MARX’S contribution to the understanding of capitalism can be usefully seen through two profound insights that he had into this system. The first concerns the origin of surplus value. In a world of commodities where exchange between commodity-owners, among whom are also the workers, occurs voluntarily and at equivalence, without any swindle, how can surplus value arise?
The solution to this riddle that Marx discovered lies in a distinction between labour and labour-power. What the workers sell is not their labour but their labour-power, ie, their capacity to work, which becomes a commodity, and like all commodities has a value equal to the total amount of direct and indirect labour-time that goes into the production of a unit of it, which in this case implies what is embodied in the subsistence basket required for the production and reproduction of a unit of labour-power. Labour-power as a commodity however has this unique property that its use, which is the actual expenditure of labour-time, creates value. The origin of surplus value lies in the fact that the value which labour-power is made to create is larger than its own value. Even with equivalent exchange therefore, ie, even when all commodities exchange at their values, a surplus value arises.
This profound insight has a number of implications. First, it provides a succinct and rigorous definition of capitalism, as a system of generalised commodity production where labour-power itself has become a commodity. This also means that the duality that characterises any simple commodity-producing economy, between the “thing”-aspect of entities and their relational aspect, such as use value-exchange value, labour process-value creation process, product-commodity, concrete labour-abstract labour, now becomes even more pervasive: means of subsistence-variable capital, surplus product-surplus value, and so on.
Secondly, surplus value is created in this system not in the sphere of exchange but in the sphere of production. Since capitalist firms as commodity producers are engaged in competition against one another where the high-cost producers are eliminated over time, the pressure to cut costs necessarily takes the form of introducing new methods and new products, ie, of continuously revolutionising the methods of production. This incessant drive to revolutionise production is what distinguishes capitalism from all previous modes of production, and it is linked to the fact that surplus value originates in the sphere of production.
Thirdly, since the ability to introduce new methods depends upon the size of the capital-unit, with larger capitals having an edge over, and driving out, smaller capitals, every unit of capital is under pressure to increase its size through accumulation. Accumulation of capital in short occurs because of the pressure exerted upon each unit of capital by the fact of competition within the system. But of course, even though each unit of capital desperately acts to avoid losing out in this Darwinian struggle for existence, some necessarily do lose out, because of which there is a process of centralisation of capital, ie, the formation of larger and larger blocs of capital that occurs over time. (This ultimately leads to the emergence of monopoly capitalism where explicit or implicit price agreements are reached among capitalists without of course eliminating competition which now takes other forms).
Fourthly, for the appropriation of surplus value by the capitalists to continue, the value of labour-power must always be less than the value it creates, which means that the system must never run short of labour-power. This in turn requires that there must always be a reserve army of labour in addition to the active army of labour employed by the capitalists. This reserve army is created by capital accumulation itself which through the process of centralisation of capital and through the destruction of petty production, continuously pushes people into the ranks of labourers. Since the absolute size of the reserve army keeps increasing, alongside that of the active army, as capital accumulation occurs, the growth of wealth at one pole is necessarily accompanied by the growth of poverty at another.
English classical economists had attributed the fact that wages were kept at a subsistence level to the tendency among workers to breed excessively in the event of getting above subsistence wages. This utterly repugnant idea was rejected by Marx who called the Malthusian Theory of Population upon which it was based “a libel on the human race”. He adduced instead the social reasons we have mentioned for wages being stuck at the subsistence level.
Fifthly, the origin of the system itself lies in a separation of producers from their means of production and a concentration of these means of production in fewer hands so that two classes of commodity-owners, one with means of production and subsistence in their hands and the other with nothing to sell but their labour-power get created and come “face to face and into contact”. This fundamental dichotomy is reproduced over time through the operation of the system itself.
Sixthly, through the continuous revolutionising of the methods of production, labour productivity increases over time. But the existence of the reserve army of labour always acts ceteris paribus to keep wages at a historically-determined subsistence level, which may at best increase slowly over time. Since wages are more or less fully consumed, while only a proportion of surplus value is, this keeps down consumption demand in the economy relative to the value of output; if all unconsumed surplus value was used for accumulation solely in the form of additions to the stock of constant and variable capital, then there would never be any problem of deficiency of aggregate demand relative to the value of output, as Say’s Law had postulated. But since accumulation can take the form of adding to money capital, the rise in the share of surplus value in the total value of output gives rise to a tendency towards crises of over-production.
Marx had drawn attention to several different kinds of crisis which could arise within the system, including through a rise in the organic composition of capital, ie, in the ratio of constant to variable capital. But his recognition of over-production crises because of the money-using nature of capitalism, which necessarily made money a form of holding wealth, not only marked an advance over English classical economists who had accepted Say’s Law, but anticipated by three quarters of a century the so-called Keynesian Revolution, which was developed during the Great Depression of the 1930s in order to comprehend it.
This fundamental insight into the nature of exploitation under capitalism and the fact that the system reproduces its exploitative nature and the contradictions arising from it, through its own operation, was integrated in turn into his insight into a basic characteristic of the system, namely that it is a spontaneous system. While it functions through the actions undertaken by a host of individual entities, these individuals act the way they do because they are coerced by the system into doing so. The system therefore is essentially a self-driven one, whose self-driven nature is mediated by individual actions but actions that are themselves determined by the logic of the system. Any individual who does not act in ways demanded by the system loses his or her place within it and falls by the wayside, such as for instance a capitalist who decides not to undertake accumulation. And the actions of individuals in their totality give rise to certain immanent tendencies that characterise the system, such as the tendency towards centralisation of capital, the tendency towards pervasive commoditisation, the tendency towards an expanded reproduction of the reserve army of labour, the tendency towards the expropriation of petty producers, the tendency towards the production of wealth at one pole and poverty at another; and so on.
