
capitalists are linked to other capitalists.

For example, retailers of hockey pucks are linked to the producers of hockey
pucks. Producers of hockey pucks are linked to the manufacturer of raw
materials and machinery used to create hockey pucks. Plus all of the other
capitalists involved in the spheres finance and transportation. Individual
capitalists may have plans, but there is no plan for the system of production as a
whole.
 55

Despite this interlinkage, each capitalist decides what to produce and how much
to produce based on a guess of which commodities can be produced at a
profitable price. To realize a profit the commodity must be sold. If a producer
overestimates how many hockey pucks can be produced at a profitable price,
over production occurs and profits fall.

Production can be divided into two parts:

1. Production of the Means of Production (raw materials, machines etc)
2. Production of Articles of Consumption (consumption goods for workers
and for capitalists)

A country cannot produce just articles of consumption or only means of

production. A delicate balance must be achieved between the two. Produce too
much means of production and there is not enough food for workers to eat.
Produce too many articles of consumption and there is not enough means of
production to replace worn out machines.

Picture the total social product of a country divided into three parts

Constant Capital Variable Capital Surplus Value

(raw materials, machines etc) Income of Workers Income of Capitalists

Under simple reproduction, the production of articles of consumption must equal

the income of workers and capitalists combined.
This makes sense because the value of consumption articles can’t be greater than
the income of the consumers or they cannot be purchased.

In other words

Production of Articles of Consumption = Variable Capital + Surplus Value

Therefore
Production of Means of Production = Constant Capital Consumed

It becomes much more complex under extended capitalist production.

To expand production each year, new means of production must be put into use.
New machines on the factory floor and more raw materials.
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Activists Guide to Political Economy

To put new machines and new raw materials into the factory floor in the next
production period means that those raw materials and machines must be
produced in the proceeding period.

Period 1 Period 2
New means of production produced So that they will be available to put
must be greater than means of into use in period 2
production consumed

The exact proportion of production between articles of consumption and means

of production must be achieved. But there is no planning or coordination
between capitalists. This task is impossible!

This problem is even more complex considering how many different sub
branches of means of production must be balanced without a plan.
(i.e. transportation, construction, heavy industry, mining etc)

This leads to a series of over production and shortages as capitalists try to guess
and adjust production from period to period without a plan or coordination. This
causes an endless waste of productive resources.

In Review:

- Producing the same quantity of commodities year after year is simple

reproduction
- Producing a greater number of commodities year after year is extended
reproduction
- Capitalist reproduction is extended reproduction
- Capitalism suffers from an anarchy of production since each capitalist decides
on what to produce and how much to produce separately without a plan or
coordination
- Total production can be divided between production of articles of consumption
and production of means of production
- Extended reproduction requires a complex balance between all branches of
production
 57

Crisis of Relative Overproduction

Not only does the anarchy of capitalist production cause sporadic overproduction
and shortages, capitalism is plagued by a general crisis of overproduction.
Capitalism is
plagued by This may sound odd at first glance considering the absolute deprivation and
overproduction poverty of so many workers in the world.

What is being discussed is not an absolute overproduction of goods but a relative

overproduction of commodities, relative to the purchasing power of workers.
Every year, grain is thrown into the ocean and factories are closed or lie idle
because workers cannot afford to purchase the goods. The great depression is an
example of the extremes of overproduction.

Inevitability of Crisis in Capitalist Production

To make a profit:

Capitalists produce more and more commodities in a struggle with their

competitors. ↑

At the same time, capitalists try to reduce the wages of working people as low as

possible. ↓

Problem: Capitalists produce more and more goods while workers have less and
less income to buy these goods.

Eventually it becomes impossible to sell the consumer articles because of the

limited purchasing power of the working class. The growth of production of
articles of consumption in one period is not met with increased consumption in
the next. This creates economic crises.
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Activists Guide to Political Economy

Cycle of Boom and Bust

Cycles of booms and busts, caused by overproduction, are found in every

capitalist country without exception.

Overproduction sets off a crisis where capital owners are not able to sell their
goods and realize a profit.

With profits declining, smaller firms go bankrupt. Many workers are laid off as
larger capitalists reduce production. Depression sets in.

Capitalists take advantage of the cries by intensifying exploitation, lowering

wages and replacing older machines with new ones to become profitable again.

The demand for means of production rises and production resumes and expands
past its original level. Production expands and expands during this boom time
until a new crisis sets in.

In Review:

- Capitalism is plagued by a general overproduction of goods relative to

purchasing power of workers
- Overproduction occurs as capitalists produce more and more goods and while
driving down the income of workers who have less and less money to buy the
goods
- Overproduction is responsible for the cycle of boom and bust which occurs in
every capitalist country.
 59

Discussion Questions
1. What is the difference between articles of consumption and
means of production? Wouldn’t it be nicer just to produce
consumer goods?

2. What modes of production have been under simple

reproduction? Which modes of production have been extended
reproduction?

3. Can capitalism exist without crises?

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Activists Guide to Political Economy
Notes
 61
Notes
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Activists Guide to Political Economy
Notes
 63

Basic Economic Features of Imperialism

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Activists Guide to Political Economy

Basic Economic Features of

Imperialism
Early capitalism and free competition has been replaced by imperialism, the
monopoly stage of capitalism.

Imperialism can not be separated from capitalism because imperialism is what

capitalism has become. It is capitalism decaying, plagued by crises, booms and
busts, overproduction and a falling rate of profit, but trying by wars, by racism,
by brutal exploitation to turn back the clock of history. It’s a socio-economic
system trying to avoid the judgement of history by brute force. It is the highest
and final stage of capitalism.

