Socialist Studies Socialist Studies

` `

Marxism in the 21st Century


This pamphlet, MARXISM IN THE 21ST CENTURY, was written by our late comrade J. D’Arcy from revised articles he had previously written up in the Socialist Standard in the 1970’s from lectures given over an adult life-time putting the Socialist case to the working class. The original pamphlet dealt with important topics within Marxian economics and quickly sold out.

The subject matter of the pamphlet does not constitute an economic textbook written for economic students but for the economic and political enlightenment of all members of the working class. In propagating the case for Socialism Marxian economics has always been a central feature in the lectures and written articles of the Socialist Party of Great Britain.

Marxian economics allows a worker to understand the exploitive mechanism peculiar to capitalism, its periodic crises, depressions and high levels of unemployment, the competing interests within the capitalist class and the workers’ own interests and how they are best served.

More importantly Marxian economics demonstrates why capitalism, based as it is on the private ownership of the means of production, can never be made to work in the interest of the working class and why there is a compelling Socialist case for its abolition and replacement with Socialism. There is some repetition in the pamphlet from one section to the next but this cannot be avoided. Some of the British Banks mentioned in the text have been recently taken over by other banks or have been nationalised by the Government under the pressures of the current economic crisis. Bearing in mind that the original articles were written over forty years ago they still retain a freshness more so because the problems discussed then can never be resolved while capitalism lasts.

For a more detailed examination of capitalism we point the reader to the mature writings of Karl Marx, particularly the pamphlet VALUE, PRICE AND PROFIT, the three volumes of CAPITAL and three volumes of THE THEORIES OF SURPLUS VALUE.

Comrade D’Arcy along with other sound Socialists were expelled from The Socialist Party in May 1991 for continuing to use the full name of the Socialist Party of Great Britain in political propaganda as required by Clause 8 of the OBJECT AND DECLARATION OF PRINCIPLES which is printed on the inside cover. For us the Object and Declaration of Principles is not a historical document but a living embodiment of why capitalism should be replaced consciously and politically by the working class with Socialism. It is a revolutionary proposition which informs all our work including this pamphlet.

A few minor changes have been made to the text and spelling mistakes corrected.

Editorial Committee: The Reconstituted Socialist Party of Great Britain (1991).
March 25th 2010

Back to top


Is Marx Out Of Date

Karl Marx inadvertently forecast much of the antagonism which would arise on the publication of his theories as they appear in CAPITAL. In the preface to Volume I he said:

…In the domain of Political Economy, free scientific enquiry meets not merely only the same enemies as in all other domains. The peculiar nature of the material it deals with, summons as foes into the field of battle the most violent, mean and malignant passions of the human breast, the furies of private interest. The English Established Church, will more readily pardon an attack on 38 of its 39 articles than 1/39th of its income
(p. xix Glazier ed).

However, Marx could never have believed the scale of the ignorant opposition his theories aroused and the depths to which it has descended. Today, the gross misrepresentation of Marx’s theories continues unabated. This is in part due to lack of knowledge of the theories themselves, but mainly to the threateningly revolutionary effect on modern capitalism. Only economic theories which are useful to the running of capitalism and which do not attack its economic basis will gain support from the organs manipulating “public opinion” and of course from the tame economists and other advocates of the profit system who are paid to defend capitalism. Marx is always in fashion. Even after the elapse of 140 years following the publication of CAPITAL, the Marxian system showing the development of society has stood up to all challenges.

A repeated criticism of Marx is that he is out of date. The late Maynard Keynes once described CAPITAL as an obsolete text book. Modern economists have referred to him as an “outdated Victorian” whose theories are now antiquated and could only apply to an earlier era, when conditions and circumstances were different. His theories, they claim have no relevance to capitalism today. With this sweeping dismissal of Marx they feel under no obligation to provide any evidence for their claim. They cannot show that his theories are wrong and applicable to modern society. In fact, Marxism provides the only key to an understanding of capitalist production and distribution, the explanation of recurring crisis, unemployment and the existence of the class struggle. He was the first to discover capitalism’s most innermost secret –the production and accumulation of surplus value. Marx explained how this was extracted from the worker and transformed into profit and capital for the benefit of those who own and control the means of production. The capitalist class produce nothing but own everything in the means of living, monopolising the creative labour power of society and reducing it to the level of a mere commodity.

As we enter the second decade of the 21st century it is worth reviewing what major changes have occurred in the old century.. Major changes, from the Socialist point of view, may have affected the quality of life for the vast majority of working men and women but their position in relation to their means of livelihood and the access to the social wealth that they have created, remains the same. In this respect nothing has changed. The sale of wage labour is still the only means of existence for millions of people. The employer-employee relationship still dominates the field of production. The capitalists of the world have appropriated the wealth of the entire planet – land, mineral wealth, oil and so on. The means of production and distribution is still their property.

These are the pillars of society today. It was the same in Marx’s day and unless the majority of workers decide to take the necessary political action to abolish capitalism, it will persist for another century.

Back to top


It is impossible to understand the way in which the capitalist system works without some knowledge of basic capitalist economics. Such knowledge is invaluable to the Socialist because he can use it to expose the myth that the Capitalist is the lynch-pin of society and without him civilization would perish.

The Marxist theory of value is based upon the analysis of the commodity. Marx describes the commodity as being the “cell form” of capitalist society, and that wealth within capitalism presents itself as a vast accumulation of commodities.

First and foremost, a commodity is a product of human labour under definite social conditions of production which can only apply to capitalist society. It is an article produced for sale or exchange with a view to profit. It contains two diametrical opposites – Use-Value and Exchange Value. Use-value is the utility of an article and is something concrete. Food can be eaten. Homes can be lived in. Clothes can be worn. This is self-apparent. But as we Socialists are well aware, the production of use-values is not the prime function of capitalist society. That function is the production of exchange value. Exchange-value or price is the proportion in which commodities exchange with each other. A thing possesses exchange-value only to the person who has no use for it and loses its exchange-value when its use-value asserts itself or is eventually lost in consumption.

Commodity production is peculiar to capitalist society. When we talk about commodity production we mean a condition where the dominant means and almost the entire means of social production are devoted to the production of articles for sale and exchange. Commodities have been produced in past societies before capitalism, but their production was confined to the handicraftsman or to incidental surpluses. Their production was never a mass social process as it is to-day. It is only in capitalist society that commodity production becomes the prevailing mode of production.

Exchange Value has nothing to do with whether or not an object or service is useful to humanity. The whole economy of capitalism has a multitude of products and services which are incontestably useless, and indeed harmful –nuclear weapons; military bases; equipment for armies; banking, insurance and the whole apparatus of wholesale and retail commerce. These institutions and services however, are useful to capitalism and use-value in this context is related to the needs of capitalism and whatever these needs may be from time to time.

Under Capitalism, the most practical way to find out whether or not an article and service is useful is when it is offered for sale. If no-one wants it, then it is socially useless whatever its virtues in other respects. Production of that particular commodity or service would then cease as its production would be unnecessary. To put it another way, the production of any commodity or group of commodities which cannot be marketed or sold is useless by capitalist standards. The fact that a social need may exist for unwanted commodities has nothing to do with the case. There is no morality in capitalist economics.

Some things which are bought and sold are not commodities. Bearing in mind that (a) a commodity must contain a certain amount of human labour and (b) that it must be capable of being reproduced we find that there are a number of instances where this does not apply. Land (excluding buildings) for example contains no value; there is no labour involved in its production. It cannot be reproduced. Nevertheless, land is bought and sold; it has a price and that price is determined by competition between buyers. Similarly, advice from specialist such as doctors, lawyers, etc does not take the form of a tangible commodity as defined above. What happens is that, in effect, these non-commodities assume the commodity form. They take on an abstract exchange-value, and successfully masquerade as the real thing. Likewise the same occurs with works of art.

The value and consequently the price of a commodity are determined by the socially necessary labour spent on its production. Social labour includes the materials used in the productive process and is measured in time.

There is one important qualification and that is that the labour must be socially necessary. If this were not the case, the more inefficient and time-wasting process would produce the moist value, which is nonsense. Socially necessary labour means the average time that is spent in any field of production or distribution in the manufacture of articles or services. For example, if crude oil was shipped from Europe to the Middle East, the cost of society’s time, including the element of wear and tear on the ship, etc. could not be added to the product because this would have been unnecessary labour (as crude oil is found in abundance in the Middle East). Again, if a group of capitalists decided to erect a factory on the island of Tristan da Cunha or some other remote spot, say for the manufacture of textiles, the cost of the textiles would not have a greater value on account of the cost of shipment, transport and other charges, for the obvious reason that the areas for producing textiles are mainly concentrated in industrial areas with all the attendant services of railways, roads, etc. Again, if a firm decided to build Hansom cabs to be drawn by horses to replace taxi-cabs, the social time spent on these would be quite valueless, as this commodity (transport) by horse-drawn carriage is obsolete and is not used by society outside of its novelty value which is minute.

