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From The Militant, Vol. X No. 35, 31 August 1946, p. 6.
Transcribed & marked up by Einde O’ Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).
The capitalist makes no profit on the raw materials he buys. He makes no profit on his buildings, his land, or his machinery. He makes a profit only on the money he invests in labor power – the money he pays in wages.
That’s why we call the money he spends on wages “variable capital.” All the rest is “constant capital.”
When $100,000 is invested, say $90,000 goes into constant capital and $10,000 into variable capital. The workers get $10,000 in wages. If they produce twice as much value as they get paid, then they produce a “surplus value” of $10,000. They produce 100 per cent more than they get paid.
That’s $10,000 profit for the capitalist – a 100 per cent surplus over what he paid for the labor power. “But wait!" he says. He invested $100,000, didn’t he? And he only got a profit of $10,000. So he made only 10 per cent, not 100 per cent. He figures his profit on his whole investment. It is not his fault that cold machinery and lifeless plants do not make profits out of themselves like rabbits, which come out of silk hats. He pays enough for them, he thinks. A good deal more than he pays for these troublesome laborers.
And what is the difference whether we say that the capitalist has made a surplus value of 100 per cent over what he paid the workers – or that he has made a 10 per cent profit on his whole investment? The sum of money, $10,000, is the same in both cases.
First, it is more correct to say that a “surplus value” of 100 per cent has been squeezed out of the workers because it is a scientific description of what takes place. It strips bare the secret of “profits.”
Second, it helps us understand the growth and decay of the capitalist system. It helps us to see why it takes more and more money to be a capitalist, as machinery and production grow ever larger.
When capitalism was young, a budding capitalist didn’t have to own much capital to exploit labor. The tools of the laborer were still small – out of reach of the laborer’s purse, to be sure, but within the reach of many a little capitalist. A capital of, say $40,000 might be split in the following way: $30,000 for materials, equipment and machinery; $10,000 for labor. If the capitalist squeezed 100 per cent surplus out of the laborers there was a “surplus value” of $10,000, exactly the same as in the case above.
Both then and now the workers might produce about the same value and surplus value. (They produce more things – that is, more use values today – but not necessarily more exchange value.)
The capitalist regards the surplus value produced by the workers, as the profits on his total capital. The capitalist of years ago who made $10,000 on a total capital of $40,000, figured he was making a profit of 25 per cent. But the capitalist today has to invest more than a $100,000 to get $10,000 in surplus value. For him this is only a 10 per cent profit.
In other words, the more machinery comes into general use, the more constant capital it takes for normal production, and the lower the rate of profit on the total capital. And since this is continually going on, there is a constant decline in the rate of profit.
Now the capitalist is aware of this situation in a sort of way. At least he reacts to it. He can temporarily slow down the decline of the rate of profit by squeezing more surplus value out of the workers.
This can be done by lengthening the working day. But under modern conditions, the more practical method is to intensify the work – the speed-up and the stretch-out, conveyor-belt systems, assembly-line techniques and so on. Here the machine comes to its owner’s aid with a device to insure the laborer’s working sixty seconds to the minute, and thus yielding more surplus value – more profit to the owner.
And so, the machine which should do our work for us, and give us more time to live, read, dance and enjoy ourselves, compels us to do more work. As Marx said, “The most powerful instrument for shortening labor time, becomes the most unfailing means for placing every moment of the laborer’s time at the disposal of the capitalist.”
The fact that capital has a “constant” part and a “variable” part – the fact that these parts are changing their relations to each other – the fact that the rate of profit is declining – these facts lead to the ever more furious onslaughts against the working class. But even more important, they lead the capitalists themselves into a series of blind alleys which doom their own system.
Not that the capitalists are becoming poorer. But they become fewer – fewer and richer. A tremendously greater heap of constant capital is needed today to set labor, the value-creator, into motion. This leads to monopolies.
The ever-growing billions of constant capital and the declining rate of profit breed monopolies, economic stagnation and imperialist war.
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Last updated: 19 June 2021