Marxism – a summary

Reading Marx was no picnic even in 1884. Here we present an easily digestible summary of the most important thinker of modern times.

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Introduction: Karl Marx – A Life

Karl Marx was born between two different worlds. Everywhere in Europe capitalism was winning, but peasants were still there, slowly being eroded as a class with capitalism winning out in the countryside. Born on May 5th, 1818, in Trier, Prussia, as the only surviving boy of eight children, the young Marx at first wanted to be a poet rather than a world-changing philosopher — a habit he never let go of in his intimate poetry to his lifelong love, Jenny von Westphalen. Marx would enroll in the University of Berlin to study law and philosophy, where he would be introduced to Hegelianism and the Young Hegelians.

After receiving his education, Marx would become the head editor of a newspaper called Rheinische Zeitung, where for the first time he was forced to reconcile his Hegelian idealism with real stories of poverty, housing, and theft. This schism between ideology and his lived experience changed Marx forever and led him on the road to developing historical materialism and dialectical materialism. After getting married to his childhood sweetheart, Marx would move to Paris where he would privately write his Economic and Philosophical Manuscripts of 1844, a book published long after his death.

In the Economic and Philosophical Manuscripts, the young 26-year-old Marx struggled with his newfound passion for materialism, introduced to him by Feuerbach, while still in the process of shedding his idealist worldviews. The book reflects his struggle. It is also where his conception of alienation — that man became alienated from his species-being through coerced work — appears. This young idea would later evolve into his much more mature conception of reification.

It was also in France where Marx would meet his lifelong co-conspirator Friedrich Engels. Though only meeting for a few days, they quickly hit it off due to their immense intellectual similarities. In 1845, Marx was banished from Paris thanks to the intervention of the Prussian government. Marx next moved to Brussels, where they joined a secret society called the Communist League and wrote their most famous book on behalf of the party, the Communist Manifesto, in February 1848.

However, with the outbreak of revolutions, Marx would hop around between countries until landing in 1849 in London, where he would live until his death. In London, he immediately set to work joining the local Communist League and became a fierce orator and writer for the organization.

From 1850 to 1864, Marx endured a bitter, hard life; relying entirely on funds from his friend Engels, he would live on the edges of poverty, losing several of his children. Though Jenny von Westphalen had come from a noble, highly respected background, her love for Marx kept her by his side during their most difficult hours.

In 1864, Marx would join the International Working Men’s Association, the First International. Here he would become a leading figure of its ideological development, all along fiercely bumping heads with the anarchist Bakunin over the role of the state and how the organization should have been set up. In 1872, he and Engels would attempt a hostile takeover of the International to purge it of Bakunin and his supporters, leading to its ultimate collapse in 1876.

The last years of his life would be spent completing Capital Volume 1; though he had originally planned on releasing six volumes in total, only the first would come out within his lifetime, on September 14th, 1867. Marx’s last years were quiet, if depressing. He lost his beloved Jenny in 1881 and his beloved daughter in 1883 before joining them on March 14th of that same year. His best friend Engels’ eulogy read:

“On the 14th of March, at a quarter to three in the afternoon, the greatest living thinker ceased to think… Just as Darwin discovered the law of development of organic nature, so Marx discovered the law of development of human history… His name will endure through the ages, and so also will his work!”

A touching tribute for a lifelong friend.

After Marx’s death, Engels would work on getting the latter volumes of Capital published — a monumental task, since all his old friend had left him was scattered notes. Engels would take on the herculean task with great vigor, with Volume 2 appearing in 1885 and Volume 3 in 1894.

Just like the world around him, Marx’s life personified the sublation of the old dying feudal remnants for the new — a dialectical process of a new scientific industrial age emerging out of lingering feudal idealism, captured within the soul and development of one of history’s greatest minds. Only industrial capitalism could have produced a mind like Marx’s, and he created the ideological analytical framework to destroy it.

1. Philosophical Background of Marx: Redefining Logic and the Mind-Body Connection

To understand Marx’s Capital and his economic theories, we must first understand the philosophical debates into which he was born and how he flipped them on their head to analyze the world.

1.1 The Evolution of Logic

Logic is the philosophical study of how humans interact with the world — the connection between the mind, the body, and the external environment. This relationship was debated for centuries before Marx, primarily focusing on the tension between the Ideal (thought) and Being (the material world). This debate traces its origins to Descartes, who proposed Dualism: the idea that the mind and body are separate realms. In this framework, God bridged the gap, connecting what the mind thought with what the eyes saw. In a pre-modern world, these debates were also rooted in attempts to understand human anatomy; how thought forms and responds to stimuli was a difficult concept to grasp.

Out of Cartesian logic was born Spinoza, who attacked the premise of dualism with Monism, declaring that the mind and the world are one and that the mind exists within the world. This radical perspective earned Spinoza praise from Engels for contributing to the lineage of philosophy that would lead to Marx. Later, Kant contributed much to the science of logic by centering human knowledge as the source of the general laws of nature. However, to Kant, contradictions — where the human mind could not wholly explain or grasp the world — represented the absolute limits of human knowledge. He argued that everything the human mind processed was filtered; we never see the “real” world, but only a mental image of it, such as a mental lens of a tree rather than the tree itself.

Stepping beyond the limitations placed by Kant, Hegel achieved two major breakthroughs. First, he brought the relationship between the Ideal and Being into a much closer framework; although he remained an Idealist, he realized that ideas manifest themselves in reality, much like the plans of an architect becoming a solidified house. Secondly, for Hegel, contradiction was not the limit of man’s knowledge but the very engine of the universe, moving through a process of transformation dubbed the dialectic.

1.2 Idealism to Materialism

A dangerous illusion haunting these philosophical debates was idealism, which posited that the source of logic was the human mind exerting its will onto the world. Idealism asserted thought/Geist (Spirit) — with human societies as part of a common spirit reaching toward higher truths through ideas that resolve their internal contradictions — was the basis of reality. Friedrich Engels defined idealists as those who asserted the primacy of spirit over nature and, therefore, in the last instance, assumed world creation in some form or another. Traditional idealism reduced the “ideal” to a purely subjective psychic phenomenon within a person’s mind. Hegel pushed this further, developing the conception of Objective Idealism, in which thought was a guiding force moving through societies toward a “Higher Truth.” Because Hegel worked from society as it was presented to him, he ultimately viewed the state as the highest embodiment of reason, freedom, and ethical life.

To Hegel, ideas continually came into contradictions with each other before resolving them through conflict. From this Hegelian base, Ludwig Feuerbach revolutionized logic by shifting the focal point from vague ideas to a concrete starting point: the creative activity of man and the working relations of people. Feuerbach famously argued that God did not create man, but rather man created God based on the society around them and projected that idea into the heavens. This shift provided Marx with the perfect foundation to break away from idealism and establish materialism.

1.3 Mechanical Materialism

There was still one more hurdle to overcome: Mechanical Materialism. Mechanical Materialism recognized that Being was the primary motive of operation; however, it was horribly passive. This mechanical materialism relied wholly on passive sensuous activity, something Feuerbach was most guilty of.

As Marx said:

“The main defect of all hitherto-existing materialism — that of Feuerbach included — is that the Object, actuality, sensuousness, are conceived only in the form of the object, or of contemplation, but not as human sensuous activity… Feuerbach wants sensuous objects, differentiated from thought-objects, but he does not conceive human activity itself as objective activity.”

Within its conceptions, the Ideal sat passively observing Being through its senses — sight, touch, smell, hearing, etc. However, there was something fundamental missing from this. Man doesn’t just observe the world; he actively changes it. It was out of this realization that Marx’s Dialectical Materialism was born.

1.4 The Five Essential Changes to Logic

Marx made five major changes to the logic European philosophers had been using:

1. New Focal Point: Rather than centering man’s connection to God, Marx brought logic back down from the heavens and focused on Man’s relationship with Man.
2. Materialism: Marx realized that man’s social being came from the world around him, not the other way around. Economies, classes, nature, etc. all shaped thought and ideology. If a child is raised from birth in a society set up in an egalitarian manner, he will express an egalitarian ideology; if he’s born a slave master and makes money from slavery, he will express a pro-slave-master view of the world.
3. Senses vs. Labor: We don’t just interact with the world with our senses (sight, touch, smell) — we change it through the total living sensuous activity of individuals. This was a major mistake in all previous philosophers’ logic, which depicted human beings as passively taking in the world rather than as active participants in it.
4. Labor as the Basis of Interaction: The one common human unifier in the mind-world connection was labor, which Marx defined as man’s practical activity of transformation of nature. This is how man becomes an active participant in the world, going far beyond merely sensing it. Labor changes the world and gives us more information about it in the process. Marx dubbed labor man’s species-being.

The “glue” holding together this new logic that Marx developed was the Dialectic.

1.5 How Alienation Became Reification

The Economic & Philosophic Manuscripts of 1844 was written for Marx’s personal collection, never meant to be seen by other eyes, and only discovered and published posthumously. It was in these texts that Marx’s idea of alienation came from. Just like the struggle between the old dying feudal order and the emerging industrial-capitalist scientific age, the young 26-year-old Marx was struggling between worlds within his mind — between his previous idealism and his newfound materialism. Therefore, alienation represented his first steps into materialism while holding onto aspects of his old ideology.

Alienation posited that man’s creative activity — labor — was his natural state. What separated man from animals was that he engaged in labor not only for survival but out of an innate need for self-fulfillment. However, with the emergence of class society, one man could be forced to work for another against the lower classes’ will. This would lead to four things:

1. Man was alienated from his own labor, as someone else (the ruling classes) owned what he spent most of his day producing.
2. In this sense he became alienated from his own creative activity and the products he produced.
3. Man’s work became about survival and maintenance, not about creative activity itself. Man was alienated from his own species-being.
4. As a result, alienation from fellow man. Suddenly man was pitted against his fellow human being.

This young Marx’s ideas of alienation still held onto aspects of idealism — a stark contrast to his much more mature economic critiques. For a long time, Marxists debated what changed between these two Marxes, and whether there was any connecting line between them. That connecting line was reification (Marx himself never used the word; it was used posthumously to describe a line of thought Marx developed).

Reification was a much more mature version of alienation, as it rooted alienation in a material rather than idealist base. Reification states that the social relations between people are materially manifested in the things produced between them. For example, a Pop Mart executive goes onto the market and buys an employee’s labor power. This employee works for the executive in exchange for a wage. The result of this social relation is a Labubu; said social relation — with an executive worth millions at the top and an employee at the bottom — is literally materialized into a physical object. But it is also materialized into something else: capital.

Reification does not only produce physical objects but also other social tools of control as results of social relations between classes. This was also the basis of the commodity fetish — these hidden social relations contained within objects — which we will go into further detail about later.

1.6 Dialectics

From Hegel, Marx also took dialectics, refining them away from an idealist and toward a materialist base.

Dialectics are the general laws of motion and development in nature, and that includes human societies.