Socially necessary labour must take into consideration the things which society now requires, and the average methods through which they can be obtained. This average working raises another question, and that is by using the latest machinery the value of the product is less than that of similar products produced by relatively old machinery, because the time spent on the former is naturally less. The answer is that we have to take an average throughout the whole field of this production in particular. In the coal mining throughout the world, methods of extracting coal vary from working narrow seams to exploiting huge faces by coal-cutting machinery. The hand-cut coal is not more valuable, and in any case the entire production of coal cannot be carried out by hand. Neither can it be carried out by machinery; therefore the average time is proportioned between the two methods. Again, if we take 10 firms with varying degrees of efficiency, say from 1-10, the average would be 5 and this would represent the socially necessary labour time. Socially necessary labour is the substance of value, or conversely value has for its substance embodied or congealed labour.

Back to top


Articles are exchanged because they are different. This means that they possess a different kind of useful labour. It is the quality of the labour which makes them different. The labour of the bricklayer is different from that of the fitter, as is the labour of the pattern-maker from the coal miner’s labour. Consequently, the products are different. Identical goods or services are not exchanged for each other as there would be no useful purpose in doing this. Coal is not exchanged for coal. In a world of commodity production, this qualitative difference between definite types of useful labour develops into a complex system. In short; a social division of labour.

Human labour, in addition to producing use-values also produces value; it has a double function. The commodity is a depository of value. Whilst everyone can see, eat or feel the use-value of a commodity; i.e. its material side, it seems impossible to grasp its value. It is the very opposite of its use value. Use-value is something which can be experienced but value is an abstract quality. However, we know that all commodities have one thing in common; they are all products of human labour, and it is this which gives them their value and consequently their social reality. It is only during the social process of exchange that value will declare its origin, that is, when commodities containing different forms of labour confront each other on the market. This is nothing more than the social relation of commodity to commodity. It follows then, that value is a social relation between persons expressed in their products. It is a relation between objects which contain an identical social substance; human labour. The multifarious sub-divisions of labour are directed entirely to exchange of commodities and there is no direct relation of social production to social producer.

The capitalist system does not produce for consumption. Its function is to produce surplus value, out of which the capitalists –industrialists, banks, and landlords –take their profits. The sole agency through which values comes into existence is the international working class (including Cuban and Chinese who work within State Capitalism. They allow the capitalist not only to take the fruit of this labour, but also to dictate the conditions under which they produce no matter how soul-destroying and tedious. “Allow” is the operative word because the capitalist system could not survive against the wishes of workers collectively opposed to it.

The worker’s access to his own product is through the wage packet. He obtains his means of subsistence in the form of commodities –articles produced for sale or exchange with a view to profit. This peculiar way of getting his livelihood, where there is no direct relation between production and consumption, leads to a situation where workers tend to avoid thinking about the overall purpose of production, and lend their thinking and activity to engaging in the wages struggle, which from their point of view is at least simple and uncomplicated. The capitalist is the enemy to be attacked but, as we know only too well, only on the wages front. It is the Socialist who tries to show the real significance of the class struggle by refusing to be dominated by the narrow Trade-Union issue, and demands that the capitalist be stripped of the means of production and that these become social property.

Because capitalism produces wealth in the form of commodities, the relations between the various producers are not direct. That is to say, that there is no conscious co-ordination or specific purpose between the various branches of production and distribution. Everything seems to happen spontaneously or accidentally; everything has to be done for an anonymous market. Nobody has any direct control over what will be produced, when, or in what quantity. In earlier forms of society there was social co-ordination and planning of production even though this was a simple scale due to the undeveloped nature of the productive forces. The food supply was obtained through hunting, fishing, fruit-gathering, etc. Some members of the community made cloth, other pottery, weapons, etc. This simple division of labour produced simple methods of distribution, and both were integrated with the needs of the community and under its direct control.

To-day we have a fantastic situation where the only laws governing production are the laws of exchange. Not having any direct interest in production as such, but only in the production of value and the exchange of their own commodity – labour-power- the working class are unable to comprehend the social powers of production. The real world for them is the world of exchange. They wish to live in a situation where the hazards of capitalism can be tolerated and where they can sell their lives in instalments of their labour-power, which will be exchanged ultimately with instalments of fellow-workers’ labour power. However, capitalism does not let the workers live quietly or stabilize his slavery. It steps up the pressure, and eventually forces him into a situation where he has to learn something new in order to escape from the pressure-cooker.

The capitalist class, including their governments, do not control capitalism, do not control production, nor can they anticipate demand. Each capitalist carries on independently. His knowledge of the market is restricted because he cannot know how much will be produced and sold from time to time. Competition between capitalists creates conflicting interests, and these are a barrier to balanced social production. Most capitalists will back their experience, or engage in market research, in the hope of foreseeing demand. However, there is always some unforeseen factor. For example, few capitalists in Europe could foresee the actions by the group of capitalists who control oil production, which were taken strictly in line with their own economic interests, and in opposition to the interests of other world capitalists. The whole picture of capitalist production is one of social anarchy. This anarchy is the direct result of social production being appropriated by the capitalist class, resulting in the antagonism between producers and possessors – the class struggle.

We have the absurd situation produced by the relation of value where the products, in effect, govern the producer. The socialist proposed that the social means of production, including distribution, should be directly controlled by a society whose overriding concern is to provide all men and women with the best existence society is capable of, without the value relation, or any other economic relation based on value. The physical production of wealth is well within the technical capability of a world-wide community with the will to do it. We are forced to stand by when so called experts, who support the capitalist system of production and distribution, hold the field lecturing on the economics of scarcity and belt-tightening by the working class. Despite the scare stories about falling world resources, there is sufficient wealth-potential –used in a responsible way, not squandered or vandalized as is the case today –to maintain a Socialist society for a very long time. As for the figure of 2.5 annual growth rate, Socialist society would disdain such a small increase and take the fetters off the productive forces.

The social relation of value represents a condition where the exchange of the product represents the exchange of the various types of labour embodied in the product, and consequently provides the only social link between the producers. The value relation can only exist in a society concerned with exchange where things are more important than people. If the social powers of production are brought under the democratic control of society, a new and progressive era will have been founded; exchange will become obsolete, and the higher social relations based on planned production for need will have been established.

Back to top

Money and Prices

The whole financial edifice of capitalism at first glance appears incomprehensible to the average person. Ignorance concerning the financial and monetary system has given rise to many unsound theories, and consequently has prevented a proper understanding of what it is, how it came into being, and the circumstances which will make the monetary system unnecessary. This is not an intellectual exercise but a vital element in exposing the nature of capitalism.

The monetary system has evolved gradually and has been in existence as a system for about 250 years in England and for a much shorter period abroad. We make a distinction between the ancient coinage of Greece, Carthage and Rome, which although used to affect the exchange of commodities was at that period incidental to the main stream of an exchange system which was based on surpluses and barter. As a general social form, money developed alongside the development of commodity production, and at the point in history when all wealth was produced in the form of commodities, money became the universal medium or equivalent through which all exchange transactions were carried out.

The first condition for the introduction of a monetary system is when social products become commodities, i.e. articles produced for sale and exchange. It is quite obvious that commodities cannot go to the market by their own accord. As they are owned by someone or other, he is the person who will take or send them there. Likewise, there are other owners of commodities carrying out a similar function. Each will recognise the other as a private proprietor –that is, they respect each other’s rights to dispose of the social product to their own immediate advantage. Eventually they embellish their right through a set of legal relations.

This juridical relation, which this expresses itself in a contract, whether such contract be part of a developed legal system or not, is a relation between two wills, and is but the reflex of the real economical relation between the two. It is this economical relation that determines the subject matter in each such juridical act” (Marx, CAPITAL VOL I, p. 96 Kerr edn).

The capitalists who are the owners of commodities have to appropriate the wealth of society before they can sell it. Once having done so, they create a juridical system backed by the State machine which politically safeguards their position and consequently the whole institution of private property.

When exchange becomes a normal social practice, and the volume of transactions is being constantly repeated, inevitably one commodity emerges – either through custom or the stamp of legality –in which – all others can represent their value or express their price, which is the money-form for value. This one commodity, which is historically acceptable, becomes the recognised universal equivalent: it becomes money – it becomes the measure of value.

All commodities will therefore express their price through the agency of this single commodity, whatever it happens to be at any given point historically. Gold became the universal equivalent and still is for international transactions. Gold evolved as such because of the facts that it had a certain amount of social labour in it; that it was relatively durable; easily divisible, and kept its value for a long period.

