Cycle in which:
- Labor power is exploited, producing surplus value;
- Surplus value is realized in the market for goods and services;
- The result of exploitation is distributed in the form of profit in the capital market, in order finally...
- ...to be reincorporated into production as expanded capital.
Phases of the accumulation of capital
1. Exploitation of labor power
Unlike previous modes of production, exploitation in capitalism takes a completely economic and commodity form. The bourgeoisie does not seize the product of the workers' labor by force of arms. On the contrary, it buys their labor power on the market under the apparent conditions of a free exchange between equals.
What characterizes the capitalist epoch, then, is that labor power takes, for the worker himself, the form of a commodity belonging to him, and his labor the form of wage labor. On the other hand, from that moment onwards the commodity form of the products of labor becomes generalized for the first time.
Karl Marx. Capital, 1867.
The price that the individual capitalist pays for labor power is the wage. But if the worker had the opportunity to produce on his own account, the wage would not exist as such, because he would refuse to sell his labor in exchange for a smaller quantity of goods than he could produce by himself. That is why the establishment of capitalism requires the prior existence of the workers as a proletariat, that is, a dispossessed class that has no commodities to sell other than its own labor power.
For the transformation of money into capital, therefore, the owner of money must find the free worker in the commodity market; free in the double sense that, on the one hand, as a free man he disposes of his labor power as his own commodity, and that, on the other hand, he has no other commodities to sell, is free of, stripped of, unencumbered by all the things needed to put his labor power into action.
Karl Marx. Capital, 1867
The absence of alternative commodities to sell leads the workers to sell their labor power at its cost of production. In other words: the mass of wages paid by capital is equivalent to the social cost of reproducing a similar quantity and quality of labor power for the next period. In this, labor power is no different from the other commodities the bourgeoisie buys in order to produce.
Economists say that the act of producing -that is, the consumption of a series of commodities in order to transform them into other commodities- produces "value". In capitalism this has a meaning: "creating value" means that the mass of money in constant terms that returns to the balance sheet of the owners of capital at the end of the cycle is larger.
Marxist critique reminds us that this "value added" in production is nothing other than unpaid hours of labor, surplus labor. Surplus labor is the whole secret of the increase in value, that is, of the existence of that surplus value which economists are both fascinated by and conceal with their theories of value.
Capitalist production is in essence the production of surplus value, the absorption of surplus labor.
Marx. Capital, 1867
Like the ruling classes of the class-divided societies that preceded it, the bourgeoisie measures the success of its economy by its capacity to appropriate the result of social labor and direct it towards its own ends. But unlike previous modes of production, capitalism tends to continually increase production and expand the market, to transform previous social relations into commodity relations and to modify the means of production so as to enjoy a greater quantity of social product.
The bourgeoisie cannot exist without constantly revolutionising the instruments of production, and thereby the relations of production, and with them the whole relations of society. Conservation of the old modes of production in unaltered form, was, on the contrary, the first condition of existence for all earlier industrial classes. Constant revolutionising of production, uninterrupted disturbance of all social conditions, everlasting uncertainty and agitation distinguish the bourgeois epoch from all earlier ones.
All fixed, fast-frozen relations, with their train of ancient and venerable prejudices and opinions, are swept away, all new-formed ones become antiquated before they can ossify. All that is solid melts into air, all that is holy is profaned, and man is at last compelled to face with sober senses his real conditions of life, and his relations with his kind.
The need of a constantly expanding market for its products chases the bourgeoisie over the entire surface of the globe. It must nestle everywhere, settle everywhere, establish connexions everywhere.
Karl Marx and Frederick Engels. "Manifesto of the Communist Party", 1848
To understand how capitalism carries in its very foundations the need to expand and to increase both production and productive capacities, we have to move on to the next phases of the accumulation process and bring in first the market for goods and services and then the capital market.
2. Realization of surplus value in the market
Surplus value, like every form of value, does not exist as such; it is not a physical property, it is the idealization of a social relationship: the relationship of exploitation of labor by capital that allows the owners of capital to appropriate labor power without paying for it. But for the capitalist this does not end in the factory; he is not an accumulator of the commodities he produces; his aim is not to accumulate a treasure but to accumulate capital.
And for that he has to go to the market and turn the commodity produced into money by selling it. Only when production goes out to the market and is sold in a new exchange (the first was the purchase of raw materials, means of production and labor power) does the exploitation of labor translate into a sum of money greater than the one invested. That is the moment when surplus value "is realized", becomes material in the form of money.