“Dialectics…considers all phenomena in their development, in their transition from one state to another.” — R.S. Baghavan

Contradiction is the main source of motion. For Hegel, contradiction was two opposing thoughts about absolute truth, through whose struggle they got closer to said truth. Within Marxism, contradiction was given a material basis — class society being one of them. These internal opposing elements within a system then lead to self-movement and development.

External changes onto a system can only create change if there is an internal contradiction. Think of heat applied to a rock and to a chicken egg: only one will hatch, because there is a tension contained within the egg about what the cells will become — from yolk to chick.

Dialectical Materialism has three laws:

1. Unity and Conflict of Opposites: All systems internally contain contradictions — opposing forces that exist together and interact with one another. In human societies, the greatest engine of all, Marx identified, is class society and class struggle.
2. Transformation of Quantity into Quality: Quantitative change leads to qualitative change. A change in the number of things leads to a change in their very quality. For example, increasing the temperature of water creates a qualitative change of state as it boils or turns to steam. Or an increase in industrial capital leads to a qualitative change where commercial capital becomes separated from it.
3. Negation of the Negation: Development happens in cycles where it appears to return to an older form but on a much higher and more complex level. For example, a seed negates its shell and becomes a plant, before producing seeds of its own. In this sense, communism is a negation of the negation, as Marx identified Paleolithic society as primitive communist, with us now being on the precipice of a similar principle but with far superior productive forces.

1.7 Class Struggle: The Primary Contradiction

For Marx, the greatest contradiction that led to continual development was class struggle — classes at the tops of societies that were rulers, and classes at the bottoms that were ruled. The conflict between these two pushed history forward.

As Marx said:

“The history of all hitherto existing society is the history of class struggle. Freeman and slave, patrician and plebeian, lord and serf, guild-master and journeyman, in a word, oppressor and oppressed, stood in constant opposition to one another, carried on an uninterrupted, now hidden, now open fight, a fight that each time ended, either in a revolutionary reconstitution of society at large, or in the common ruin of the contending classes… The modern bourgeois society that has sprouted from the ruins of feudal society has not done away with class antagonisms. It has but established new classes, new conditions of oppression, new forms of struggle in place of the old ones.”

Class society arose with the first surpluses, as human beings could now produce more than needed to feed themselves and divide labor. Some individuals took hold of society and rose to the top, creating states, laws, and prisons to enforce their rule, with the earliest societies being based on slave trades.

Likewise, when revolutions in productive forces occurred, old relations of production faltered, leading to revolutions. When the Americas were discovered and the rising merchant classes began hoarding large amounts of wealth, in addition to the earliest forerunners of the machines of the industrial age in textiles being made, old feudal relations of production began to crumble under the new organizational and technological breakthroughs that this rising bourgeois class represented.

This quantitative change in the organization of feudal societies and the amassing of wealth led to a qualitative breakthrough, as liberal revolutions established themselves in a new era based on private-property wage-laborer relations.

As Marx’s great confidant Engels wrote:

“The increase of production in all branches — cattle-raising, agriculture, domestic handicrafts — gave human labour-power the capacity to produce a larger product than was necessary for its maintenance. At the same time it increased the daily amount of labour to be done… It was possible to use more labour. This was supplied by war; captives were made slaves… The state is, therefore, by no means a power forced on society from without… it is a product of society at a certain stage of development; it is the admission that this society has become entangled in an insoluble contradiction with itself, that it has split into irreconcilable antagonisms which it is powerless to dispel.”

1.8 Productive Forces and Relations of Production

But what was the material world that affected one’s thoughts and logic? Marx divided it into two continually interacting spheres:

• Productive Forces: The “physical” determinants of man’s ability to do labor (technology, scientific knowledge, raw materials, organization of people, technical skill).
• Relations of Production: Who owned what, how things were distributed, and how man related to each other.

2. From Poetry to Economic Critique

Marx built his economic analysis off of his logic, with labor at the center of it. To Marx, the value of all commodities within capitalism was both a sociological and physical thing — a social relation materialized (reified).

The one universal contained within every commodity in the entire capitalist system is human labor power. No matter how different they are — wheat, corn, Labubus, PS5s — the one constant is that they all require human labor power deployed by a wage laborer hired by a capitalist for a certain amount of time. This one universal allows us to tackle capital and see how it works.

2.1 The Role of the Proletariat and Capitalism

The proletariat is special in history not because Marx particularly felt sorry for them, but because they are the most numerous, unified, and globally connected class in history — in a system of capitalism in which class struggle is incredibly simplified, as most of humanity is thrown into just two contending classes: capitalist and wage laborer.

Despite their critiques, Marx and Engels praised capitalism’s industrial achievements in the Communist Manifesto. They viewed early capitalism as a necessary stage that laid the foundations for a higher society:

“It has been the first to show what man’s activity can bring about. It has accomplished wonders far surpassing Egyptian pyramids, Roman aqueducts, and Gothic cathedrals; it has conducted expeditions that put in the shade all former Exoduses of nations and crusades… The bourgeoisie cannot exist without constantly revolutionizing the instruments of production, and thereby the relations of production, and with them the whole relations of society.”

2.2 The End of Scarcity

In addition, the industrial revolution for the first time in human history has eliminated scarcity. Whereas before, rigid class society was needed to divide up real physical limitations, we now produce more than enough kilocalories and resources to ensure all of humanity a rather comfortable life. The only great barrier is the relations of production — who owns what, and for what purpose these productive forces are used.

2.3 The Dictatorship of the Proletariat

As mentioned before, unlike their anarchist counterparts, Marx and Engels viewed the state (prisons, police, bureaucracy, armies) scientifically and neutrally. To Marx and Engels, the state was simply a tool of class rule — a function of society that under socialism would “belong into the museum of antiquities, next to the spinning wheel and the bronze axe.” — Engels.

But rather than the state being abolished immediately, Marx and Engels saw society going through a dictatorship of the proletariat before it finally abolishes the state. A state of the workers was needed as long as contending classes such as the bourgeoisie remained:

“It means that so long as the other classes, especially the capitalist class, still exist, so long as the proletariat struggles with it (for when it attains government power its enemies and the old organization of society have not yet vanished), it must employ forcible means, hence governmental means. It is itself still a class and the economic conditions from which the class struggle and the existence of classes derive have still not disappeared and must forcibly be either removed out of the way or transformed, this transformation process being forcibly hastened.” — Marx

“Dictatorship” here simply means the rule of one class over another, with most Marxists considering capitalism to be a dictatorship of the bourgeoisie. In fact, Marx and Engels pointed out that the dictatorship of the proletariat would be a more democratic society than humanity had ever seen.

2.4 The Paris Commune

What did the dictatorship of the proletariat entail? Marx and Engels identified the Paris Commune — a breakaway government set up in Paris for two months from March 18th, 1871 to May 28th of that year — as the world’s first dictatorship of the proletariat.

This was a state that smashed the old state machinery wholly, one that had universal suffrage and elections with the right of recall for every office of government so that no careerism could happen, and an economy based on associations of workers in every factory, with plans of creating one great union.

As Engels said of the Paris Commune:

“Against this transformation of the state and the organs of the state from servants of society into masters of society — an inevitable transformation in all previous states — the Commune made use of two infallible expedients. In the first place, it filled all posts — administrative, judicial, and educational — by election on the basis of universal suffrage of all concerned, with the right of the same electors to recall their delegate at any time. And in the second place, all officials, high or low, were paid only the wages received by other workers. The highest salary paid by the Commune to anyone was 6,000 francs. In this way an effective barrier to place-hunting and careerism was set up.”

3. What is Capitalism?

There are many different definitions of capital. A quick Google search reveals the definition of capitalism as “an economic and political system in which a country’s trade and industry are controlled by private owners for profit.”

However, as Marxists, this definition does not suffice. Who exactly are the private owners? What do they buy and trade? Which class position do they occupy?

Therefore, to Marxists, capitalism is a social production in which the capitalist class, which owns the means of production, buys the labor power of workers who own no means of production, in exchange for a wage.

Out of this contract the working class produces a commodity for the capitalist — a commodity which the capitalist has legal ownership of, which the capitalist then takes to the market in order to sell and fully realize the value of the commodity.

4. Volume 1

4.1 Introduction

Robert C. Tucker called Marx’s Das Kapital Volume 1 the piece that his whole life’s work had been leading up to. Going from a young rash poet to a young Hegelian, then a Materialist, Volume 1 of Das Kapital entailed Marx’s entire life’s evolution of thought in a single masterpiece that broke down capitalism and its laws deeper than any of the political economists before him had done.

4.2 The Commodity and Value

Marx begins Das Kapital saying:

“The wealth of those societies in which the capitalist mode of production prevails, presents itself as an ‘immense accumulation of commodities,’ its unit being a single commodity. Our investigation must therefore begin with the analysis of a commodity.”

To Marx, the basic cell of the capitalist economy was the commodity. A commodity is something that is produced for exchange. Every commodity has two values: use value (what it’s used for) and exchange value (how much money you can make off of it).

For example, let’s say you make a bong for your friend for free as a gift — that bong is not a commodity. But let’s say you make a bong to sell at your weed shop — that bong is then a commodity because you’re making it for exchange. However, the bong also has a use value, which is smoking weed.

4.3 The Labor Theory of Value (LTV)

The value of a commodity comes from socially necessary labor time, which has been called the Labor Theory of Value (LTV). Labor Theory of Value acknowledges that everything humans have ever used to create wealth requires human labor. LTV asserts that the average amount of time across an industry that it takes to make something determines its value, and what is made has to be actually needed or wanted by society.

Marx called this average amount of time across an industry socially necessary labor time.

If across an entire industry it takes skilled carpenters four hours to make a table and you make a shoddy table in fifteen minutes, it’s going to be worth less than the tables that took four hours. The value is determined by the average time across the industry.

Some people say, “What if I spent 200 hours making mud?” Under the labor theory of value, it’s worthless — because it’s not something that’s desired. LTV only works for a commodity that is desired and fills a human need.

Marx insisted that the measure of value was not simply the time it took an individual to make something, but the time it would take an individual working with the average level of technology and skill — what he called the socially necessary labor time.

Value is a measurement that is a social relation among people, which assumes a material form and is related to the process of production. An increase in productivity means less socially necessary labor time to make a good, which lowers value. Capitalism is incentivized to do this because of competition, and because it lowers the value of socially necessary labor time across an entire industry and therefore lowers the amount they have to pay workers.

Therefore, if across an entire industry it took a worker one minute to make a hamburger, but a new machine came out that reduced it to only thirty seconds, the value of the burger would fall. The value of the socially necessary labor time would fall too, allowing the capitalist to pay the worker less and make more money.

Labor is not the only source of use value — nature also provides use values through air, water, etc. But labor is special because it is the only thing that can add value to something: it can take raw materials like wood and turn them into tables, adding value, or take metals and turn them into a PS5.