The fact that currency notes without gold backing have replaced gold as the means of circulation within individual political states does not materially alter the function of the universal equivalent. Symbolic money, introduced by state compulsion, can only circulate within the political sphere which created it. We are not concerned here with the interminable international squabbles between capitalist powers that refuse to take each other’s bad money. The fact that symbolic money is now used does not remove gold as the measure of value, as eventually all symbolic currencies will require to be related to one another at some point, and are finally adjusted through the medium of gold.

Let us assume that 100grams of gold contains 100 hours of social labour, and that 200 litres of wine also contain 100 hours. In that case,. 100 grams of gold would be equal to 200 litres of wine, or 50 grams equal to 100 litres of wine, or 25 grams to 50 litres – and so on. The same thing would apply to every other commodity. For example, if 4 washing machines also contained 100 hours of social labour, then 4 washing machines would be equal to 200 litres of wine, or a washing machine to 50 litres of wine or 25 grams of gold. The change from one universal equivalent to another does not, nor cannot, alter the exchange value, or the proportion in which one commodity exchanges with another. Gold, as the money commodity, or currency, as the recognized legal form, are really external factors. Different products of labour are being equated with one another, and the function of money is to facilitate this equation for practical commercial purposes. The law of value, like the law of gravity, is not subject to amendment by Acts of parliament. Currency is not value.

The amount of currency notes needed to carry out exchange transactions depends on the number of transactions, the speed with which they are conducted and the volume of commodities exchanged. If, for example, £5 million (currency) was required to circulate £50 million worth of commodities and the government decided to print £10 million then the purchasing power of the £ would have fallen and it would take £2 to purchase what previously be purchased for £1; prices would rise accordingly. The value of the commodities has not changed but merely their standard of measurement has altered. You do not alter temperature by changing the numbers on a thermometer. Prices will rise because the measure of price has fallen. Prices will rise higher and in direct ratio to the depreciation of the symbolic standard of measure. This is the main factor in rising prices. The exchange of commodities is not based on legal promises to pay or arbitrary standards which alter according to political expediency. Therefore they will express their value, as they have always done, on the amount of socially necessary labour contained within them.

Supply and demand do not determine prices, although they influence them. A shortage will create higher prices, and a surplus; lower prices. But invariably throughout most fields of production and distribution, through repetition, the supply of commodities becomes equal to the demand for them and the two therefore cancel each other out. These are accidental factors and do not determine value any more than a train driver can determine the route between London and Glasgow.

Other factors which influence price are monopoly and subsidy. Monopoly action by certain groups of capitalists withholding supplies of a given commodity can cause prices to rise. OPEC demonstrated this recently. Monopoly does not add to the surplus wealth but merely redistributes it. Capitalism cannot run on the basis of a permanent monopoly any more than it can run on the basis of a permanent subsidy. Subsidy is the action carried on by certain governments to keep prices below the current market level, from time to time. For many years the price of food and housing were kept artificially low deliberately in order to keep wages down.

The introduction of an excess of currency notes over and above those required to circulate will undoubtedly cause dislocation not only in the marketing process but also in the productive process. This we are now witnessing. You cannot print value. If governments could follow the example of King Midas how happy they would be.

Back to top

Do Machines produce surplus value?

Historically the function of the capitalist system of production was to replace the previous mode of production prevailing within Feudal society by the more efficient capitalist mode of production. This involved the amalgamation of small fragmented and even individual means of production into a social force which were capable of being developed were developed. The capitalist could ensure the presence of large numbers of wage-workers in any one place co-operating with each other within the process of production, with a view to cutting down the time expended in the process.

Even on the basis of simple manual labour, 20 men working in unison can perform tasks that 40 men working individually could never do. The secret is that the 20 men are operating socially, or in concert, as a productive force; a force almost as old as mankind. The sub-division of labour is accelerated as each process becomes repetitious and broken down as that a number of operations can happen at the same time. It is quite obvious that a productive force based on each a high sub-division of manual labour was inadequate so long as it continued to rely on mainly manually operated tools. There were limits as to how many men you could get into a factory or one place and there were also limits to the amount of time you could work the labourer without his health deteriorating. This productivity of labour could only be increased by the introduction of machinery. The motive force for this machinery was, in the first instance, provided by men or animals, but eventually by water, steam, gas and electricity in that order.

It should always be borne in mind that the natural forces in social labour, i.e. sub-division of labour and co-operation, cost the capitalist nothing; likewise with the physical forces, water and steam. It is true that physical forces have to be harnessed in order to be exploited. This involves the cost of power-generating stations, hydro-machinery; etc, but the cost of these is recovered over the period of their operation. Capital, therefore, has not only inherited the earth, but the natural physical forces so far discovered and perhaps some at present undiscovered.

The gigantic means of production existing to-day bear little resemblance to the industrial scene when Marx made his analysis of machinery, manufacturer, and the position of the working class in relation to the development of these technical productive forces. Automation, computers, nuclear energy, are certainly new, but the basic Marxist theory on machinery embracing these new developments is as true to-day and of equal application as it was in the 1860. To-day, capitalists and their economic advisers will go to great lengths to stress that most of the profit created by modern industry is due mainly to the increasing mass of constant capital vested in plant and machinery.

This appears on the surface to be the case, but Socialists do not take things at their face value. We fully agree with Marx that machines do not produce surplus value and consequently profit, even if the whole area of production were based entirely on automated processes involving little direct labour participation. The reason why machinery, however highly developed does not produce surplus value is not difficult to understand. Machinery is an extension of the labour process which is carried on mechanically.

Machines are in effect social tools created by man for the sole purpose of replacing human labour power and cutting down the time expended by human labour. The productiveness of machinery is measured by the labour it replaces. It is a fact that there are quite a number of processes which can only be done by machines, but all complicated processes have evolved from a sub-division of simple labour and therefore the fact that simple labour has been intensified to the point of the scientific skill needed to produce and operate a machine to replace that simple labour in no way alters the basis for calculating the productiveness of a machine.

No matter how complicated machines become, even to the point of the capitalist’s wildest dreams –the push-button society- they are still produced and maintained by men and women. Being a product of labour a machine like every other commodity contains value in addition to its use-value. That value is determined by the amount of socially necessary labour required to produce the machine. During the productive process, the machine wears out, and has to be replaced in the course of time. It follows then that the machine cannot pass on any more value than that which is contained within it in the first place. The machine is used in the production of commodities and is gradually by stages, perhaps over years or decades, comes to the end of its working life. But during its working life it had added value to the particular commodity for which it was designed. Each of the commodities, therefore, has consumed part of the value of the machine and consequently the machine has transferred its value to the products.

Suppose, for example, a machine cost £10,000 and would operate efficiently for 10 years and at the end of the period would require to be replaced. The capitalist owner of the machine would therefore add £1,000 to the value of the products produced annually, representing 1/10th of the value of the machine. In this way the capitalist ensures that he can replace that portion of his capital vested in the machine. Any depreciation of value of machinery, however complicated, is always compensated by the amount returned to the capitalist by the way of value added to the commodity.

Value, in the form of capital, lives on –it has the gift of eternal life. Not only do the workers produce surplus value at the point of production, but they also preserve existing value. It is the phenomenon of the social relation of value that whilst it owes its origin to the social relation of human labour it has an independent existence, working through its own anarchistic economic laws; consequently it is no longer under the control of the society which gave rise to it.

If we consider the productive process as a whole with computers, electronic devices and highly developed machinery, there can be no doubt that these have added greatly to production. It appears that any increase in profit, apart from cutting wages, can only be derived by introducing machinery. This is true, but the profit or surplus value cannot come from an inanimate object. The technical foundations of modern industry are built on machinery has been created by men and women under the capitalist mode of production and distribution; the incentive to its invention and introduction has always been the profit motive. If a machine is to replace labour it must perform its operation in less time than that required by human labour –it is no good otherwise.

Any substitution for labour, including the substitution of natural force for human force, is an extension of the labour process carried on by the working class. It is not disputed that machinery is a means to the production of surplus value but this surplus value is produced by the people who make and operate the machines. The production of the worker working with machinery is increased tremendously, but the workers are paid not for what they produce but for what they sell –their labour power. It follows, therefore, that the introduction of machinery serves only to increase the rate of exploitation; that is, the difference between what the worker produces and what he receives in the form of wages.

Each fresh introduction of machinery into the working process is always done with a view to cutting down the amount paid in wages, by reducing the number of wage workers. Capitalists find the machine a useful ally in the struggle over wages.

