Socialist Studies Socialist Studies

Capitalism, the Rich and Capital Accumulation

The Rich are Different from us

The reality of capitalism and class exploitation is not presented to the working class in the media. Trite and inconsequential articles are written purporting to be a description of capitalism and where the capitalist class get their profits from. A typical but equally superficial article found its way into the GUARDIAN (07 October 2020) and was repeated without comment in left wing magazines and web sites.

A report by Swiss bank UBS found that billionaires increased their wealth by more than a quarter (27.5%) at the height of the pandemic crisis from April to July 2020, just as millions of people around the world lost their jobs or were struggling to get by on government schemes.

The world's billionaires "did extremely well" during the coronavirus pandemic, growing their already-huge fortunes to a record high of $10.2tn (£7.8tn) The report found that billionaires had mostly benefited from betting on the recovery of global stock markets during March and April when they were at their lowest point during the global lockdowns. UBS said billionaires' wealth had hit "a new high, surpassing the previous peak of $8.9tn reached at the end of 2017". The number of billionaires has also hit a new high of 2,189, up from 2,158 in 2017.

Extreme Wealth Concentration

Luke Hilyard, executive director of the High Pay Centre, a think tank that focuses on excessive pay, was also interviewed in the Guardian article. He said:

"...the extreme wealth concentration is an ugly phenomenon from a moral perspective, but it's also economically and socially destructive".

He went on to say:

"Billionaire wealth equates to a fortune almost impossible to spend over multiple lifetimes of absolute luxury... anyone accumulating riches on this scale could easily afford to raise the pay of the employees who generate their wealth, or contribute a great deal more in taxes to support vital public services, while remaining very well rewarded for whatever successes they've achieved". (GUARDIAN 7 October 2020)

What is "excessive" pay? It is as meaningless as "a fair day's pay for a fair day's work". And what has morality got to do with capitalism?

The case for socialism does not rest on morality but in the fact that capitalism has outlived its usefulness. Capitalism now holds back the establishment of a society based on abundance and production taking place solely and directly to meet human need.

Capitalists are not in the business of raising wages and paying taxation. They want to make workers labour as hard as possible and for as long as possible to squeeze out the last drop of profit from them. And they pay a fortune to accountants to hide their tax, to create "off-shore accounts" and to lose their wealth somewhere where the Inland Revenue cannot find it.

The only "vital public service" is themselves. It is their system and it is the working class who make their profits.

Where Does Profit Come From?

The wealth of the Billionaires in the GUARDIAN article raises the important question of where Profit comes from. The answer is political not moral. Class exploitation is where the capitalists' profit comes from.

Profit does not derive from the stock exchange. Profit does not come from leverage in financial transactions. Profit does not come from buying cheap and selling dear. And profit does not come from fraud and cheating.

Circulation cannot explain the origin of profits but simply its distribution: if profits derived for one capitalist from exchange, this would net out in aggregate and the nature of profits would still be unexplained. Cheating and gambling are zero sum games; some capitalists gain and others lose out. Again, profits remain unexplained.

To understand where profit comes from we need to turn to the writings of Marx.

Marx showed that profit does not come from the circulation of commodities but from production. It comes from the difference between necessary labour time and surplus labour time; the difference between the value represented by the wage and the additional value workers create during surplus labour time. Marx called this difference "surplus value".

Surplus value is an important Marxian economic concept which workers need to understand. Surplus value explains to workers how they are exploited. An accessible account is given in the pamphlet, VALUE, PRICE AND PROFIT.

Owning the means of production - the land, natural resources like oil and gas, transport and communication systems, factories, machinery and distribution points - the capitalist class are in a position of economic power. Propertyless, workers are forced to sell their ability to work as a commodity for a wage or salary.

The value of the commodity workers sell to the employer, like that of any commodity, is set by the socially necessary labour time which goes into its production. The value of the wage represents the bundle of necessary commodities the worker and their family needs to live on and to reproduce themselves as an exploited class.

If workers are employed for eight hours and take four hours to reproduce the value of their wages, they still have to work a further four hours free for the capitalist class. This "free period" is when surplus value is produced. This additional value Marx called "surplus value". Surplus value is the source of profit.

In Value Price and Profit Marx gives an example of a spinner working an eight hour day:

"by paying the daily or weekly value of the spinners' labouring power the capitalist has acquired the right of using that labouring power the whole day or week. He will, therefore, make him work daily, say twelve hours. Over and above the six hours requires to replace his wages, or the value of his labouring power, he will therefore have to work a further six other hours, which I shall call hours of surplus labour, which surplus labour will realise itself in a surplus value and a surplus produce" (Part VIII, p. 41 International Publishers 1976).

Surplus value is the key for the exploitation of the working class. You will not read about this concept in articles on billionaires. No scientific inquiry will be made to show where their profit came from.

Fictitious Capital

In the Guardian article we are told that the super-rich were able to benefit from the crisis because they had "the stomach" to buy more company shares when equity markets around the world were crashing. Global stock markets have since rebounded making up much of the losses. The shares in some technology companies - which are often owned by billionaires - have risen very sharply.

How much of this wealth is fictitious capital we do not know. Fictitious capital contrasts with what Marx calls "real capital". Real capital is invested in physical means of production and buying the labour power of workers. Capitalists have "money capital" to be used for investment.

Fictitious capital is interest-bearing capital: stocks and bonds that are bought and sold. They have a circulation of their own on the market even though they do not represent real capital to which they could be converted.

The market value of fictitious capital assets (such as stocks and securities) varies according to the expected return or yield of those assets in the future, which Marx felt was only indirectly related to the growth of real production.

In essence, fictitious capital represents "accumulated claims, legal titles, to future production" CAPITAL: VOLUME 3, Pelican edition, p. 599) and more specifically claims to the income generated by that production.

Fictitious capital comes and goes. It is in the name.

In Chapter 9 of the third volume of CAPITAL, Marx demonstrated that total profits equals total surplus value, that the total price equals total value and the aggregate "price" rate of profit equals the aggregate "value" rate of profit. Not only did these aggregates confirm Marx's law of value but also his theory that all profit has its origin in the exploitation of the working class.

Rational Misers

It is no good bemoaning the existence of billionaires under capitalism. They are only dong what is expected of them. Capitalists are only behaving as "rational misers". Capitalists are doing their job by accumulating capital. Capitalists cannot waste all their capital on luxuries although they do lead luxurious life styles. Capitalists have to invest and reinvest capital to remain capitalists.

Here is Marx again:

"To accumulate, is to conquer the world of social wealth, to increase the mass of human beings exploited by him, and thus to extend both the direct and the indirect sway of the capitalist (CAPITAL VOL. 1 CH. XXIV, p. 592)

And

"...the development of capitalist production makes it constantly necessary to keep increasing the amount of capital laid out in a given industrial undertaking, and competition makes the immanent laws of capitalist production to be felt by each individual capitalist, as external coercive laws, It compels him to keep constantly extending his capital, in order to preserve it, but extend it he cannot, except by means of progressive accumulation" (CAPITAL VOLUME 1, C. XXIV, p. 592)

Concluding:

"Accumulate, accumulate! That is Moses and the prophets!...Accumulate for accumulation's sake, production for production's sake..." (CAPITAL VOLUME 1, Ch. XXIV, p. 595).

If you do not like capitalism and the power and privilege of the capitalist class, and believe it is not in your class interest to support the profit system and class exploitation, then there is only one alternative open to you. You have to become an active socialist working with other socialists to build up a socialist majority. Only then can we, the working class, be in a position to take democratic and political action to replace capitalism with socialism.

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