Value is not the same as price. Price is surface-level and short-term — it is what we encounter every day and is subject to wild changes. However, over the long run, value is much more foundational to a commodity: it is the law by which prices are regulated over time, with prices swinging above and below said value as time goes on but generally settling around it.

This is why Marxists don’t deny supply and demand. A commodity can fluctuate in price according to the market, but the average price over time tends to be regulated by the law of value, which is what LTV measures. Value is something underlying price that the market is always trending toward.

Think of buying a house in California: people bid according to the market — as it goes up and down it could be $700,000 during a crash or go up to $1 million — but when they go to the bank for a loan it only covers the underlying value of $800,000, which is what the market is always generalizing toward.

Value is ultimately a measure of hidden social relations found in every commodity. When you go to Walmart and look at a toy, you don’t see the men who worked to pull the oil out of the earth or the sweat shop factory workers who assembled it — you see a toy. The toy is a materialization (reification) of these relationships. Value is “an expression of social production relations among people.” This abstraction of what the commodities all around us represent — human labor and social relations congealed within the commodities we see on the shelves — is what Marx dubbed the commodity fetish.

4.4 Money, Capital, and Circulation

Marx answers what money is very simply: money is a commodity that is a universal measure of value for all commodities.

As he said, money is “the commodity that functions as a measure of value and, either in its own person or by a representative, as the medium of circulation.”

Money is two things: it acts as an ideal measure of value (representing the socially necessary labor time embedded in a commodity), and it acts as a store of value.

Marx traced this back to barter. Before money, humans had to exchange things of equal values. For example, you had to give 200 bongs for 10 PS5s, and when that exchange was made, they had to represent an equal amount of socially necessary labor — and it was a hassle.

In Marx’s time this was gold, which became a universal equivalent and way to transfer value. These days, money is just a representation of value without any commodity backing it up. Money being a commodity means it rises and falls in value correlated with the amount of value produced in a society. If there’s more money than value produced, inflation occurs. In addition, fictitious capital — which promises returns on future unrealized surplus value through government debts and spending in unproductive industries — boosts inflation.

Marx saw the birth of exchange value in trade between ancient communities that would create things for use but then trade with foreign peoples. At first trade was C-C (commodity to commodity) — a village produced a surplus of something and traded for another commodity of about equal value. Out of this came money as a medium of exchange: C-M-C.

Marx traced how commodities and money were circulated in an economy and quickly realized there were two formulas.

C → M → C is the formula for how money is circulated — Commodity → Money → Commodity.

However, what Marx pointed out was that money can be exchanged very quickly; commodities cannot. Commodities are in fact very hard to exchange, especially if there are more commodities than people want, leading them to sit around. This basically disproved the idea that free-market liberals have — that in a perfect free-market economy the exact amount of commodities that are needed gets produced. In addition, it is also one of the fundamental bases of economic crashes. Oftentimes more is produced than is needed, and so warehouses sit empty full of commodities that no one buys, especially during market bubbles that then violently burst.

M → C → M′ (M prime) is the formula for capital: Money → Commodity → More Money.

Capital is basically money that makes more money. Capital therefore cannot be money just sitting in the bank — it has to be in constant circulation. A capitalist has money, he hires labor (remember, in capitalism labor is a commodity too) to create a commodity. Labor takes raw materials and makes something of more value (raw parts into a PS5) and he sells it for more money. It is a never-ending circuit and never-ending beast. The capitalist reinvests his money back into exploiting as much and as many workers as possible (remember, labor is one of the major sources of value).

As Marx said: “Capital is dead labour, that, vampire-like, only lives by sucking living labour, and lives the more, the more labour it sucks. The time during which the labourer works, is the time during which the capitalist consumes the labour-power he has purchased of him.”

In a competitive market, this dynamic leads to the drive for infinite growth within a finite world. This pursuit inevitably results in imperialism, as advanced nations search for new markets and untapped labor to export their capital.

Capital is not just money; it’s a tool of leverage, control, and exploitation of the proletariat: “Capital is not a thing, but a social relation between persons.”

Its goal is mere exchange value, which is all capitalists are interested in. As Marx says, the expansion of value is the mainspring of the circulation M → M′, and it becomes the capitalist’s subjective aim. Use-values must therefore never be looked upon as the real aim of the capitalist. The restless never-ending process of profit-making alone is what he aims at.

This leads to a great contradiction. Exchange value is how much profit can be made from a commodity. The working class ultimately only cares about the use value of commodities. The bourgeoisie only cares about the exchange value. This is why we have six million empty homes despite only 600,000 homeless people — homes as commodities in capitalism are used for exchange, not use.

In the formula for capital M → C → M′, Marx talks about a soul being transferred from one object to another: “Money is changed into commodities, and by sale of those commodities is reconverted into more money.” The soul he is referring to is human labor and the relations hidden in this formula.

Capitalists often argue that their profit doesn’t come from workers but instead from circulation. However, Marx expertly argued that circulation doesn’t add any value — within circulation, all you can do is circulate the same value. The only time within the capitalist relation of production that value gets added is when workers create something.

4.5 Labor Power, Wages, and Surplus Value

Within capitalism, workers sell their labor power to the capitalist in exchange for wages. In that sense, labor power itself is a commodity with a use value (creating a good or doing a service) and an exchange value on the marketplace.

Now within the capitalist equation of labor there is a thing called surplus value. Everyone on earth fundamentally understands surplus value without having exactly the words to describe it. Think of the phrase: “Boss makes a dollar, I make a dime, that’s why I poop on company time.”

When a worker clocks into work at, let’s say, a bong factory and with his labor power makes $3,000 worth of bongs (with the sand to make the glass costing about $500), when he goes to collect his paycheck it’s only $300. Where did that $2,200 go? To the capitalist, the boss, the head honcho.

Labor power being a commodity inherently leads capitalists toward seeing workers as nothing more than commodities themselves — beasts of burden that need just the meagerest amount of subsistence to survive. Enter the subsistence wage.

Marx described the subsistence wage as: “The lowest and the only necessary rate is that providing for the subsistence of the worker for the duration of his work and as much more as is necessary for him to support a family and for the race of labourers not to die out.” The bare minimum needed for workers to be able to replenish themselves, survive, and go back to work at the same intensity. “The ordinary wage, is the lowest compatible with common humanity, that is, with cattle-like existence.”

Basically, under capitalism, capitalists are incentivized not to see workers as anything but machines of labor, and are incentivized to only give workers the minimum amount of wages needed for them to be able to recover after a long day of work and to be able to work again.

Because of this, everyone’s workday is split into two parts: the first few hours where you work for your own wages, and the last few hours where you work for your boss or CEO.

As Marx said:

“Capital, therefore, is not only… the command over labour. It is essentially the command over unpaid labour. All surplus-value… is in substance the materialisation of unpaid labour. The secret of the self-expansion of capital resolves itself into having the disposal of a definite quantity of other people’s unpaid labour.”

4.6 The Struggle Over the Working Day

The amount of hours in your workday you spend making your own paycheck is called necessary labor; the amount of time you spend making your boss’s profit is called surplus labor.

Because of this, capitalists are actually incentivized to extend the working day as much as they can, because the more hours they can get people to work, the more surplus value they produce (value that doesn’t appear in the worker’s paycheck). The struggle over the working day is between the capitalist, seeking to vastly extend it so that workers spend more time doing surplus labor, and the worker, who is incentivized to fight for a shorter working day.

During Marx’s time, people used to work fourteen hours or sometimes more; it was only the struggle of the working class that won us the eight-hour workday. Even recently, people like Google’s CEO and Elon Musk have supported extending it, because longer hours mean more surplus value.

This is the beginning of a basic crux of class conflict under capitalism: a capitalist’s desire is to keep wages as low as possible; a worker’s desire is to get them as high as possible.

The mass of surplus value is the total amount of surplus value a capitalist gets from all of his workers. It is basically the formula for how much money a company makes. Marx made the formula for it: the average labor power × number of workers. While this formula seems simple, it actually reveals a couple of things about capitalism:

1. Profits and the number of workers capitalists have hired are tied. If a capitalist fires a bunch of workers, he has to make up for it by exploiting the remaining workers more (for example, making them work longer hours).
2. Capitalists must always have a certain number of workers for profit, because if they kept firing workers and maximally exploiting the remaining ones, they would run into biological limits — people need sleep and can only work twenty-four hours at most.
3. The more workers capitalists hire, the more surplus value they get.

However, capitalists often find themselves trying to reduce the number of workers to save money on variable capital (money paid to workers) and exploiting their remaining workers more.

Piece-wages are a particularly dangerous thing because the more pieces begin to get produced across a shorter amount of time across an industry, the lower wages get. Piece-wages are getting paid per unit of work (DoorDash, Uber, etc.). As Marx said, “piece-wage is lowered in the same proportion as the number of the pieces produced in the same time rises, and, therefore, as the working time spent on the same piece falls.” Basically, the more workers in a piece-wage industry create, the lower the wages per unit become.

4.7 The Hidden Exploitation of Wages

Marx made an astute observation that capitalists buy all commodities below their value in order to make a profit — and that includes labor power. Labor power is bought below its value (wages), and the rest of the value is taken as surplus.

Marx points out that wages are very good at hiding the true value someone produces in a day. Everyone under capitalism produces more value than they receive in their paycheck, with the rest of their value going to their boss.

Finally, labor power has a very important use value in that it can take raw materials and impart its value onto them. As Marx says, “the fact that this same labor is the universal value-creating element, and thus possesses a property by which it differs from all other commodities, is beyond the cognizance of the ordinary mind.”

Wages are also in a tug of war with the number of those within the reserve army and those without. The intensity of labor, if increased, can create more value, which creates for the capitalist more surplus value. This can be done artificially through squeezing workers of every last ounce of productivity. Think of Amazon employees who sit in warehouses so long that they have to pee in bottles because of the intensity of moving boxes.

The more productive labor is made, the more the working day could theoretically be shortened — but it won’t be, because of the balance between necessary labor and surplus labor.

“In capitalist society spare time is acquired for one class by converting the whole life-time of the masses into labour time.”

Just like a house on the market, Marx asserted that labor power’s real price (what we are paid) cannot be determined by supply and demand alone, because it is always trending toward a hidden true value.

The goal of a rise in wages: variable capital (or the amount you get paid) grows with constant capital (or the amount of productive forces within society). This is because the more machinery, automation, and productivity a society has, the more capital in general is available. However, the issue is that it is not a direct relation: the more constant capital grows, the more industry grows, the more machinery grows, the longer it takes for wages to rise. Therefore, while wages can rise relatively quickly in a society that is rapidly industrializing, in a society that is already industrialized and becoming more and more automated, it takes much longer for wages to rise.

Accumulation — the expansion of capital as surplus is put back into the form of M-C-M′ — requires a constant increase in investment in means of production and productivity, leading to drops in investment in wages. The inverse is also true: a fall in productivity will mean a higher cost of labor power.