Most of the industrial processes to-day could not, as they are, serve the needs of Socialist society. Existing technology would provide the basis for developing socially acceptable industrial processes, free from noise, dirt and non-injurious to life and limb. At the moment, the plain fact is that scientific progress in the development of machinery; as in all things, serves capital and not men and women.

Back to top

Capital: How Are Private Fortunes Created and How Do They Grow?

We know that prior to the capitalist system of production the producers owned their means of production, and the primitive accumulation of capital is nothing less than the process of divorcing the producers from their means of production and turning them into capital. When this process is completed historically we arrive at the situation which exists to-day, where the producers are totally alienated from the social means of production. They are property-less wage-workers selling their life-activity to the employers, with enough to live on and sometimes not even that

Capital has not existed for all time. It commenced in Europe out of the ruins of the old feudal society around the fifteenth and sixteenth centuries. It is a social relation of production and came into existence with the production of commodities and their circulation. The circulation of commodities means the development of an exchange system which finds its ultimate expression in the introduction of a monetary system. Any stated sum of money is representative of any stated quantity of commodities and capital appears in the first instance in that form. But capital can also appear in the form of a sum of commodities (values); raw materials, instruments of labour, in fact any sum of exchange values. What distinguishes the commodities comprising capital from any other group of commodities is the way in which they are used. The object behind their use must always be to produce a greater value than that existing. Capital functions solely to produce a surplus-value greater than the sum originally advanced either in the monetary form or in the commodity form, or both.

It is important to differentiate between capital trading transactions and share or stock dealings carried out mainly on the world’s exchanges between rival stockholders and investors, each trying to improve his financial position individually, or in a group. These represent transfers of capital between various people and institutions. They do not add to the total wealth, but change the ownership of existing wealth (value0), much in the same way as you can move furniture from one room to the other within the same house. You finish up with the same furniture but in different rooms. One man’s loss is another man’s gain.

The function of capital production is to increase existing wealth. The production of wealth cannot, therefore, depend on trading transactions; neither can it depend on nature or heaven, despite “the lord’s bounty”. When the parson gives thanks every harvest festival “when all is safely gathered in”, it should never be forgotten that every day is harvest day for the capitalist, sowing capital and reaping surplus value.

Raw materials and even the most sophisticated machine or gold bars do not possess magical powers and cannot increase their own value merely by being placed together in any sphere of production. Being inanimate objects they are dependent on men, either to produce them in the first instance or to maintain or to supervise their operation. Living labour is vital to the whole function of capital. If the machine or the materials cannot change their value and if there is and additional or surplus value created, then it could only have come from living labour, there being no possible source. The legendary brilliance of the capitalist his organizing ability and other associated fables have little to do with the social production of wealth and its accumulation. Some are clever, some are industrious, most are ignorant of the source of their wealth, inefficient and self-indulgent. Were they all in the first category it would make no difference, because the fact remains that capital is a social relation of production working independently from personalities, clever, stupid or mediocre.

The social capital mainly consists of the means of production and distribution; factories, industrial complexes, oil wells, mineral workings, means of transport, ships, aeroplanes, railways and road transport systems, agricultural land, plantations, etc. Most of these have been created gradually by workers long since dead. This is the accumulated labour (value) of the past which provides the basis for the living labourers’ productive activity in the present. The employer (capitalist) allows the worker access to this existing social capital, created by the workers’ predecessors, for the sole and specific purpose of adding a greater value than that previously existing. The marriage between living labour and capital (past labour) is a necessary condition for the social extraction of surplus value. But, as has been stated, the element of surplus value, or profit, cannot come from a fixed quantity of accumulated wealth. If anything, without the fertilization of living labour the accumulated wealth of the past which exists in the objects of social labour – factories, machinery, road systems, industrial centres, shipyards, cultivated land, etc –would deteriorate and eventually become wasted assets. Living labour serving capital therefore performs two functions: first it produces a surplus-value working together with the accumulated labour of the past; and second and by virtue of its productive activity, it preserves the means of production from decay. Every act of production is, in effect, also an act of reproduction and it is through this act of reproduction that the means of production remain intact, and are preserved for the capitalist.

The employers as a class, who own the social capital, buy the labour power giving wages in return. The amount of the capital is described by Socialists as variable capital because we claim that it alone changes in quantity at the end of the productive process. This is because the workers produce more value than they receive back in the amount of wages paid to them. The difference is described by us as the rate of surplus value or exploitation. If a company pays annually the sum of £1 million in wages and £9 million in raw materials, machinery, etc (£10 million total) and shows a profit of £1 million, the rate of exploitation is 100 per cent irrespective of the claim of the capitalist that he only earns 10 per cent. The variation upwards in total value has been entirely due to living labour.

On the other hand, if a capitalist spends £10 million in wages and £1 million on raw materials, fuel, machinery, etc and shows a profit of 1 million, the rate of exploitation would be 10 per cent.

The rate of exploitation is measured against the amount paid out in the form of wages and not the total capital. The constant capital vested in machinery, raw materials, fuel, buildings, etc is constantly replaced or constantly reproduced by the capitalist adding the value of these elements to the commodities which he produces. Constant capital cannot add any (additional) more value to the products other than that contained within itself. In fact, it is only through the agency of human labour power during the productive process that dead capital (accumulated labour) gives birth to new additional value.

Capitalism is basically a system of accumulation and the portion of surplus value which is not consumed by the capitalists on luxury living, is remitted to the fund of accumulated labour, where it can serve as fresh capital to exploit workers again and again, increasing with every phase of circulation. It is indeed the dead hand of the past weighing heavily on the living. The greater the fund of accumulated capital the greater is the pressure on the workers to serve that capital and to add to it ad infinitum.

It is often stated by supporters of capitalism that capital has opened up new horizons and that men have access to things and technological discoveries previously undreamed of. But it should be remembered that men and women, together with their fellow men, live in society and create their own environment. That environment is anti-social because peoples’ creative ability is stifled as they do not own or control the means of production.

It is hardly an argument to suggest that man is adequately compensated for this social loss by the ownership of televisions, motor cars and central heating. As Marx stated: “Whether his wages be high or low, or whether the chains that bind him be made of gold, the worker is as firmly riveted to capital as was Prometheus to the rock

As a social relation, capital dominates all forms of human behaviour, where everything is related to the money principle. The measure of a man is his wealth, not his intellect or culture. The ability of a man is determined by his financial power. The big spender has inherited the earth –that is why he is a big spender. Capitalism has created a degenerate culture and has debased man’s intellect to the level of a commodity. Happily we have not all succumbed to its pernicious influence and we know and we are optimistic enough to believe that society can be turned the right way up –which means that civilisation can survive and proper without capital.

Back to top

Surplus Value

Capitalism’s innermost secret is the production and the accumulation of surplus value. This is sub-divided into profit, interest and rent and it is the blessed trinity dominating the entire international economic and political structure of the capitalist world. The seed corn of surplus value is labour power. Labour power is now a commodity. It is different from all the other commodities in that it produces more value than it takes to reproduce itself. The mental and physical capabilities of human beings are thus appropriated as commodities and set to work to produce other commodities.

Social freedom, despite the high sounding phrases, is nothing less than permission to sell labour power from employer to employer, who are the only people in a position of purchasing it. And this is taken to be the natural order of things. However, it is not nature which produces this strange relation, nor is the social basis of selling labour-power a normal social practice which has existed throughout the history of civilised society. On the contrary, the emergence of the commodity labour power has been the result of many historical developments of propertied society, culminating in the establishment of the capitalist form of production.

Certain historical conditions are necessary before the product of labour power can become a commodity and these historical conditions apply equally to living labour power itself. These conditions are:

1). That the means of exchange must be developed

2). That the means of production must be privately owned (which includes nationalised industry, PLCs & cooperatives) and operated socially.

3). That the labourer must be separated from the means of production.

The value of a commodity is determined by the amount of labour which is socially necessary to produce it and no more than is socially necessary. If the labour time remains constant the value remains constant. New production methods cut the time required and consequently reduce the value. Other factors intervene like increased skill, state of science, etc. When mineral deposits, for instance, become less accessible so as to increase the labour time socially necessary, this increases the value. We have a society where homogenous human labour working within an average social time is expended in producing a huge mass of commodities. At any given period during the life of that society, a definite amount of value is produced.

Exploitation is therefore measured in time which is translated into monetary symbols. Time is money –a vulgar description for a most anti-social practice. If a group of workers each work 160 hours monthly for an employer and the employer makes a profit at the end of the 12 months then where does the profit come from? The raw materials used in the productive processes cannot add to their value, nor can the machinery add to its own value. In fact, it transfers its value to the products it wears out. Plant and industrial installations are the same category. And likewise with the use of the bricks and mortar of the factory, the steel mill and the shipyard. The worker has not been cheated because on average he receives the value of the commodity which he sells to the employer for wages –his labour power.