Lenin was the first to conduct a thorough investigation into imperialism from the
Check out:
Imperialism, the point of view of the working class.
Highest Stage of
Capitalism
Lenin described the following five essential economic characteristics of
imperialism:

1. Concentration of production and capital develops to such a high stage that it

creates monopolies which play a decisive role in economic life
2. The merging of bank capital with industrial capital and the creation, on the
basis of this “financial capital”, of a financial oligarchy
3. The export of capital, as distinguished from the export of commodities,
acquires exceptional importance
4. The formation of international capitalist monopolies which share the world
among themselves
5. The completion of the territorial division of the world among the greatest
capitalist powers
 65

Concentration of Production, Capital and the Rise of

Monopolies

As capitalism develops, production becomes concentrated into fewer and fewer

hands.

This concentration is created by the law of capitalist accumulation. Competition

between capitalists also concentrates production as smaller capital owners are
pushed out of the market by larger competitors with more capital at their
disposal.

As concentration of production and ownership developed, many industries

became controlled by just a handful of big firms who conspired together to raise
their own profits. With their vast size, resources and control of key industries,
these monopolies are able to affect all areas of economic and political life.

Types of Monopoly

The most direct form of monopoly is where a single capitalist controls an entire
industry, but there are several ways where a group of capitalists can control an
entire industry.

One basic way is a price agreement. Under a price agreement, a group of

capitalists agree not to lower their prices lower than a certain point. Price fixing is
common in food markets, such as breakfast cereals.

Cartels and Syndicates are a higher form of monopoly control. Under this system,
prices and production are manipulated by a small group of capitalists. The Oil
industry is an example of an industry controlled by cartels and syndicates.

Trusts and conglomerates are an even higher form of monopoly. Capital owners
join together, or are taken over, to form a single organization with greater
monopoly power. Mining and manufacturing of products, such as steel, are
controlled by groups of trusts and conglomerates.
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Activists Guide to Political Economy

Monopoly and Competition

The title of this section is monopoly AND competition rather than monopoly OR
competition. There is a reason for this.

Although monopoly is the very opposite of free competition, the presence of

monopolies does not mean the absence of competition.

In fact, the presence of monopolies, which play a decisive role in economic life,
only means different types and forms of competition, which can often be more
intense and cutthroat.

Under Monopoly Competition:

There is a struggle and competition between monopoly and non monopoly firms.
There is a struggle between large monopolies for top position within a sector.
There is a struggle between large monopolies in different sectors for political and
economic control.

Merging of Bank Capital with Industrial Capital Leads

to a Financial Oligopoly

Like industrial capital, competition between loan capital owners as well as the
laws of capitalist accumulation, led to a concentration of ownership in the
banking industry. This concentration led to the formation of large banking
monopolies.

In most countries of the world, a small percentage of banks control the majority
the total money deposited. This gives banks a huge influence and amount of
power, controlling the flow of money and loan capital.

Although originally banks were just intermediaries, their new power and
influence changed the relationship between banks and industry.

Banks began to acquire shares and ownership in industrial monopolies : industrial

monopolies acquired shares in banks.
 67

This merger or fusing of banking and industrial capital is also solidified by

personal unions. Personal unions are the placement of industry executives on the
governing bodies of banks and the placement of bank representatives on the
board of directors of industrial monopolies.

This fusion of bank capital and industrial capital is called financial capital. The
financial oligopoly that controls this finance capital has power extending past the
ownership of their own capital because of the immense power and influence of
the monopolies on the economy.

See www.theyrule.net for a listing and graphical representation of the personal

interlinkage between some industrial and banking monopolies.
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Activists Guide to Political Economy

Export of Capital

In pre-monopoly capitalism, the export of goods was a typical feature.

In monopoly capitalism, the export of capital has become the most typical
feature.

As more and more capital is accumulated in the largest imperialist countries,

there become fewer fields for profitable investment in those countries.

This surplus of capital, with no field for profitable investment, generates no

profit.

The imperialist countries desperately want to export this capital to the “third
world” countries by whatever means necessary, and use it to bring workers of
other countries under the rule of their capital.

This can be accomplished through ways such as debt trap schemes through the
WorldBank and IMF, or by direct military force as in Yugoslavia, Iraq, Haiti and
Afganistan.

The Division of the World Among the Greatest

Capitalist Powers and Monopolies

The largest monopolies and trans-national corporations have divided the world
between themselves economically and the largest imperialist countries have
divided the world’s territories among themselves politically.

As the world has already been divided up politically and there are no “free”
territories left, imperialist countries struggle with each other now for the
redivision of the world.

The first world war, for example, was fought between the imperialist countries
for the re-division of the world.
 69

In Review:

- Imperialism is the highest and final stage of capitalism

- There are five essential economic characteristics of imperialism
1. Concentration of production and capital develops to such a high stage that it
creates monopolies which play a decisive role in economic life
2. The merging of bank capital with industrial capital and the creation, on the
basis of this “financial capital”, of a financial oligarchy
3. The export of capital, as distinguished from the export of commodities,
acquires exceptional importance
4. The formation of international capitalist monopolies which share the world
among themselves
5. The completion of the territorial division of the world among the greatest
capitalist powers
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Activists Guide to Political Economy

Discussion Questions
1. Are there any industries not controlled by a handful of
capitalists? Are there many?

2. What does imperialism mean for the struggle for peace?