4.8 The Division of Labor and Technology

All labor throughout human history has been a social phenomenon. Humans have never done any kind of work entirely alone. The division of labor is one of the oldest markings of human society: you gather berries, I hunt, etc.

However, capitalism’s cooperative nature and division of labor is a unique phenomenon never before seen in human history. Before capitalism, under feudalism, you had craftsmen and tradespeople who could make a whole product and were masters at making the whole product from start to finish — for example, a shoe craftsman who made shoes from beginning to end himself, developing the skills over decades to become an expert.

However, under capitalism, masses of workers were put into large industrial warehouses. Rather than each worker making the entire shoe from start to finish, they were divided into parts of the process of making the shoe along the assembly line (one worker makes the shoelaces, one makes the sole). These workers have absolutely no knowledge about the rest of the product, nor do they own it. This fragmentation of labor turned human beings into “appendages of machines.”

This division of labor is entirely unique to the capitalist mode of production. Marx was a historical materialist who traced how humanity got to the modern situation, and also traced where humanity is going. Marx saw that with the growth of productive forces, automation, and the eventual classless society, we would see the breakdown of the division of labor itself. Labor would become something we do out of passion, not out of coercion — just as it was hard for us to imagine liberal democracy, it would have been equally hard for our ancestors to imagine it.

One of the cruelest developments within capitalism and the industrial revolution that Marx observed was humanity’s changing relationship with machines. Whereas before capitalism, humans used tools to serve them (a farmer used a shovel to help him dig a hole), the industrial machines and the relations of capitalism stripped workers of their skills. It turned them into small parts of the manufacturing process, and in turn made them servants of machines rather than machines serving them. This is Marx being Hegelian — things transforming into their opposites.

“The machine, which is the starting-point of the industrial revolution, supersedes the workman, who handles a single tool, by a mechanism operating with a number of similar tools, and set in motion by a single motive power, whatever the form of that power may be.”

New technological innovations within machinery are often advertised as lessening the working day. Marx even pulls up an example from ancient Greece, with slave owners saying a certain contraption would lessen the working day for slaves. However, technological innovation under capitalism has always been about not lessening the workday, but instead extracting more surplus value out of workers.

“Like every other instrument for increasing the productivity of labour, machinery [in capitalism] is intended to cheapen commodities and, by shortening the part of the working day in which the worker works for himself, to lengthen the other part, the part he gives to the capitalist for nothing. The machine is a means for producing surplus-value.”

We can see this right now with how AI is advertised as being able to free workers and let us do whatever we want. At the same time, it’s being used as a stick to stop workers from fighting back, under threat of replacement. And of course, the fact that productivity has not kept up with wages speaks for itself.

4.9 The Reserve Army of Labor and the Falling Rate of Profit

Investing more capital into machines than into workers leads to a growing body — the reserve army of labor — which is simply unemployed people. Capitalism prefers having a constant supply of unemployed people around the clock, because it makes negotiating wages a lot easier. Your boss can completely exploit you as long as there’s a desperate person outside the office willing to accept work for half of what you earn.

The second fundamental idea is the falling rate of profit. Remember: the main source of value is labor power — human labor power. Well, machines cannot create more value; they can only impart what value they already have onto a commodity. So, let’s say there’s a burger-making machine that will only last twenty years, and every burger it makes takes five seconds off its lifespan. The owner bought the machine for $20,000. Well, every burger that machine made — taking five seconds off its life — would impart about 1.58 cents of value into the burger.

What generally happens under capitalism is that a new machine is introduced and a company adopts it. The company that adopts it is able to produce commodities a lot faster. Even though the commodities have less value because less labor power and socially necessary labor time is involved, the company can sell these cheaper commodities on the market, which offsets the lower price.

However, capitalism is a competition, so across the entire industry the new machine slowly gets adopted. When it is adopted, since machines cannot create new value and since the machine is now the base across the market, the rate of profit falls.

This is a ticking time bomb within capitalism. The more we automate and innovate, the less profit can be made within capitalism — something Marx discusses much more fully in Volume 3 of Capital.

4.10 Absolute Surplus Value and Relative Surplus Value

Absolute surplus value is the surplus value made by increasing your working day. At first, this is all capitalism does in its earliest stages: it just hires as many people as it can, makes them work long hours, and scrapes off the value people spend not making their own wages.

Relative surplus value is the surplus value that can be made by making workers more productive with new machines. When capitalism finally exhausts the possibility of lengthening the workday, it is forced to adopt relative surplus value, which soon “conquers all the important branches” of industry.

By making workers able to produce commodities faster — even though the value of each commodity lowers — the company is able to sell more on the market, which offsets this. But then begins the cycle for the falling rate of profit.

The contradiction between constant capital and variable capital also leads to the opposite reaction within capitalism — that is, hiring workers at much lower wages rather than implementing machines that could increase productivity and people’s quality of life and lessen their work hours. So, capitalism is actually incentivized to not innovate, to keep the productive new machines out of the workplace as long as possible, only adopting them when it becomes more profitable to buy the machine than to pay workers’ wages.

R. Palme Dutt in Social Fascism or Revolution illustrates how capitalism actually holds back productivity in talking about fascist Germany’s glass-blowing factories. Basically, in the 1930s there was amazing innovation in the glass-blowing industry that drastically cut down the time to create glass. But instead of actually implementing these innovations, German manufacturers purposely held onto older technology and continued to employ people at lower wages.

Marx was also very skeptical of the idea that just because the introduction of machines laid off workers, the market would automatically adjust to give them new jobs. While this may be true to some extent in the long term, it’s never a clean reorganization of the market. Hundreds of thousands of workers essentially get thrown away temporarily while the market restructures itself.

4.11 Labor vs. Labor Power

• Labor power is one’s ability to do work. This is what is traded on the market as a commodity and bought by capitalists under contracts in exchange for wages (for 1 to 24 hours — the most labor power can be bought for is the entire length of a full day).
• Labor is the actual work one does.

The price of labor power is always the reproduction of the worker. Since everyone under capital produces a commodity and the worker — owning no means of production — has only his own two hands and mind to offer, labor power’s price is generally settled around what is needed to reproduce the worker: how much a worker needs for a roof over his head, food on the table, etc., so that he can come into work the next day refreshed and ready to work with the same intensity as before.

Reproducing is also considered in the cost — children promise capital its future labor power. During times when the market cannot afford labor power, these become excess, unwanted populations. And of course, the education, training, and certifications needed to produce work factor into the costs of labor power.

By driving down the price of necessary labor, capitalists are able to produce more surplus. This can be accomplished by cheapening the basic needs of labor power — or by moving production to countries where labor power has been historically disenfranchised and possesses fewer rights.

4.12 Capitalism, Reproduction, and Globalization

Marx even touches on how the commodification of agriculture with machinery both kicks out peasants and turns them into workers. It also leads to soil exhaustion of nutrients — an ongoing problem we are still facing today. This is a very early environmental critique of capitalism.

It’s not that complicated: agriculture and soil are used for exchange value, and this leads to overconsumption of soil at unsustainable rates. That’s also just capitalism in general. Oceans full of trash, the ecosphere polluted, the coming ecological collapse — and the machine of capitalism keeps trucking even though we are at a point where this level of production is not needed and we already produce enough to feed everyone on earth.

Marx also divided labor into different kinds. One kind was productive labor (a name with no emotional or moral attribute — it simply refers to labor that produces surplus value for a capital circuit). To Marx, productive labor was a broad definition. He even used the example of a teacher hired by a private school as a productive laborer (and anyone telling you baristas aren’t proletariat is wrong).

Unproductive labor is labor that does not produce surplus value for a capital circuit — so a public school teacher, a government official, a small shopkeeper who is both owner and only employee, a doctor at a public hospital — all are unproductive labor. This labor is “unproductive” in the eyes of capital only because it takes away value that could be put into the capital circuit, which is why capitalism is always trying to privatize everything.

4.13 Globalization and the Drive for Surplus

There’s one small sentence that caught my eye and explains globalization and sweatshops:

“Just as the individual labourer can do more surplus-labour in proportion as his necessary labour-time is less, so with regard to the working population. The smaller the part of it which is required for the production of the necessary means of subsistence, so much the greater is the part that can be set to do other work.”

Basically, what Marx is saying is that in underdeveloped economies, people need less necessary labor (wages) because their economies are much cruder and people live simpler lives. A peasant worker who lives in a shantytown in Egypt or India or Mexico therefore needs far less for his basic needs (lower necessary labor, lower wages) and can produce for the ruling classes more absolute surplus value (profit).

And of course, these people absolutely deserve much more — but capitalism is not a thinking machine. It reproduces these conditions and then takes advantage of them. This is because capital is hyper-mobile. It can choose places where people have the lowest necessary labor costs (think of globalization, where all the factory jobs moved out of the USA to China in the 1990s, or to Sri Lanka, India, etc.).

In addition, Marx points out there are vast differences in wages across nations. Marx was writing before the rest of the world had industrialized, so he assumed that capitalism would prefer the more developed economies, because more productivity for capitalists made the ratio between wages and surplus value most profitable for them.

However, the industrialization of the world to an almost equal rate of productivity, while nominal wages within the least developed economies have remained lower, has made globalization much more profitable than ever. Now a factory in Cambodia is able to be as productive as a factory in Michigan, but Cambodian workers require less necessary labor time, generating more surplus for capitalists.

Traditional economics is voodoo economics because it refuses to look deeper into the market than supply and demand. This is why so many of Marx’s predictions have come true: because he was focusing on value whose source is socially necessary labor time, not supply and demand.

Marx pointed out another way workers get exploited under capitalism: you as a worker are the major source of value in most commodities. Even though you make the product, it gets taken away from you. Some of the value you produced is taken by the capitalist, and you have to rebuy the very products you made on the open market. Money and commodities therefore obscure this human relation of exploitation right in front of our eyes.

To Marx, capitalism and its class society was a system that reproduced itself. The worker created the capitalist not only through working for capitalists but also through buying the commodities they owned. The capitalist in turn produced the wage laborer:

“The labourer, therefore constantly produces material, objective wealth, but in the form of capital, of an alien power that dominates and exploits him; and the capitalist as constantly produces labour-power, but in the form of a subjective source of wealth, separated from the objects in and by which it can alone be realised; in short he produces the labourer, but as a wage labourer.”

Capitalism often tends to bring wages below the actual value of labor power so that the rest of the value produced can be used for accumulation of capital. Because wages don’t rise in proportion with productivity, an increase in productivity leads to a higher rate of surplus value. Even if wages do rise a little, they’re not rising at the same rates as productivity.

4.14 Monopolization and the Reserve Army as a Tool

Marx also expertly breaks down the libertarian argument that the free market does not naturally tend toward monopolization. As he says, the free market, whenever it enters a new industry, begins as a competition of many capitals. Eventually, since it is a competition, one capital or a couple will triumph over the others and amass all the other capitals.