Surplus value is not created by trading transactions, even by cartels or monopolies. A manufacturer may corner a market and grab a lion’s share of the profit to the detriment of other capitalist groups. But no monopoly can create surplus value. In any case goods have to be produced before they can be sold and the producing capitalist would expect to make a profit apart from his trading partner’s profit.

The capitalist buys labour power by paying wages and salaries and puts the seller of that labour power to work. The capitalist provides the raw materials, machinery, factories, etc. Labour power in motion becomes labour; it becomes a component part of the objects it produces. The capitalist buys labour power but he sells labour and that labour is presented to us as a vast conglomeration of commodities. The value of labour power and the value of labour are not the same. The commodities are sold and the cycle repeated.. Commodities are sold at their value not at their cost of production. The value of the commodities is determined by the amount of socially useful labour contained within them. No capitalist sells goods or services at the cost of producing them because he is not in business merely to receive his money back.

Wages represent a certain period of time which the worker contracts to work for the employer, whether it is an hourly or weekly rate, or a monthly salary. He must at some point have to produce the value of his own wages.

So, if a proportion of the working day is devoted to this purpose then it becomes necessary for him to labour up to the point where he has in effect produced the value of his own wages. This is necessary labour. It follows that if he continues to work beyond this period of necessary labour he is in effect rendering a certain amount of superfluous labour or surplus labour. The worker does not own his labour; this is the property of the capitalist. He owns his labour power; indeed it would be hard to separate it from him as it exists in the form of muscle, brain and nerve, the human organism. He is, therefore, making a gift to his employer for every atom of time he spends in the labour process over and above that necessary to reproduce the value of his wages which is necessary labour time. It is precisely this surplus labour time which manifests itself in the physical products of labour (values) and has become surplus value, and additional quantity for which the capitalist has not paid.

We speak of time only at this juncture but the workers are supplied, in addition to raw materials, with highly developed machinery and other sophisticated tools of production; the tempo of production is intensified. The greater degree of production which can be achieved using up-to-date methods and techniques within the same time, or even less time, means that the rate of exploitation is higher, because the necessary labour time will have been reduced and the surplus labour time increased. This is what happens in real life. The Trade union movement has for years been trying to cut down the workers’ hours although most trade unions have long term agreements whereby their members work considerable amounts of over-time.

The working week has been reduced in most industries to around 40 hours as compared with 52 hours per week in 1900 but even allowing for the additional number of workers in industry production has increased at least two-fold and this has been due to the extension of machinery over a whole range of labour processes. It is the capitalist who stands to benefit by this as he benefits by every advance in science and technology. Whilst wages have risen above prices compared with 1900 the rate of exploitation has increased and the capitalist class are a lot better off. Marx put it succinctly: “The bigger the banquet, the bigger the crumbs which fall from the table”.

The capitalists do not arbitrarily fix their profits over their cost of production. They sell goods for what they think the market will stand but the starting point is what it costs them. It is, however, the secret of commodities that, when brought to the market, they will exchange with other commodities according to the amount of socially necessary labour time contained within them and no capitalist knows this although he will obviously know the amount of time his process has taken. Value contains surplus value. The fact that articles do not always sell at their value –sometimes above, sometimes below –does not alter this rule. Buying and selling influences prices –they do not determine them. Profit is not made from trading transaction but from the productive process, the surplus product becomes the surplus value –the surplus value is the social fund from which the profits of all sections of the capitalist class – bankers, landlords and industrialists are derived.

It is not our concern to take sides in disputes which occur from time to time between sections of the capitalist class on whether landlords’ or bankers’ profits are too high and industrialists’ too low. This is a matter for the Labour Party and the small fry of the Left who usually side with the industrial capitalist. It is sufficient for our purpose to show where surplus value comes from and not its final destination. We know that it doesn’t go to the members of the working class.

Surplus value is produced at the point of production and not during the process of circulation, i.e. banking, insurance and commerce. Whilst it is true to say that only productive workers produce surplus value it is equally true to say that all workers are exploited. How would the banking capitalist appropriate his share of the surplus value unless he employed bank clerks, accountants, etc, to appropriate it on his behalf? Where would the land lords get their share without the chartered surveyor, rent collector and estate agents and clerical staff? How would capitalism function without street cleaners, refuse collectors, health services and every other service, including police, civil servants and other ancillary workers?

Whilst the basic mechanism shows the original source of surplus value to be labour power at the point of production in fact you cannot separate the main divisions of capital which through custom and the division of labour have historically impressed themselves on the capitalist mode of production –banking capital; industrial capital; landlord capital. Capitalism has to be taken as an organic whole or an indivisible system. The extraction of surplus value is a social act; consequently the entire resources of the body politic exist for that one purpose.

Every member of the working class plays a part, either directly or indirectly, and all are therefore exploited.

Back to top

Do Banks Produce Wealth?

There are three main divisions within capitalist society which share the surplus value which is socially extracted from the working class; the industrialist, the landlord and the banker. These divisions historically reflect the application of the division of labour to the specialised investment of capital in any field of production and distribution, any process of circulation of which banking is a part.

Individual capitalists, or groups of capitalists, may have financial interests in all three of these groups. There is nothing to stop the industrial capitalist from becoming his own landlord and banker, but were he to do so he would require to hold huge reserves of cash or to have part of his capital locked up from the exploitation of human labour power. Generally speaking the industrialist, the banker and the landlord pursue their own separate courses. Their interests are intertwined but nevertheless are antagonistic. Whilst it is true that the capitalist class have more in common with each other than with the working class it is necessary to add that a class society must inevitably produce a conflict of interest between capitalist and capitalist as it does between capitalist and worker and worker and worker.

Interest and Profit

In capitalist society all wealth takes the form of commodities and is bought and sold. Capital is subject to this process: the price of capital represents the amount paid for the use-value of that commodity for a prescribed period. The lender sells to the borrower the use-value of his capital and expects to receive an additional payment (i.e. interest) as well as having the original sum returned to him at the end of the mutually agreed period.

If we assume annual average rate of profit of ten per cent this would mean that anyone owning £10,000 employed as capital, and provided it was used with average intelligence under normal conditions, would expect this capital to yield a profit of £1,000. If, however, he gives or transfers this £10,000 to another person who also proposes to use this as capital, then he has given to that person the power to produce a profit of £1,000; a surplus value which would have cost him nothing. Obviously this person does not expect to receive this privilege without making some payments in return. If he decides to pay, say £250, to the original owner out of the £1,000 profit for making the £10,000 capital available to him, that part of the profit is called interest. It is a payment made for the use-value of the capital.

The banker makes his money out of the process of indirectly bringing borrower and lender together. The banker borrows money at, says 10 per cent, and lends it at, say 14 per cent, and the difference between these two rates after deduction of book-keeping, rent, wages, etc, represents his profit. It should be borne in mind that the rate of profit has its origin in the productive process or at the point of production; that is, at the place and the places where socially useful human energy or labour power transform natural wealth and natural forces into commodities. The essence of the capitalist form of exploitation is that the capitalist does not, nor cannot, pay the full amount of the value of that socially necessary labour and pays only the value of the living labour as represented by wages, and that is not the same thing.


The surplus value is the difference between the value of the product and the value of the producers. Living labour produces a greater value than it takes to reproduce itself and consequently all surplus value comes from the exploitation of human labour power under a wages system. Banks produce nothing. They are really middlemen who accrue idle capital which they make available to capitalists who use it to produce commodities. “The purely technical labour of paying and receiving money constitutes an employment by itself which necessitates the making of balance, the balancing of accounts, as far as money serves as means of payment. This labour belongs to the expenses of circulation and does not create any value. It is abbreviated by being organised as a special department of agents who perform this work for the rest of the capitalist class…
(Marx, CAPITAL VOL III, p. 373 Kerr edn). Their profit is made during the process of circulation as is the case with all commercial and interest-bearing capital.

The difference between interest-bearing capital and industrial capital, or capital used in the productive process where wage labour is exploited, is that the owner of money capital who wishes to earn interest on that money throws it into circulation not as capital for himself but that others can use it and consequently gain a profit by this service. The basic difference is that whereas the individual capitalist has his capital locked up in factories, mines, heavy machinery, ships and means of transport and distribution, stocks of materials or committed to a wages bill, the lender of interest-bearing capital invariably has it returned to him. The main exception to the rules is when certain money has been loaned to a government, in which case the lender has a legal title to a permanent income at a fixed rate of interest.