This second insight of Marx too has a number of profound implications. Contrary to its claim that it ensures individual freedom, capitalism is characterised by universal alienation, where every economic agent is coerced to act in ways not of his or her own volition. Even the capitalist is alienated under capitalism, with no freedom to act according to own volition, but coerced to act in specific ways because of the Darwinian struggle in which all capitalists are engaged. Marx called the capitalist “capital personified”, indicating that the capitalist’s persona was simply a vehicle for the acting out of the immanent tendencies of capital.
Secondly the “spontaneity” of the system means that it was not a malleable one where any change in its economic functioning and outcome can be brought about through political intervention. Indeed the normal role of political intervention by the capitalist State is to reinforce the “spontaneity” of the system, in the sense of hastening the achievement of its immanent tendencies. But even if perchance under certain circumstances the “spontaneity” of the system is restricted through political intervention, such restriction makes the system dysfunctional, necessitating either further intervention to alter the system or a rolling back of the original intervention itself to restore the “spontaneity”.
The case for socialism arises precisely because of this “spontaneity”. If capitalism had been a malleable system where any kind of “reforms” could be successfully and enduringly carried out for making it more humane, more “worker-friendly”, more “socially responsible”, more egalitarian, and more “welfarist”, then there would be little point in arguing for its transcendence by a socialist order. But the “spontaneity” of the system prevents such malleability, makes any significant reforms in it untenable, makes “welfare capitalism” a contradiction in terms as a sustainable phenomenon, which is why it has to be transcended.
Socialism correspondingly has to be seen as an altogether different order, a non-“spontaneous” one. The difference between capitalism and socialism lies not just in the fact that the latter is associated with the ownership of the means of production by the State on behalf of society as a whole: if State-owned firms competed against one another on the market as capitalist firms do, then they would reproduce the anarchy of capitalism together with crises, unemployment and many of the immanent tendencies of capitalism. This difference does not also lie just in the fact that incomes are better distributed under socialism: that too can be undone over time if the tendency towards creating a reserve army of labour is allowed to persist. The difference lies in the fact that socialism is not driven by any immanent economic tendencies, so that the working people can consciously shape their economic destiny through collective political intervention. A socialist economy has to be one that makes this possible.
But how can socialism ever come into being if capitalism coerces all individuals to act in ways demanded by its own logic? Marx’s answer was that capitalism, despite promoting competition, fragmentation and alienation among the workers, also enables them to come together through “combinations”. This represents a rupture in the enactment of its inner logic; and this rupture, aided by a theoretical understanding that sees the system from the “outside”, ie, from a perspective of “epistemic exteriority”, leads to praxis for socialism.
A basic difference between Marxism and liberalism is that the latter, notwithstanding all its emphasis on individual freedom, sees this freedom as being constrained only by the State or by some individuals or groups, but never by the system itself. That is because it takes all economic relationships to have been entered into voluntarily; it never recognises that individuals may have been coerced into entering economic relationships.
The coercion of the economic system which Marx highlighted, does not reside only in its acting as a constraint upon individual projects and actions. On the contrary, capitalism is driven by immanent tendencies within whose web the individual is caught. Freedom of the individual therefore, far from being realised under capitalism, requires for its realisation the transcendence of capitalism by socialism which is free of any immanent tendencies. The existence of these immanent tendencies under capitalism also explains why a necessary condition for all emancipation, whether from caste or gender or ethnic or other oppressions, is the transcendence of this system. Socialism is a necessary condition for ending all oppression.
Marx’s analysis of capitalism in Capital looks at the capitalist system in isolation; its interactions with the pre-capitalist modes of production surrounding it, are not discussed, despite their obvious importance. This is curious since at the very time that Marx was working on Capital he was also reading extensively on British colonial impact on India on which he wrote a series of articles for the New York Daily Tribune. His not integrating imperialism into his analysis of capitalism was perhaps because he was pre-occupied at the time with a Proletarian Revolution in Western Europe which he thought was imminent. But in later life he turned his attention to other regions, as the prospects of a West European Revolution receded. And just two years before his death he wrote a letter to NF Danielson, the Narodnik economist where he talked about the massive “drain” of surplus from India to Britain.
Marx’s analysis of capitalism in short must be seen as the starting point, not the end, of such analysis. The task of developing Marxism both by incorporating imperialism into the analysis, in Marx’s own context, and by examining subsequent developments, falls on later Marxist authors, which is precisely what Lenin had done. And when such filling in is done, several of Marx’s basic insights into capitalism are vindicated even more strongly.
For instance when the persistent encroachment by capitalism into the surrounding petty production economy is considered, which squeezes or displaces such producers without absorbing them into capitalism’s active army of labour, Marx’s insight that the system produces wealth at one pole and poverty at another gets immensely strengthened. In fact those who argue against Marx’s prognosis by saying that such polarisation has not occurred in lands where capitalism had first triumphed, ignore typically this dialectical relation between capitalism and its surrounding world. Marx’s insights are actually strengthened by “going beyond” what Marx had originally written.
The same is true of Marx’s revolutionary project. When capitalism is seen in its totality, incorporating imperialism, the prospects and possibilities of revolution become immensely greater; for we then talk no longer only of a proletarian revolution in developed capitalist countries but also of a democratic revolution based on a worker-peasant alliance even in countries where capitalism is less developed, with even the latter revolution proceeding in stages towards socialism. The prospects of a worker-peasant alliance which Lenin had conceptualised as arising from capitalism’s incapacity to carry forward the anti-feudal revolution in countries where it arrived late, become additionally strengthened when we cognize capitalism’s encroachment upon the economy of the petty producers, which pushes the latter into destitution and suicides even in the current highly “modern” era of globalisation.