“The smaller capitals therefore crowd into spheres of production which modern industry has only sporadically or incompletely gotten hold of. Here competition rages in direct proportion to the number and in inverse proportion to the magnitudes of the antagonistic capitals. It always ends in the ruin of many small capitalists whose capitals partly pass into the hands of their conquerors and partly vanish.”

Competition within the free market is not a tool against centralization but a tool of centralization. Marx defines accumulation as the building up of the capitalist relationship, and centralization as the merger of those capitals into monopolies.

4.15 Malthusianism and the Surplus Population

The reserve army of labor is not only a source of unemployed people but also, as far as capital is concerned, a surplus unnecessary population — a population that weighs on the system.

In this sense, once capitalism has reached its full extent — which in many ways it already has, thanks to imperialism and globalization — it no longer operates as a progressive force. It becomes hyper-centralized and monopolized, casting entire sections of the human race into the reserve army of labor or the surplus. It begins then to weigh on the human race like an anchor, a tool of misery, war, and fascism.

The reserve army is where Malthusianism came from — the idea that the human race could not support extra people. Malthus mystified it, leading to the export of foodstuffs during the Bengal and Irish famines. He acted from the market’s surface and worked backwards, seeing people who were not needed for capital and therefore thinking it was the natural order of things.

One part of the working class is overworked and squeezed of value; the other has none at all. Marx mentions of capitalism’s relationship with population sizes:

“In fact, not only the number of births and deaths, but the absolute size of the families stand in inverse proportion to the height of wages, and therefore to the amount of means of subsistence of which the different categories of labourers dispose. This law of capitalistic society would sound absurd to savages, or even civilised colonists. It calls to mind the boundless reproduction of animals individually weak and constantly hunted down.”

Does mass killing (or, in the modern day, deportation) permanently get rid of the reserve army of labor? No — capitalism produces a reserve army of labor in proportion to its population. As Marx points out, one million dead Irish people still produces a reserve army of labor.

4.16 Primitive Accumulation, Force, and Ideology

We are often told by libertarian types that capitalism is consensual — that we signed a contract to work and can break it any time. However, no one agreed to be in that contract, and as Marx pointed out, capitalism required primitive accumulation in order to create itself.

Capitalism also tells itself tales of how it was simply birthed by very smart people accumulating wealth while very stupid people didn’t, and they became capitalists and workers respectively. As Marx says, capitalism’s birth actually required “conquest, enslavement, robbery, murder, briefly force, play the great part… As a matter of fact, the methods of primitive accumulation are anything but idyllic.”

Primitive accumulation is the creation of two classes — capitalists who own the means of production, and free workers who sell their labor power (which remember is a commodity too). In order to create free workers, laborers have to have all property taken away from them so they’re desperate enough and mobile enough to become free workers who sell their labor power on the market.

“But, on the other hand, these new freedmen became sellers of themselves only after they had been robbed of all their own means of production.”

What did primitive accumulation look like historically? Marx sees its origins in the enslavement of Native Americans in the Americas, the discovery of gold in the new world, colonialism in the East Indies, the enslavement of Africans, the opium wars in China, etc.: “The treasures captured outside Europe by undisguised looting, enslavement, murder, floated back to the mother-country and were there turned into capital.”

In England, it looked like the authorities closing the commons that peasants used to farm on and converting them into sheep pastures to make wool. This forced peasants out of the countryside, made them landless free laborers, and put the lands in the hands of landlords and large company farms. Sometimes whole peasant villages would be burned to expropriate the land. For the peasants thrown off the land, manufacturers didn’t have enough jobs for them. Vagabond laws were created to punish the jobless (today this is done through anti-homeless laws).

As Marx said of primitive accumulation and the slavery, genocides, colonialism, and peasant expropriations it required: “capital comes dripping from head to foot, from every pore, with blood and dirt.”

Once capitalism is in place, it creates a system in which it seems like workers voluntarily sell their labor power. Exploitation under capitalism is mystified under the free market. The working class is taught to assume that the relation it finds itself in has always existed. However, as Marx showed, capitalism was deliberately created — and it is temporary.

4.17 Banks and National Debt

Capital as embodied past labor is transferred from nation to nation through banks, bank loans, and national debt. “A great deal of capital, which appears today in the United States without any certificate of birth, was yesterday, in England, the capitalised blood of children.”

National debt is a fundamental part of primitive accumulation, Marx argued, since it issues bonds which capitalists can then buy and get assured capital from the government without actually doing anything productive (building factories, etc.). They get it simply by watching their bonds grow. This parasitism is offset by taxing workers, who then pay for this idle class of people who just live off of government bonds. Heavy taxes make the working class more compliant.

National debt then just becomes a way to funnel money from poor people through taxes to rich people through bonds. Banks were also granted the privilege of being able to print money, which ballooned them to unmeasurable power.

5. Volume 2: The Circulation of Capital

5.1 Getting More Complex

In the first volume of Das Kapital we were introduced to a basic formula of how capital worked: Money → Commodity → More Money (M-C-M′). A capitalist invested money into a commodity, a commodity with more value than originally invested was created, and it was sold onto the market to realize more money.

But Marx now wants to see how industrial capital really operates in its complete form, so he introduces:

M-C…P…C′-M′

This is our first circuit, and it represents an investor’s view. The dots represent the process of circulation being interrupted and instead turning into production, while the dashes represent a quick exchange in the market.

Industrial capital here means all enterprises that produce a commodity.

Breaking it down — M-C: A capitalist begins with his initial money M and invests it into commodities. There are two kinds of commodities he can buy. Money (M) can purchase human labor power (L) — someone’s ability to work — and means of production (MP). Both of these are types of Productive Capital (P).

Here M is not just money sitting in a bank doing nothing; it is Money Capital, since it is part of the circulation of the capital process, and Money Capital in this process is transformed into Productive Capital.

With both human workers (who are the main producers of value) and a factory for them to work in, the capitalist is ready to enter production and produce more value than he initially put in. In order for this to happen in the first place, capitalists need an already-existing commodity market, lots of people desperate enough without any property to sell their labor power, and a society where goods are produced for exchange value and not use.

5.2 The Function of Productive Capital

Now that our money capital has transformed into a commodity, the process suddenly comes to a halt (…). This is because the only two commodities money capital is able to buy in our circuit at first are means of production (MP) and labor power (L). So now, for the process to start moving, productive capital has to start producing something.

It is here, in productive capital engaging in production, that one of the most important parts of industrial capital happens: labor power creates more value than the capitalist bought it for. Surplus is created. The commodity’s price is then P (Productive Capital consumed) + S (surplus created).

To give an example: let’s say the cost of making a Yart pen is broken down as follows — the cost of the raw materials (Means of Production) was $372, and hiring workers (Labor Power) was $50. With their own two hands, the workers would turn the raw materials into something with $128 more value than what was originally put in (Surplus). The total cost of the Yart pen would therefore be $550. The workers’ socially necessary labor time has become concealed within the value of the commodity through that $128 surplus.

5.3 The Two Phases of M-C…P…C′-M′

Now that the Yart has been created, Productive Capital has become Commodity Capital (C′), as the two commodities the capitalist bought — Means of Production and Labor Power — have produced a third commodity with more value (C′).

Commodity Capital then contains all of the value from the cost of labor power (hiring the worker), the surplus value created by the labor, and the cost of the means of production. In order to realize his full investment, the capitalist now has to sell this commodity on the market to make up for the constant capital (means of production) and variable capital (labor power) spent, in addition to realizing the surplus generated by the worker.

And once he has sold it, the capitalist now has more money capital than he began with. And finally we have our formula: M-C…P…C′-M′

Overall, this entire formula is precarious. If at any point in this process something stops, it spells disaster for everything else in the chain of command:

• If there is a stop at M-C (money capital), it means capitalists are hoarding their money and not spending it, which leads to dead weight. This typically happens during crashes and bad markets.
• If P (production) is stopped due to a disaster, value begins to be locked up, surplus is not produced, and machines and factories sit and rust.
• If C′-M′ stops, that means commodities just sit in warehouses not being sold. It is very easy to turn money into commodity since people transfer money easily, but significantly harder to turn commodity into money since it requires buyers. This can lead to significant crashes and market corrections as commodities just sit there waiting to be turned into cash.

5.4 The Productive Capital Circuit

Now Marx says: let’s rewrite our formula with a new focus, from the point of view of a factory manager — that is, productive capital. Thus we get:

P…C′-M′-C…P

This is a rather simple process:

1. Productive Capital (P) with the worker and the factory produces Commodity Capital (C′) with far more value than the raw materials that were used to feed it.
2. This Commodity Capital (C′) is then sold on the market to get Money Capital (M′).
3. Which is then put back into the process of circulation to buy more commodities (labor power and means of production), which then becomes production again.
4. Rinse and repeat.

What is important about this circuit is that the capitalist either realizes so much surplus value that he can pocket some for himself and spend it on yachts, mansions, etc. (taking away from the circuit), or he reinvests that surplus — which creates more value, and more value, and more value, every time — showing that never-ending beast of capital in our finite world.

And again, it is important to remember that any stop in all of these circuits affects the rest of the chain, leading to what Marx dubbed the “anarchy of the market” — where individual actors in the supply chain act independently of one another while all relying on each other, leading to overproduction in one sphere and underproduction in another, and violent market crashes as a result of the mismatches.

5.5 The Commodity Capital Circuit C′…C′

The Commodity Capital Circuit tackles the formula from the point of view of the overall market, which just sees the finished commodities. This is where all the speculation, stock buying, futures, etc. happen.

It is: C′-M′-C…P…C′

• C′ is the starting point — Commodity Capital, or the product. This is made up of the original capital value (C) + Surplus (S) created during productive capital (P).
• M′ is the money realized through selling the commodity on the market.
• C is the money used to buy Means of Production (MP) and Labor Power (L), which creates more value than it’s bought for.
• P is production — the workers use the means of production to take raw materials and create a new commodity.
• C′ is the final realized commodity capital — the product ready to be sold on the market.

In all of this, C′ is heavily dependent on buying of labor power and means of production, in addition to selling commodities onto the market to realize their value. So if there is a clog in the buying phase, less C′ is made; and if suddenly more C′ is made than there is need for on the market, it just sits there collecting dust, never realizing its full value — and stock charts start to go down.

In all of this, the capitalist’s goal is accumulation — more commodity production, more money capital, more means of production and labor power are created and bought every time as they’re all reinvested again and again and again.

5.6 Clarifications

Some may ask: well, in this whole circuit, if the means of production cost $375, labor power $50, and the surplus only $128, then is Marx’s Labor Theory of Value — the idea that the major source of value in capitalism is congealed human labor power within a commodity, mediated by socially necessary labor time — wrong?

We only make that mistake if we look at these circuits in the micro. On the macro level, the initial M that capitalists get to invest within the circuits is gotten from value produced by human labor power somewhere else within the chain, as is the value contained within the raw materials/means of production, etc. Socially necessary labor time still stays the great mediator — it is just doing it “off camera” when we are looking at these circuits.