Banks do not dominate

It is quite true that individual sums of money deposited with banks may be too small to function as capital by themselves but they can be gathered together into useful masses of capital and advanced to industrialists and others who use the banking system. In the main, however, the hoard of capital which is deposited with the banks is the residue of unconsumed profits or capital which is surplus to immediate requirements. Contrary to popular belief banks do not dominate the capitalist system. This mistaken view is due to the fact that wealth is represented by enormous quantities of money. All wealth under capitalism expresses its value in the symbolic money form but that form tens to conceal the fact that capital exists in the physical implements of labour, factories, minerals, buildings, ships etc. and that these are the dominant form of capital; the expansion of capital can only arise from these sources and not from the variety of banking and commercial transactions involving interest-bearing capital.

Effects and Crises

The Labour Party mistakenly argued that the slump of the 1930’s was due to the fact that the banks withheld loans from industrialists. A variation of the same argument being used today by politicians of all parties, and a number of economists, is that high rates of bank interest will dissuade the capitalists from borrowing for fresh investment, thus causing unemployment by reducing production. The assumption behind this rather naïve conception of capitalism is that as long as the industrial capitalist can find capital, whether by borrowing from the bank or out of his hoarded resources, he can maintain full employment. The point that they constantly overlook is that the function of capital is to produce profit. This can only become a reality when the commodities produced can be sold.

If for the same reason, whether it is that the market is already overloaded and cannot absorb further commodities, or that over-production has already taken place, then production will be scaled down, curtailed or in some cases halted entirely and workers will be laid off. In these circumstances there will be little prospect of profit and as experience has shown a number of capitalists, the smaller ones, go bankrupt. All the machinations of the banks, either by advancing or retarding credit, whether charging low interest rates or not cannot alter this. There is no shortage of cash available for investment and the banks are only too eager to make capital available to bonafide capitalists. However in a falling market there is little incentive to the industrial capitalist to commit himself to paying interest when the prospects or earning surplus value on the borrowed money are extremely remote. Only those capitalists in dire financial trouble or those who have met certain contracted obligations will be forced to borrow.

Generally speaking, in periods of crisis, when the capitalist’s position deteriorates and he has to meet payments he will borrow money almost at any price to stay in business. Invariably the rise in the rate of interest implies a fall in the value of shares and securities. Interest comes out of profit and in these periods the fact that the capitalist needs to borrow means that his normal source of profit has temporarily dried up, therefore the price of shares has fallen.

There is, of course, the element of inflation written into the present interest rate. Unlike real wealth in the physical sense, loan capital exists as a symbolic paper hoard and as such is subject to the hazards of inflation. Were the commercial capitalists not to make some preventative action, their assets, as they exist purely in monetary form, would be eroded year by year as a result of inflation. So the price of capital rises as with other prices and higher interest rates are the protective mechanism the banks and other commercial institutions use to protect their assets. The utopian promise of low interest rates at the time when the operation of capitalism is forcing high rates can be ruled out as a pious hope.

The industrial capitalist does not suffer to any great extent from the ravages of inflation as his assets consist mainly of real wealth, whose relative value rises as the purchasing power of paper currency falls and he can adjust his prices upwards taking into account the rising cost of production. On the subject of inflation generally we are reminded of the small boy at the seaside saying to his father “Dad, where does the water go when the tide goes out”. It has obviously gone elsewhere but it certainly wasn’t lost and neither is wealth during periods of inflation.

The rate of interest, or bank rate, itself is not arbitrarily fixed. It fluctuates according to the conditions of the market. Supply and demand cause competition between buyers and sellers and raises or lower rates. Competition between borrowers (buyers of capital) and sellers (owners of capita) operating through their banking agents, determines the rate of interest.

The mythology surrounding the power of banking helps those who take the view that the vast institution is so necessary that the prospect of a world without money would be unthinkable. The present world with money is becoming uninhabitable and that is why we want to establish Socialism.

Back to top

Banks and Credit

The use-value of loan capital which is made available through the banking system consists of producing profit and this type of profit is described as interest. The rate of interest is arrived at by competition between lenders and borrowers or by supply and demand; the lender of loan capital striving to obtain the highest rate of interest for the use of his capital and the borrower seeking the lowest rate. There is no “natural” rate of inertest nor is there any limit to the rate that can be charged.

The “natural” rate theory has its basis in the repetitive form of dealings between merchants and industrialists in the negotiation of Bills of Exchange. A substantial part of the business of a bank consists in discounting (cashing) Bills of Exchange. They are, generally speaking, promises to pay between merchant and industrialist at 60 – 90 day intervals or longer. These Bills usually represent goods in transit or in store and for the facility of advancing cash immediately on the strength of the Bill which guarantees the value of the goods nominated in the Bill, the banker will deduct or discount a fraction of the amount shown and buy the Bill. If, for example, a bill of exchange was valued at £10,000 and the annual rate of interest was 10 per cent and the Bill was due in 90 days the banker would deduct the sum of £250, i.e. 90 days’ interest and advance the sum of £9,750. When the Bill was finally redeemed the banker would then receive the sum of £10,000 –the full value of the Bill.

Rates of Interest

Naturally the merchant and the industrialist (incidentally banking transactions are as described above are just not confined to these two) would seek out the most favourable discount rates and over a period of years the rate would tend to become adjusted at a regular rate. For many years between Word Wars I and II the bank rate remained almost stable, around 2.5 to 3 per cent. The old bank rate was based on this practice of discounting Bills and gave rise to the theory of the “natural” rate off interest. In addition, the government being the largest borrower influenced the rate through the Bank of England. Regarding the possibility of the banker getting the better of the merchant, industrialist and so on by successfully charging high discount rates this would only result in the transfer of wealth between them. Were the British banks to consistently charge usurious rates, capitalists would endeavour to have their Bills discounted elsewhere, say New York or Paris.

Since interest is part of industrial profit the maximum limit of interest is marked by profit itself. The part can never be greater than the whole.

Obviously the depreciation of money is taken into account when fixing a rate of interest and this is basic to the preservation of the value of the loan capital. On the other hand any prolonged fall resulting in a loss of interest as well as an erosion of the value of the money market would eventually remove loan capital from the money market. This would sooner or later have repercussions in the productive process as industrialists and other capitalists would find difficulty in raising capital for certain projects. As capitalism’s wealth develops there is a tendency for the owner of inherited wealth to live on the annual interest without actively participating in the productive process. The same attitude is adopted by retired capitalists who want to take things easy instead, presumably, of taking them –as in their youth -. Loan capital arises mainly from these sources. Were there no profits in loaning capital that capital would be hoarded unto such time as conditions improved. The owners of such capital would not retain it in the form of paper currency at the mercy of inflation which has the effect of gradually reducing the wealth of the banker and the landlord as well as literally confiscating such savings as is owned by workers. They would hold their hoard either in gold, works of art, land, buildings or any other desirable commodity which retained its value. No profits would accrue from assets held in this way but on the other hand there would be no losses either. However, of this happened on any scale there would be industrial dislocation.

Lenders and Borrowers

The function of banks is firstly to make recurring payments on behalf of their customers; mortgage payments, quarterly bills and regular orders. These are payments which are entirely concerned with the circulation of commodities. But their second and most important function is to provide credit or capital for industry, commerce, property and so on. This is not provided out of resources of the bank but by the money deposited by the bank’s customers.

Generally speaking bank overdrafts limits are reviewed every year and bank borrowing is mainly short-term; up to three years in the main. Long-term loans are usually handled by the merchant banks who charge a higher rate of interest for this facility. The credit system which owes its development to the specialised function of the bank has proved to be a significant force in the centralisation of capital. Gathering as they do all the disposable money which is spread throughout society they channel it into the hands of groups of capitalists who turn it into capital. The accumulation of capital is speeded up sand with it the productiveness of labour as more and more machinery is introduced into the productive process.

Credit and the credit system have given rise to many misconceptions about the power of banks to create credit. Firstly, credit whatever its form, whether in money or goods, consists in a transfer from one person to another: As Tooke noted:

"Credit, in its most simple expression, is the confidence which, well, or ill-founded, leads a person to entrust another with a certain amount of capital, in money, or in goods computed at a value in money agreed upon, and in each case payable at the expiration of a fixed term.” Thomas Tooke as quoted in CAPITAL VOL III, ‘Engels’ edition 1894. source:

Elements of social wealth and the conditions under which the transfer takes place, or the trustworthiness of the parties to the transaction, need not concern us. An owner of goods may be separated by an interval of time from realising the value of these goods in money. Certain articles take a longer time to produce than others, and others take longer to market. The production of certain commodities, mainly agricultural products, depends on certain seasons of the year. Inevitably the owner of the commodities will borrow money on them or sell his right to them for money on the spot, or the written promise of money. This is putting it at its simplest – the goods providing the security for the loan. In any case, goods are exchanged or secured against a sum of money which is due to be repaid at a given date in the future. Payment in advance of delivery or delivery in advance of payment represents the two sides of simple credit. It is to be assumed that the credit seeker has a reputation for insolvency and that fraud is not the purpose. Credit advances in this way merely facilitate the circulation of commodities by getting them to market quicker.