Finally, all of these circuits are in reality blurred in practice. They are simultaneously operating with each other. What this also means is that changes, deficiencies, and miscalculations in any circuit have massive compounding effects on the whole system.

5.7 Purposes of the Circuits

The purpose of all of these circuits is the self-expansion of value — more value than put in, created by Labor Power L. As Marx says:

“Capital as self-expanding value embraces not only class relations, a society of definite character resting on the existence of labour in the form of wage labour, but a movement, a circuit-describing process going through various stages, which itself comprises three different forms of circuit-describing process. Therefore it can be understood only as a motion, not as a thing at rest.”

5.8 Costs of Circulation

These circuits of capital have costs within them. Of course, circulation itself — under liberal economics — is where value is supposedly created. Marx however rejects this: the buying and selling that the capitalist engages in are just parts of circulation; value is created only in production (P).

Bookkeeping is a new cost that arises, unique to capitalism. As it expands on a social scale, vast amounts of money, labor, resources, and time are spent categorizing everything, doing the paperwork, organizing factories, etc.

Keeping a commodity in storage is also a cost onto the system. Necessary storage — such as aging wine — does incur cost onto production, as it requires constant capital and variable capital in order to keep the wine aging well, and is an important part of the production of the commodity. Stagnant storage, when too much of a commodity is produced, does not add to value; rather, it usually comes with a loss. Sometimes in the market this is considered a sign of economic growth, especially when credit is involved — this is dangerous and leads to bubbles.

5.9 The Social Labor Pool

Transportation adds to the value of the commodity because it is part of helping the commodity realize its value. Transportation has a use value: a commodity made at a factory has to get 100 miles away to the store, and value is added through the constant capital (trucks, trains, etc.) that imparts its value onto the commodity, and the variable capital (truck drivers, shelf stockers) that creates surplus value in the act of doing so.

Some jobs are socially unproductive but individually productive: there are some jobs that are unproductive in that they don’t directly produce surplus value — security, insurance, etc. In terms of the social pool of labor they are considered unproductive labor. However, individual capitalists can add these costs onto the commodity, thereby extracting a surplus value from otherwise unproductive labor. But nothing is added to the overall social pool of value.

(Think of the social pool of value as the actual value being produced by productive labor that all capitalists dip into. This redistribution of a preset social pool is fed only by productive labor, while unproductive labor doesn’t contribute. On paper it looks like more value is created, but in reality it’s not.)

This is why Marx’s Labor Theory of Value was never meant to accurately describe price — it was meant to analyze social relations within a society. As Marxist economist Paul Mattick pointed out, capitalists in unproductive or productive industries dip into this social labor pool, adding to the prices of their commodities and services. Capital flows from productive industries to unproductive ones, having a generalizing effect on rates of profit. This appears on the surface as value added; the source of value is always productive labor, but the way in which it appears in price is different.

5.10 Turnover of Capital

Turnover time is the amount of time between production and the point at which capitalists are able to realize their value through circulation. It is presented as: n = T/t, where n is number of turnovers per year, T is the entire year, and t is the individual time it takes for one turnover.

In a bakery, turnover is fast — production and circulation happen quickly. In plant factories, it may take months, thus capital stays locked up longer before it is realized. More turnovers means more surplus value realized, so capitalism is thus incentivized to produce more, faster. During economic recessions, for capitalists these become great entry points for turnover, as means of production are suddenly and rapidly cheapened.

This need for turnover incentivizes faster production and transportation in order to realize values on the markets. But capitalism not only has to ship commodities to the next town over — it is a global system. This means there are large gaps between when Commodity Capital C′ is finished and when it is realized as M′ on the market, but a capitalist usually needs money now. What will he do?

He can enter the credit system: credits, loans, etc. that promise claims on future surplus value become great lubricants to keep the machine running. In addition, sometimes capital also needs to be held to pay wages or to continue production when credit cannot cover everything and other costs, leading to “hoarding” of money — which becomes especially problematic during market instabilities, with capital sitting idly by.

5.11 Fixed Capital vs. Circulating Capital

There are two types of labor: living labor and dead labor. Living labor is the human worker. Dead labor is the value of a past human worker transformed into the means of production (machines, tractors, offices, etc.).

Under capitalism, because it’s a competitive system, the value produced by living labor is used by capitalists to buy machines and hire more workers, then to get more value, then to buy more machines and hire more workers. Because capitalism is a competition, “production does not take place to satisfy human need… but in order to enable the capitalist to survive in competition with another capitalist.” The workers employed by each capitalist find their lives dominated by their employer’s drive to accumulate faster than rivals.

There are two types of capital within the production process:

• Constant Capital: Invested only in the means of production (e.g., machinery, raw materials). This cannot create new value. The machines can impart their preexisting value onto the products, but they cannot create new value.
• Variable Capital: Money spent buying labor power. This is the only thing that can create new value.

Said machines get their value from labor power somewhere else within the social pool — hence why they only impart preexisting value onto the commodity, as they are slowly broken down by wear and tear. The value that they impart onto the commodity is called fixed capital, as it is fixed into the machines of production. While circulating capital is contained in the raw materials and labor power and is used up rather easily.

The value imparted by fixed capital is based on the average life of the machine itself, the same way socially necessary labor time sets the value of human labor power. “This average expense is distributed over the average life and added to the price of the product in corresponding aliquot parts; hence it is replaced by means of its sale.”

5.12 Turnover of Variable Capital

Because the more you turn over the more money capital you have available to pay workers, industries with higher turnover rates tend to be more efficient at creating surplus value. With industries that have much longer turnover rates, there are periods in which workers withdraw from the social pool and yet don’t contribute commodities for a while. This generally leads to inflation as a result, since demand for food and materials goes up while supply doesn’t.

Under communism, the economy would be planned — the amount of labor that would be used for projects with longer turnover rates and the resources they needed would be calculated well in advance. In capitalism, this is all done after the fact. This leads to overexpansion within sectors that have longer turnover rates while no value is actually produced, followed by violent crashes that reset wages, fire workers, etc.

5.13 Simple Reproduction vs. Accumulation

In businesses with fast turnover rates, today’s wages and operating costs are paid off by the work done the previous week or month — an IOU system that works fine until the process is suddenly interrupted.

When a business is doing poorly or breaking even, it is engaging in simple reproduction — more value does not get reinvested. When a business is able to realize most or all of its appropriated surplus value on the market, it starts to accumulate and expand. This requires credit to handle periods of interruption and hoards of money sitting idly by to be able to ramp up production before it’s fully realized. Credit, therefore, as a claim on future surplus value, becomes an important part of capitalism itself.

Simple reproduction imagines an economy where everyone breaks even. Marx divides the economy into two departments:

• Department 1: All the companies that create machines and raw materials — they create all constant capital.
• Department 2: All the companies that create articles of consumption (clothes, yarts, luxuries, etc.) — these create all variable capital (wages and surplus).

Both departments trade with each other, and these trades in this closed economy must balance each other out. Demand from Department 1 must then equal supply from Department 2, since workers in Department 1 cannot eat, live in, wear, or consume the machines of production they’re making.

But if Department 1 creates more machines than are needed by Department 2, or Department 2 runs out of money to buy the machines from Department 1, we have overproduction and unemployment in one department — or all of them.

5.14 Money Capital Specifics

Money Capital serves several purposes:

• It is the entry point for all capitalists to begin the process (buying MP and L).
• It is a barrier — large industries with lower turnovers need a lot of upfront money capital.
• These shortages lead to the rise of credit and stocks where money capital is unavailable or interrupted in the process of production.

With the same exact amount of money capital, capitalists can extract different amounts of surplus value. They can make workers work harder and longer hours, or invest in industries with high turnovers. They can also organize workers in ways that increase productivity without more investment.

For industries with low turnover rates, there are long periods where capitalists draw from the social labor pool without contributing commodities back — leading to that inflation and speculation.

5.15 How Accumulation Works in Department 1

The goal of all capitalists in these circuits is accumulation — getting more out than input, which you are then able to reinvest as a new input.

Once a capitalist gets surplus, the first thing he usually does is hoard. In Department 1, which produces machines, accumulation can play out like this: Capitalist A sells 100 yart-making machines (each costing him $1 to make) to Capitalist B. Capitalist B now has productive capital (P) while Capitalist A has $110, which he hoards. Capitalist B then sets the machines to work, production expands, and overall societal accumulation occurs. Then Capitalist A uses that $110 to buy more factories and labor power, which produce him a value bigger than his initial input.

Accumulation needs three things to work:

1. Labor supply — the unemployed of the reserve army of labor.
2. Proportionality — the right amount and kinds of machines needed for market demand.
3. Consumption — buyers of the finished goods.

Failures in any of these parts bring accumulation to a halt.

5.16 Dangers of the Departments

For Department 1, the machine builders, the surplus products that capitalists use for accumulation cost them nothing extra — their workers run the factories, actually making them useful. Workers work enough to pay their own wage (v), and they perform surplus labor that generates accumulation (s).

The machines produced as they sit in storage are called additional constant capital, as they’re waiting to be actually useful to capitalists in Department 2 and to impart their value. When this machine finally gets to Department 2, two values are being transferred to the commodity: the labor power creating new value by the workers (v+s), and the concrete labor in which the labor process transfers the contained value of the machine onto the commodity.

Finally, the capitalist may decide to divert some of his surplus into buying machines that help him make other machines faster. This would then mean there are fewer machines on the market in one turnover than needed by Department 2, which can have disastrous effects on the entire supply chain.

5.17 How Circuits of Production Can Become Disastrous

Let’s imagine an economy with only two companies: a yart-machine-making company (Department 1) and a yart company (Department 2). Each company relies on the other to buy their products.

The Yart Machine Making company sells $500 worth of machines to the Yart company, but instead of keeping this circulating, it decides to hold onto this $500 so it can buy machines that make yart machines faster. So the Yart company starts producing yarts, but when it goes onto the market looking for someone to buy them, it finds no one. As a result, it no longer has money to buy new machines from the Yart Machine Making company. A market crash ensues.

The Yart Machine Making company’s desire to become more productive created a domino effect that collapsed the entire economy. In the real economy this is being done with millions of companies — when one company sells, another hoards, another reinvests, and credit helps to lubricate these in-flows. However, just like in our imaginary economy, this balance is hard to maintain forever, especially since capitalism is an unplanned process. Department 2 accumulating slowly means Department 1 has no buyer; Department 1 accumulating slowly means Department 2 doesn’t have enough machines to meet demand. Violent crashes occur as a result.

A modern-day example is Nvidia (Department 1), which creates processors for AI companies (Department 2). If at any point Nvidia creates more processors than are needed, or decides to reinvest to make better processors, or if the AI companies are unable to make the returns they’re hoping for, the entire ecosystem collapses.

This is one of the oddest parts of capitalism — overproduction is a bad thing:

“It is only under capitalism, where production for profit rather than use dominates, that overproduction of a commodity can prove an embarrassment. In other societies it would be cause for celebration, because it would mean increased consumption. But for capital, consumption is not enough; sustained accumulation requires the realisation of profit, which depends upon sale and, if this becomes impossible, production may be curtailed and capital as a whole forced to operate on a reduced scale, with serious implications for employment and social welfare.” — Ben Fine

6. Volume 3

The price of a commodity is C = c + v + s, or Commodity = Constant Capital + Variable Capital + Surplus. To a capitalist this appears simply as cost (k): Commodity = k (cost) + s (surplus). However, the capitalist’s surplus is not realized until he brings the commodity to market, so surplus to him appears as profit. Therefore to him it appears: Commodity = k (cost) + p (profit).

6.1 The Rate of Profit

The rising organic composition of capital is a phenomenon where more and more money gets diverted to constant capital (machines) than to variable capital (human laborers). This is expressed as s/(c+v) — surplus divided by (constant capital + variable capital).

Even though humans are the major source of value, machines produce commodities so fast that capitalists can make up for the loss in value, offset by selling more products. As technological advancement leads to a greater reliance on machinery over workers, this causes a falling rate of profit because constant capital gains over variable capital, which is the sole source of new value.

Put another way: as capitalism becomes more and more automated, the amount of profit that capitalists are able to generate lowers because labor power itself becomes less involved in the process. Why might capitalists want to do this then? Because radical new technologies temporarily give them an edge over their competition, and whatever rate of profit they lose by not having labor involved, they are able to offset by selling more of their product than they usually would. However, because capitalism is a competition, as these technologies get implemented industry-wide, they lead to the said falling rate of profit.

The Falling Rate of Profit explains a lot of movements through history — imperialism, wars, erratic government acts, monopolizations, financialization, wage cuts, mass privatizations, and government spending — all are acts to escape the orbit of the falling rate of profit. No theory has quite explained modern-day capitalism as well.

6.2 The Great Paradox of TRPF

The rate of profit is also affected by the turnover time it takes for a commodity to realize itself on the market. The longer it takes, the less variable capital can be utilized, meaning less surplus. This incentivizes industries to do two things: make things more productive (usually through increasing constant capital and innovations) and shorten circulation time (such as through transportation).

However, this drive also paradoxically leads to a further falling rate of profit as the organic composition of capital is changed — the short-term need becomes a long-term detriment.

Capitalists can also reduce the TRPF by organizing better: having more workers in the same building means less money spent on maintenance of constant capital (heating, electricity, etc.). However, eventually as constant capital wins out, variable capital will be cut, and some workers will eventually join the reserve army of labor.

6.3 Raw Materials and Rates of Profit

Raw materials, which are part of constant capital, have an inverse effect on the rate of profit: if raw materials are cheaper, rates of profit expand; if raw material prices increase, the rates of profit fall regardless of the intensity of surplus produced by variable capital. This leads to capital being tied up during times of high raw material costs, and released during cheaper times.

When news reaches capitalists that raw materials within the supply chain are rapidly increasing in price, one way they can temporarily save themselves is by immediately increasing the price of existing stock. A modern-day example: gas stations immediately raised the prices at the pump upon hearing about the outbreak of war with Iran, despite the gas at the pump having been pumped when the commodity was still relatively cheap.

6.4 Variable Capital, Rates of Profit, and Monopolies

This tied-up capital — often held due to increased constant capital prices — can be “released” temporarily, relieving capital, if variable capital costs (wages) lower. This extra freed capital can now be used to vastly extend business or to get higher surpluses from the same business.

If, however, the costs of variable capital rise, capitalists are forced to tie up their capital and part of their constant capital then goes unused. Monopolization of industries becomes a great way to temporarily offset a section of unused constant capital within an industry, as this socializes losses and allows them an industry-wide control on price that can allow them to drive prices up.

As Marx noted of the differences in rates of profit between countries, the same amount of money can be invested in different industries and result in different rates of profit; capital tends to flow from industries with lower rates to those with much higher rates. Within different industries and countries, rates of profit can differ, but growing competition has an equalizing effect, as does globalization and the internationalization of capital. Because of trade, rates of profit have a generalizing effect, equalizing across the entire economy.

6.5 How Capitalism Saved Itself in the 20th Century

With the onset of the Great Depression, world capitalism faced one of its greatest crises that almost destroyed it. The rate of profitability globally became abysmal, laissez-faire economics was dead, and out of this bubble stepped the economist John Maynard Keynes.

Keynes identified the main issue in capital being that capitalists “held” onto their money, and thus the goal was to free said money through state intervention and get the economy flowing again. However, what Keynes saw as a psychological phenomenon was what Marx had already identified as a natural tendency of the market: tied-up capital was created due to fluctuations in that ever-precarious balance of s/(c+v), commodities were overproduced, and aspects of constant capital sat empty. This was natural to the industrial circuits of capital and their inability to sync across departments, in addition to the nature of how value is produced itself.

Through taxes and government spending on projects, Keynes “saved” capitalism — reducing the reserve army of labor. However, there was an issue: the money spent by states was often on projects and sectors that were not productive, or could not produce capital, since these projects were never sold on the market to fully realize their surplus value. This is because capitalist governments did not want to compete with capitalist industries themselves.

World governments offset this through IOUs and inflation. Current spending was financed through running deficits, so even though on paper prices appeared to be dramatically increasing, in reality this was just dipping into the social pool of value — one that was still experiencing a falling rate of profit. This created a period in which world economies saw no major economic crash, because essentially through government intervention, industrial circuits of capital were puppeted to slow down their natural tendencies. However, by the late 1970s, this was no longer possible.

6.6 How Capitalism Has Saved Itself in the 21st Century

While neoliberalism claims to be the champion of small government spending, government spending under it has actually gotten worse, tripling since the 1980s. The issues of Keynesianism continue: actual production of value becomes negligible as government spending takes over, and the social pool is reacquired.

The sectors in which government spending has most increased are social security, Medicare, and the military, while other vital aspects of the welfare state have been reduced or left to the private market so that they can realize their value. Between Germany, France, and Italy from the 1960s to the 2000s, the rate of profit was high. America’s fall in the rate of profit from 1941 to 1980 was about 8%, and before the great recession of 2008, American rates of profitability sunk from their highs in the 1940s of 28.2% to just an abysmal 14.3%.

The way capitalism saved itself from this tendency in the neoliberal era was through several counteracting pulls on the diminishing rate of profit. These are the playbook, almost every time:

1) Raising the exploitation of labor. Unions were dismantled; working hours were kept stagnant or in some cases increased.

2) Pushing direct and indirect wages down. By diminishing pensions, government welfare, and wages — or just keeping wages stagnant while raising living expenses — more was squeezed out of workers globally to keep rates of profit in a happy medium. Global average wages have now become completely disconnected from GDP growth, whereas before they tracked closely.

3) The Industrial Reserve Army of Labor. By creating a section of the population that was permanently unemployed, capital could rely on them to lower the price of labor power and therefore spend less on variable capital. This was done through both firing domestic workers and the migration of workers who had fewer rights. Moving production overseas allowed capitalists to engage in a new kind of imperialism — the “dark value curve” — in which sweatshop workers in the Global South produced immense surplus value during the productive phase of capital, while their wages were pennies on the dollar. That value captured within the commodity was then sold at amazingly high prices within Global North economies and crystallized in their GDPs. A shirt made by a Bangladeshi worker would see most of the value produced in Bangladesh but most of the price realized in America.

4) Foreign trade. Foreign trade enlarged production volume, which made constant capital cheaper through economies of scale. As a result, almost all trade barriers were lifted, and market protections in America and globally were systematically dismantled under neoliberalism through the IMF. It was able to dump cheap commodities in markets where capital was less robust, giving higher yields. NAFTA was a deal signed with Mexico where American farmers dumped their corn onto the poorer country’s market, leading to Mexico losing an estimated 1.3 million jobs.

5) Decreasing the cost of constant capital. Supply chains have become immensely efficient and cutthroat in order to ensure cheap raw materials and fast turnovers.

6) Financialization. In the 1980s the global economy was financialized — put on credit. Credit limits were vastly increased for consumers so that even if their wages went down, they could still afford cars and houses with claims on future surplus value. In this way, at least for a while, variable capital costs could still be driven down while commodities realized their values on the market through buyers who simply put them on credit. Markets were decoupled from real value production and geared instead toward credit and speculation. Whereas before 1980 financial assets were about the same size as GDP, by 2007 financial assets had ballooned to 356% of actual GDP. This led to bombastic bubbles and even more bombastic pops not seen during the Keynesian era.

Credit is often identified as the cause of crashes. However, Marx was quick to point out that credit simply put the normal behaviors of market mechanisms — like industrial circuits and mismatches between departments of capital — on steroids. It wasn’t the root; it was just fuel to a fire that was going to happen regardless.

“From this perspective, one sees that crises will not be solved by improving market efficiency or recovering aggregate demand, but understands that the true solution lies in realizing that capitalism is the problem and acting consistently with this insight to make it possible for producers to subject production — which today towers above them like a ‘blind law’ — to ‘their common control as associated intellect.'” — Vladimiro Giacché

6.7 The Major Contradiction in Capitalism

One of the major contradictions of capitalism is that capitalism, due to various forces, seeks the absolute development of productive forces regardless of value — surplus value continued, and the social conditions in which production takes place. But said expansion of productive forces itself leads to a loss in value that capital attempts to preserve.

6.8 Commercial Capital

Commercial Capital separates itself from other capital due to the industrial circuits — due to gaps of separation between completed commodities. Commercial capital buys completed commodities and resells them elsewhere (stores, wholesalers, etc.). This kind of capital does not produce surplus; rather, it is just taken from the social labor pool of productive capital and from the surplus contained within the commodity.

Commercial capital’s great function, however, is increasing turnover rates for industrial capital, so that even if industrial capital is selling below value, it is making more surplus overall.

However, commercial capital acts as a buffer between industrial capital and the market, creating fictitious demand that might not actually exist. Commercial capital is one of the oldest types of capital. In pre-capitalist societies it ruled industry (think of spice traders, the age of mercantilism, etc.). Marx said that now industry rules commerce, but he correctly predicted that commerce would eventually win over industry. In the transition to capitalism, some merchants became industrial capitalists; industrialists began taking over the roles of merchant capitalists in commerce.

6.9 Interest-Bearing Capital

With interest-bearing capital, something peculiar happens: within this realm, capital itself becomes a commodity. Capital’s use value is its ability to produce profit at a later date. Interest capital does not produce surplus; rather, a portion of the surplus produced on the commodity is held by the capitalist who borrowed and paid to the capitalist who was the lender.

Because of this — since no new value is being produced — there is no “natural rate” of interest. These are just decided by the rates of profit: during times of profitability they are low, and during difficulties they are high. This is the most mystified sphere of capital. To the lender it appears as though M → M′, money making more money with no production needed, when in reality it relies on a portion of the surplus.

6.10 Fictitious Capital

With the usage of credit — which acts as IOUs on future surplus value — fictitious capital is created: capital that exists not in hard value but in future promises. This takes the form of government bonds, credit, stocks, futures, etc.