Weakest to the wall

The second and most important function of the banker is to provide money for industry, which is capital. This has a separate function from money as a medium of circulation. The function of capital is not merely the circulation of commodities but their production in the first instance. Therefore money used as capital is withdrawn from circulation because the wealth which it represents has been locked up in the process of production.

Credit Creation a Myth

If banks could create credit with the stroke of a pen that would mean in effect they could create wealth and consequently the Marxist Labour theory of value would be shown to be wrong. However, as time passes by the validity of the labour theory of value, i.e. that wealth can only come into existence when men and women apply their energies to nature is all too apparent. If banks could create credit they would never be in financial difficulties nor would they go bankrupt. The collapse of so many banks in 2008 could not be a better example of this myth.

Inflation Fraud

The one institution which appears to create credit is the state, operating through the Bank of England. This is an action of deliberate political policy. The government, in a variety of ways, instructs the Bank of England to print an excess of paper currency which the government uses to finance its own schemes and without having to introduce tax legislation to deal with particular case. The inflation of the currency does not, not cannot, add to existing wealth. What is really happening is that, far from creating credit, the government is confiscating other people’s wealth. This has the same effect as a general increase in taxation. The constant dilution of the purchasing power of money by inflation raises prices and dislocates production and distribution. This is public fraud posing as public credit.

Capitalism is a system of production and distribution with many contradictions and inflation adds yet another. Whatever strategy is worked out by economic planners and monetary specialists will make no difference. Capitalism will run according to its own laws and they can only run after it.

Back to top

Theory of Rent (Part 1).

Carved in stone above the Royal Exchange in the City of London is the biblical legend: “The Earth is the Lord’s and the fullness thereof”, to which we reply: “The earth is the landlord’s and the rent there from”. In the same biblical strain we add: “And he reaps where he does not sow”.

The ancient forms of rent paid to a feudal lord, or lord of the manor, or to the church, were usually levied in kind and met either by the supply of a portion of the produce from the land, or by performing unpaid labour on land belonging to these groups. These old social relations of feudal society have been replaced with other higher social relations of production associated with the land and its capacity to attract rent. Land use, including agriculture, has been specifically adapted to the needs of capitalism. The vast bulk of society’s food is obtained from the land and takes the form of commodities, i.e. articles produced for sale and profit. Consequently agriculture is under the domain of capital.

Rent is the money tribute levied by one section of society (landlords0 against other sections for permission to use certain portions of the globe which they (landlords) have appropriated and monopolised to the exclusion of others. To grow food, to build houses, factories, shipyards, etc a ground rent must be paid to the owner of the soil. Private property of land, and this includes land owned by the state, is a perquisite for extracting rent. History is full of instances as to how the rural labourers were driven off the land by force, bloody violence, threats of imprisonment and deportation, as in the case of the Land Enclosures over the last few hundred years. The fact remains that permission even to inhabit the earth has to be obtained from a group of rentier parasites who monopolise it. Ground rent is surplus-value which has previously been extracted from the working class. Whether this is paid to private individuals, the state or the church makes no difference. It is an element in the overall economic organisation of capitalism.

Land has no value –that is, it contains no socially necessary labour, the source of value. The labour of society has not participated in its creation. It cannot be reproduced and is therefore not a commodity. Not being a commodity it does not have an exchange-value, and consequently does not contain surplus value. Surplus value comes from unpaid labour, and as no labour at all has gone into its creation it cannot contain value. Land has use-value as have commodities generally, but whereas you can have use-value (the utility of a thing) without exchange-value (price), you cannot have exchange value without use-value. The landlord cannot sell non-existent commodities; the service he provides is the service of rent collection.

It is obvious that land is bought and sold both as building plots and agricultural land. To that extent it assumes the commodity form. Capital can be fixed in the soil either through the erection of buildings, land improvements like ploughing, drainage and fertilisations, mining and quarrying operations etc. This capital forms part of the labour of society generally and does not spring from the soil. The capitalist farmer produces wheat etc in the same way as the capitalist manufacturer produces other commodities. They differ only in the element in which their capital is invested. Their capital, like all other, qualifies for the average rate of profit, and if needs be can move from one sphere of production into another.

Capital fixed in the soil –plant, factories, office blocks etc, as with capital elsewhere, would be entitled (under the laws of capitalism) to attract interest, but strictly speaking this is not the same thing as ground rent, which is specifically paid for the use of the soil and for permission to fix the capital in it in the first place. Unlike machinery and industrial plant which wears away and has to be replaced, the land (apart from natural catastrophe) with normal care and attention, fertilized and drained regularly in the case of arable land, or developed with office blocks and shopping precincts, continues to improve. To that extent it can attract a higher price for its use in the form of ground rent, or fetch a higher price should the landlord decide to sell it. The price of land has nothing to do with its value, which is nil. The price of building land depends purely on the oscillations of the market, or competition between buyers and sellers.

The location of the land is a very important factor in this competition. Land required for building in a big commercial centre like London will fetch a higher price than land elsewhere. With agricultural land the position is somewhat different, but the monopoly of the land owner is a major factor in the determining of the final price in both cases. Obviously good agricultural naturally-fertile land which can yield 2 tons of grain per acre would fetch a higher price than land of lesser quality which would only produce 1 ton of grain per acre. The rent charged for the use of these lands would vary, and bear some relation to their yields.

Certain vineyards in the Bordeaux/Medoc area – Pauillac, Pomerel, etc because of certain chemical qualities in the soil, are able to produce fine wines. Other vineyards which lack these properties in the soil are unable to produce such fine wines, although the same amount of useful labour has gone into their production. The finer wines and lesser-quality wines contain, broadly speaking, the same amount of useful labour, but there is a considerable difference between the price of a bottle of Chateauneuf de Pape from the Rhone valley, and a bottle of Château Petrus or chateau Laffite from Pomerel or Pauillac, as any keen wine drinker will tell you.

The difference in price does not arise from the labour involved but purely because of the natural properties of the soil. The owner of the land where the vines were grown would be able to charge a higher rent for the use of this land, and the wine producer would have to part with a larger share of the surplus-value to the landlord than would the Rhone wine producers. Were the fine-wine producer the owner of the vineyards instead of the tenant this would make no difference. In that case, he would pocket the extra profit in his capacity as a landlord and not as a wine-growing capitalist. In any event, before he could become a landlord, he would have to acquire the land from the previous owner, and spend a capital sum in order to achieve this. To that extent, the rent that he virtually paid to himself instead of the landlord would merely represent the interest on the capital which he had invested in the purchase of the land.

Rent is the way in which land realizes itself economically, and whilst rent itself is not interest (i.e. money paid for the use of capital), it is influenced by the rate of interest, as is also the selling and buying of the land. Naturally, market conditions intervene because of the monopoly of the landlords (sellers) and the demand from other portions of the capitalist class (buyers), particularly competition for building sites in city centres where any price may be paid. During periods of inflation the price of land will rise with other prices, not only because the value of money has fallen but because ownership of the land provides a certain protection against the depreciation of money.

Over a period, the yardstick for measuring the price of land is by a capitalisation of rent. That is, by assuming that the rent represents the interest on an imaginary capital. If the prevailing rate of interest is 10 per cent and a landlord receives a ground rent of £5,000 per annum, that £5,000 would represent the interest of an imaginary capitalist of £50,000. Were the rate of interest to fall to 5 per cent, the £5,000 per annum would represent the interest on an imaginary capital of £100,000. The price of land is arrived at under normal conditions by the number of years it would take for the rents to reach the capital sum. In the first case the land would be £50,000 i.e. ten years’ ground purchase. The external rate of interest can and does influence the price of land. During a period of low interest rates, the price of land will tend to rise, and during a period of high interest rates the price of land will tend to fall, without affecting the rent at all. In England particularly, land is usually sold at so many years’ purchase, usually twenty years or more.

A value is therefore conferred on land by circumstances outside, i.e. the rate of interest, and does not arise from the land itself, simply because those who own the monopoly can prevent others from having access except on terms and conditions agreed by them. In this the landlord is joined by capitalists generally who operate in the same way by excluding society at large from access to the means of production and distribution, as well as monopolising the social wealth. As society develops, and the population increases, and there is a growing demand for land for all purposes, the landlord will share in the fruits of this social progress without contributing anything at all. The state regularly introduces legislative measures to curb the appetite of the landlord, but you cannot abolish rent without abolishing private property in land, and as this forms the basis of the capitalist system of production, you cannot abolish private property in one sphere and retain it in another. Private property includes state property.