“It is unquestionably true that the £1,000 which you deposit at A today may be reissued tomorrow, and form a deposit at B. The day after that, reissued from B, it may form a deposit at C … and so on to infinitude; and that the same £1,000 in money may thus, by a succession of transfers, multiply itself into a sum of deposits absolutely indefinite. It is possible, therefore, that nine-tenths of all the deposits in the United Kingdom may have no existence beyond their record in the books of the bankers who are respectively accountable for them.” — Marx

Credit serves two roles:

1. Equalization of the rates of profit — capital flows from low to high profitable industries.
2. Speeds up turnovers.

Stocks immensely expand the scale of production and make enterprises public, reflecting the social mode of production and social concentration of means of production and labor power. Capital becomes totally divorced from the value production it engages in. They represent a major evolution in the process of capitalism being “the abolition of the capitalist mode of production within the capitalist mode of production itself” — as capitalism stops being about small individually owned producers and becomes world-domineering.

Fictitious capital becomes a major source of speculative bubbles and subsequent crashes:

“It is the historical mission of the capitalist system of production to raise these material foundations of the new mode of production to a certain degree of perfection. At the same time credit accelerates the violent eruptions of this contradiction — crises — and thereby the elements of disintegration of the old mode of production.” — Marx

6.11 Bank Capital

Within bank capital, generally two things exist: physical money and securities (bonds, stocks, treasury notes, interest). In bank capital, fictitious capital expands further than ever. For example, $100 at an interest rate of 5% would yield an annual interest of $2,000 — this then expands and stretches capital far beyond its actual basis in the law of value, giving the illusion that capital just grows on its own, independent of production.

Stocks and securities, however, initially are not fictitious capital, as they are simply titles of ownership on a corresponding portion of surplus value. However, as stocks themselves become commodities of their own — with their use values being promises and ownership of shares of surplus value — their prices and returns become dominated by promised or anticipated future surplus value. This leads to speculative bubbles as these stocks begin to move independently of actual value production based on false expectations.

“On the other hand, the whole process becomes so complicated, partly by simply manipulating bills of exchange, partly by commodity transactions for the sole purpose of manufacturing bills of exchange, that the semblance of a very solvent business with a smooth flow of returns can easily persist even long after returns actually come in only at the expense partly of swindled money lenders and partly of swindled producers. Thus business always appears almost excessively sound right on the eve of a crash.” — Marx

Bank capital exists as fictitious as most of it is claims on future production but traded as real wealth. While banks do hold onto people’s money, these deposits are quickly loaned out, with them only holding onto small portions. The money deposited exists only as a claim.

6.12 Money Capital is Commodity Capital

In Volume 2 of Capital we talked of Money Capital (loans) and Commodity Capital as if they were separate, but Marx reaffirms that in the real world they are quickly interchangeable. Credit becomes the lubricant of the entire machine, filling in stopgaps within industrial circuits.

Commodity capital on the eve of crashes represents potential money capital which, due to overproduction from the anarchy of the market, is never fully realized on the market. Likewise, because money capital remains speculative, it can make real physical capital appear twice: once in actual production and once on speculative markets. Then come crashes where money capital remains free while productive capital is paralyzed.

National debts start appearing in nations as money capital; though they seem to represent real growth, in actuality they are promises on future surplus value. During economic recoveries, industrial capitalists do not “save” their own businesses by themselves — rather, they exercise their control over vast swaths of others’ surplus value, in addition to being saved by money capitalists and governments who likewise bail them out with future claims on society’s surplus value. In this sense, no matter what, as workers we bail out companies through the capital they exercise over us.

“Not only does profit consist in the appropriation of other people’s labour, but the capital, with which this labour of others is set in motion and exploited, consists itself in other people’s property, which the money capitalist places at the disposal of the industrial capitalist, and for which he in turn exploits the latter.” — Marx

6.13 Landlords are Parasites

Landlords represent an evolution from old feudal rulers. Landed property is based on the monopoly of one person over portions of the world. This legal title to land and the ability to do whatever one wanted with it came from the dissolution of the organic order of ancient society and the development of capitalism. Whereas before there was often a commons that peasants could use, land was divorced from communal use through the closing of the commons — commodified. Capitalists in doing so turned land into a purer economic form, discarding all the previous social embellishments and traditional accessories that existed in prior economies.

To the landlord, rent begins to take the appearance of Money Capital M→M′. Production or the source of value stops mattering; this allows for speculation on land and future possible surplus value produced. Example: if you own an apartment in New York City and you know that next year millions of high-earning people from all over the world will move into your neighborhood, you increase the rent.

Onto this land, productive labor such as agriculture is allowed to take place, as farmers pay a portion of their surplus to the land owner through their contract. Capital can also become fixed through land, in building structures on top of it — becoming fixed capital. The landowners win because those renting from them do the improvements, which adds to their fixed capital once the contract is over.

The ability to produce surplus value becomes the basis of the prices of rent. Therefore, since rent is just a legal title to a collection of surplus value, landlords truly are parasites — they produce nothing. Rather, they are simply a section of the population that takes a legal claim over a portion of surplus value produced either on land or by workers.

In doing so, landlords act as an extra pressure on the entire system. Since land is not a commodity that can be produced, their total monopoly on this part of production adds an extra cost, making commodities, constant capital, and variable capital more expensive and accelerating the TRPF.

6.14 Final Analysis

Likewise, Marx critiqued how vulgar economics looked at the market at face value — starting from the market itself — whereas only a scientific observation based in materialism could look at it from the point of social relations and dig deeper than these liberal economists ever could have.

6.15 How Capitalism Sets Up the Base for Idealism

In Volume 1 of Das Kapital, Marx set up the argument that socially necessary human labor time was the major source of value under capitalism. However, in Volumes 2 and 3, Marx showed how capital became so separated from its point of departure — its source of value — that it became, in essence, illusory.

Marx’s great revelation in Volumes 2 & 3 of Das Kapital was that idealism in capitalism was baked into the socioeconomic structure of the system itself. Let’s go back to the formula presented in Volume 2: M-C…P…C′-M′. Here a capitalist invested money, bought workers who produced the surplus value and the raw materials, then these went into production giving that final commodity that he sold on the market to realize the congealed labor value within the commodity created by the workers. However, this was the formula for industrial capital, and capitalism breeds many other types of capital.

Recall that Commercial Capital would buy commodities and resell them. To commercial capital, production — where surplus value comes from — was not even a factor; it just saw M-C′-M′. Money → Commodity → More Money. To the commercial capitalist buying pre-made goods, labor did not even appear as an important factor within its system of reproduction and accumulation, as the productive portion of the circuit was handled “offscreen.”

Likewise, fictitious capital also operated under the same dangerous illusion. Fictitious capital, which lent things out like credit, derived its value from the surplus generated by the workers of the borrowing company.

Let’s remember that the formula for the cost of a commodity is: constant (raw materials/factory) + variable (cost of wages) + surplus (generated by the worker) = W (total cost). However, what fictitious capital offered — because of the gaps (…) in the circuits of industrial capital — was ready on-demand reinvestment while it still waited for the value of its commodities to be fully realized through selling them on the market. So the formula became: c + v + (s – credit) = W. But to fictitious capital, the lender who embodied his capital, this simply appears as M→M′: his money made him more money, no need to worry about production, labor power, etc. That all happened “off camera.”

Rent is the same way. To the land owner whose value comes either from the surplus generated by the factory or farm on his land, or from the necessary labor of his renters’ own personal paychecks, the formula again simply just seems M→M′ — P is off camera.

Finally, of course, there were stocks. Stocks themselves at their base did represent real value — they simply were claims on a company. However, capital has a propensity to commodify everything, and it did, giving stocks their own ecosystem in which suddenly they had use values and exchange values. Pieces of paper that represented claims on value production — to the stockbroker, it once again appears M→M′, allowing for the ever-present stock hype and FOMO that seems to predominate our culture.

What Marx also showed was that crises in capitalism were not a bug but a feature of the whole system. The anarchy of the market, the discoordination between departments and circuits of production, the natural tendency to hoard wealth while waiting for value to be fully realized by selling commodities on the market, the tendency for the rates of profit to fall and the countervailing measures to increase them — these all lead to the bombastic boom-bust cycles, imperialisms, austerities, and rash actions of capital that we are so familiar with. Nothing about this is stable, nor can it go on forever.

All of these removed production from its real value source and in doing so created the economic base from which idealism sprang — and bred the delusions that both liberal economists and society at large based their conclusions on, especially the idea that capitalism and the ways people act under it are the natural and eternal laws of human society. “Human nature,” as the libertarians say.

6.16 Time to Break It: The Transformation into the Opposite

Capital, commodity production, classes, and money have all existed long before capitalism to some degree or another. But capitalism has simplified them and brought them to an unprecedented level of development, connecting the world. In doing so, capitalism has allowed humanity for the first time to break away from class society and money forever — if it can overthrow capitalism for good.

A world-historic task not born of ideals but of the very productive material realities entailed. Capital existed in a crude form within feudal guilds (constant capital) and in commercial capital among merchants who traded on the world market. But under capitalism it came to develop far beyond that — into the burgeoning capitalist classes that then overthrew feudalism.

Capitalism’s life cycle is essentially a series of transformations into opposites. It transformed feudal society from a communal one into one of individualistic production. This individualist production of early capitalism was centralized by capitalist competition and accumulation into monopolization, and finalized into a public system of ownership through stocks. It created class conflict by hurling the majority of humanity into the proletariat and the few into the capitalist class, continually reproducing its relation. It then allowed for the final transformation into its opposite: as capitalism becomes more centralized, global, and monopolized — socialism.

Capitalism is birthing the socialist mode of production through its very existence and lifecycle without realizing it — through the fact that it creates a socially connected system of workers and some of the most simplified socioeconomic relations to overthrow in history. A better world is possible. Marx within Das Kapital proved that capitalism was only a temporary phase of humanity with its own laws, regular crises, and many contradictions. Humanity is just waiting for that great negation of the negation that will free itself from the chains of artificial scarcity.

Marx’s life journey embodied sublation. He went from a humanist young Hegelian representing the old dying feudal order into a dialectical materialist reflecting the victory of the industrial scientific age that birthed him.

Communism is born out of the death of capital; it is not imposed or declared. Quantitative change becomes qualitative, and a rupture occurs: the workers seize the means of production and abolish the law of value and the commodity form. What seemed immortal — as liberal society advertised — is suddenly revealed to be mortal. The impossible becomes possible.

Now is the time to shatter the idealism presented by liberal society once and for all. Everything within the system of capital is a tug and pull: between the reserve army of labor and constant capital, between the falling rate of profit and its countervailing forces, between necessary labor and surplus labor, between use value and exchange value, between the rate of profit and the need for accumulation. And eventually these contradictions will break and transform into their opposites — into a whole new stage of humanity we call socialism.

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