Back to top

Theory of Rent (Part 2).

Generally speaking commodities sell at the price of production. This is calculated by the amount of the total capital involved in their production –constant capital (machinery, materials, etc); variable capital (wages); plus a profit. Through the action of competing capitals an average rate of profit is formed, and all capitals, usefully employed whatever the field of investment, will generally obtain the average. This does not affect the value of the commodities which is determined by the amount of socially necessary labour involved in their production. It is this value around which prices of production fluctuate.

This means that the range of goods produced by these capitals will sell at average prices appropriate to their classification as use-values. For instance, similar-quality bread produced by one baker would not alter dramatically in price from that of another baker, although their individual prices of production may be different. The amount of profit is the difference between the cost of production and the average price of production, which is not determined by individual prices, but by a socially determined price based on socially-necessary labour which regulates the market. Socially-necessary labour is not measured industry by industry.

It should be borne in mind that no capitalist manufacturing concern by itself produces commodities or value; products only become commodities when they come into contact with other commodities which provide their social equivalent. This means they all contain social labour – the labour of society. The individual labour which has gone in the production of groups of commodities forms part of the social labour. The value of commodities is determined by the amount of social labour, measured in time, and they exchange with one another according to the amount or proportion of this social labour vested in them. It is not individual producers who determine the proportion, but society generally. The realisation of the market price (value) of a commodity depends purely on social interaction without regard to the nature of the commodities, whether they be agricultural products, motor cars, pig-iron, or coal. Commodities can only average this price of production with reference to the whole field of commodities and the total social capital and cannot realise their price of production in groups isolated from other groups.

If we assumed that all commodities sell at their price of production, and that all capitals secured the average rate of profit, there would be no rent available for the landlord. As land in itself does not form part of the social cost of production, it cannot have any influence on the rate of profit. Therefore, rent must come from profit over and above the average rate of profit –in effect a surplus profit. The individual cost of production for most capitalists within particular industries is generally the same, pro rata, to the capital invested. The larger firms may be more efficient, although this is not always the case. Wage rates arte regionally and nationally determined, and the cost of materials, machinery, etc and the other elements of constant capital are similar. This will establish a general average cost of production.

Let us assume that a few factories within a certain country, because of their location are able to drive their machinery with the use of natural hydro power, whereas the great majority of other factories have to use electricity in the production of their commodities. Suppose that for every £100 unit of capital expended the factories using electricity make a profit of £15 (we are ignoring for the moment any temporary fluctuation of the market or any other accidental factors). Assume the factory using water power could produce the same quantity of commodities in the same time, but that instead of using a unit of £100 capital they need only to use a unit of £90, because the water power was provided by a natural force, and not having to buy electricity they managed to save £10, this brings their production costs down to the £90 referred to above.

In effect, through the use of this force they were able to produce the same amount of commodities with less capital. In the normal way their commodities would contain less value than those of the capitalists using electricity, because less social labour was involved in their production. But the average price of production is based on the socially necessary labour of the whole of society, not of individual factories. The majority of factories using electricity determine the price of production because all commodities can only realise their value by acting as equivalents to each other over the whole field of commodity production, and not in separate compartments.

Individual industries do not produce commodities as value; it is society at large which creates the commodity form e.g. when a tailor produces a coat (He does not produce the exchange-value of a coat – this is socially determined). The capitalist using water power would, therefore, be able to sell his commodities at an average price of production, i.e. £115 –the same as the others. In that case, he would receive a surplus of £25 per unit of capital, an excess of £10 over all the other capitalists who had to buy electricity. This is a surplus profit; a profit over and above the average rate of profit, and this fact directly arises because the conditions under which he has used his capital were more favourable; his exclusive use of the natural force denied to other capitalists, and which could not be reproduced by them and consequently was not at their command. Capital can reproduce electricity at will, but you cannot reproduce a natural waterfall or the land upon which it flows.

In the same way, capital cannot reproduce land, and therefore the landowners hold a position of monopoly. In the final reckoning, the surplus profit of the capitalist using water power was due entirely to this force – something which had no value because no labour had entered into its production, as with all natural power.

The labour of harnessing this natural power would add value, and this is taken into account. Nevertheless, the cost of harnessing and supplying electricity has been shown to be greater, and it is this difference in cost which constitutes the surplus profit.

Inevitably the owner of the land over which the river of waterfall flowed would require payment for permission for the use of the land which contained the natural force; otherwise he would forbid its use. If the capitalist were to part with the surplus profit of £10 out of the £25 he had received to the landowner that would constitute a ground rent. He would, have, in effect, transferred his surplus profit to the landlord. At the end of the day he would have earned a profit of £15, the same as the body of capitalists who used electricity. If he owned the land it would make no difference to the formation of the ground rent. In that case he would retain the surplus profit of £10 in his capacity as landlord and not as an industrial capitalist, because the surplus profit was not due to his capital but to a natural force which he has monopolized.

It is evident that any capitalist who is able to use a natural force based on land, whether it be hydro power, naturally fertile land, natural pasture-land, land where the climate is more favourable, and other natural attributes, will be able to cut down his production cost below that of his fellow capitalists who are not in a similar position. He will always be in a position of earning a surplus profit over the average rate of profit, which he transfers to the landlord by way of ground rent for permission to use the land in question.

Agriculture and mining dominate the use of land. The degree of fertility of the soil and the potential mineral wealth will determine the amount of rent but the existence of rent is due to the use of land itself. There is an erroneous view held by the Labour Party and other Left-Wing parties that if you nationalise land you abolish rent. In fact, at no time has any Labour government taken any action to abolish ground rent. In any case, this makes no difference at all to the formation of ground rent, nor would it make any difference if all ground rent were paid to the state. It would mean that all land was owned by the state and has been taken from the private owners. How this came to pass, whether by nationalisation with compensation or by confiscation does not matter. In point of fact, the state is inevitably the largest landowner in any country, and the states the embodiment of the capitalists’ interests. It is a fallacy to assume that the state or local authority will act differently from private landlords and refrain from levying a ground rent.

Practically the whole of London is in the hands of ground landlords, both public and (very) private family trusts. The colossal amount of wealth which is appropriated annually in rent comes solely from the surplus value produced by the working class. Every advance in agricultural science, along with the intensification of the use of land, is of direct benefit to those parasites who have literally inherited the earth. In the same way, every advance in technology and science generally is appropriated for the benefit of their industrial capitalist brethren.

If human rights mean anything, they mean the right of every man, woman and child to the best possible existence society can provide. And as well as freedom from paying rent, selling labour-power and producing surplus value for an exclusive non productive group. Capitalist society simply cannot cope with the multifarious social problems which it has created because of the restrictive social relations which hold it together. Socialism is an urgent necessity, and working men and women everywhere must devote their thoughts and energies to its establishment through the Socialist Party of Great Britain.


In the proceeding chapters we have touched on the main economic aspects of capitalism as analysed by Karl Marx over a century ago. Any reasonable person would be bound to admit that social life to-day is, if anything, more insecure, more unstable and riddled with social problems. International tension grows as the competing giants of capital fight to increase their share of wealth plundered from the working class. The social power of capital appears to be stronger than that of the producers who keep it in existence. The most these producers can look forward to is the right to a job. The right to condemn themselves to years of uncertainty and tedium in the form of wage labour. This is the dismal future of capitalism if it is allowed to continue.

But need capitalism continue? That is the issue which the working class will have to face. We in the Socialist Party of Great Britain hold the view that capitalism can be abolished provided that the majority of working men and women wake up to the fact that it is detrimental to their social lives, both in its economic pressures and its endless frustration. When they realise that their intellectual gifts, their feelings and their training has to be sacrificed to private property interest, it is then that they will consider the introduction of a Socialist society. Once established, all of society will be in control of the means of production and distribution of all products and services including housing, transport, education and health care. A society in which wage labour and capital can no longer exist together as an exploitive social relationship. A society in which the producer’s interest will be paramount and not enslaved to an alien productive process based on the capital-labour relationship.

The social power of capital is backed up by the state machine. The machine is controlled by Parliament and that Parliament is an elected body of politicians whose political functions to administer capitalism. The political power of Parliament rests on the willing support of millions of workers given through the voting system. It is the working class which keeps capitalism in being.

The solution is for workers to stop supporting capitalism and vote for Socialism, thus giving control of Parliament to socialist delegates. This will enable the machinery of government, including the armed forces, to be used by the Socialist parliament to dispossess the capitalists of their ownership of the means of production and distribution; so that, henceforth, it will all become the common property of society under their democratic control.

Back to top

Socialist Studies

email: |