Once realized, surplus value is reintegrated into the cycle to produce new surplus value in an even greater quantity.
The mystery underlying the circulation of commodities in the capitalist system (money used to buy commodities which, in a new form, are sold again for a larger sum of money) turns out to be nothing other than the conversion of money into capital. The cycle of circulation of commodities which in earlier commodity economies produced at most "hoarding", an accumulation of money that was separated from the cycle of production, becomes in capitalism a cycle of accumulation of capital.
As the conscious bearer of this movement, the owner of money becomes a capitalist. His person, or rather his pocket, is the point from which money starts and to which it returns. The objective content of this circulation -the valorization of value- is his subjective purpose, and it is only insofar as the growing appropriation of abstract wealth is the sole driving motive of his operations that he functions as a capitalist, that is, as capital personified, endowed with consciousness and will. Use value must therefore never be regarded as the direct aim of the capitalist.
Nor must the isolated profit, but rather the restless movement of profit-making. This absolute drive for enrichment, this passionate chase after exchange value, is common to the capitalist and the hoarder, but while the hoarder is merely a capitalist gone mad, the capitalist is a rational hoarder. The never-ending augmentation of value, which the hoarder seeks to achieve by saving his money from circulation, is achieved by the more shrewd capitalist by throwing his money again and again into circulation.
The independent forms, the money forms, which the value of commodities assumes in simple circulation, merely mediate the exchange of commodities and vanish in the final result of the movement. In the circulation M - C - M, on the other hand, both the commodity and the money function only as different modes of existence of value itself: money as its general mode of existence, the commodity as its particular or, so to speak, merely disguised mode. Value constantly passes from one form to the other without being lost in this movement, and thus becomes an automatic subject.
If we pin down the particular forms of appearance which self-valorizing value successively assumes in the course of its life, we reach the following statements: capital is money, capital is commodities. In reality, however, value here becomes the subject of a process in which, while constantly assuming the form of money and of commodities in turn, it changes its own magnitude, throws off surplus value from itself as original value, valorizes itself.
The movement in which it adds surplus value is in fact its own movement, and its valorization is therefore self-valorization. It has acquired the occult quality of adding value because it is value. It brings forth living offspring, or at least lays golden eggs.
As the dominant subject of this process, in which it now assumes and now casts off the form of money and the form of commodities, but preserves and expands itself through all these changes, value needs above all an independent form in which its identity with itself may be established. And it possesses this form only in money. That is why money is the starting point and the end point of every process of valorization. It was £100, and now it is £110, and so on.
But money itself counts here only as one form of value, since value has two forms. Without assuming the form of a commodity, money does not become capital. Money, then, does not appear here in opposition to the commodity, as it does in hoarding. The capitalist knows that all commodities, however shabby they may look or however badly they may smell, are in faith and in truth money, inwardly circumcised Jews, and what is more, wonderful means for making more money out of money.
Karl Marx. "Capital", Book I, Chapter IV
One element to bear in mind in this phase is that, because of the "restricted bases" of the capitalist sector of any economy, there can only be "overproduction", that is, by definition wages are not enough to buy everything produced... the accumulation process, or what amounts to the same thing, capitalism, needs to expand from the very first moment. First towards its internal non-capitalist markets. Second towards external ones. That was the material driving force of the worldwide expansion of capitalism.
Since the aim of capital is not the satisfaction of needs but the production of profit, and since it achieves this aim only by methods that regulate the volume of production according to the scale of production, and not the other way round, there must constantly be a rift between the restricted dimensions of consumption on a capitalist basis and a production that constantly tends to overcome this barrier immanent to it. Moreover, capital consists of commodities, and therefore the overproduction of capital implies the overproduction of commodities.
Hence the curious phenomenon that the same economists who deny the overproduction of commodities admit that of capital. If it is said that within the various branches of production there is not a general overproduction but a disproportion, this means nothing other than that, within capitalist production, proportionality between the various branches of production is established as a constant process out of disproportionality, because here the interconnection of production as a whole imposes itself on the agents of production as a blind law, and not as a law grasped by their associated intellect and thereby brought under their collective control.
Furthermore, in this way it is demanded that countries in which the capitalist mode of production is not developed should consume and produce to a degree suited to the countries of the capitalist mode of production. If it is said that overproduction is only relative, this is quite correct; but the whole capitalist mode of production is only a relative mode of production, whose limits are not absolute, but are absolute for it, on its own basis.
How else could there be a lack of demand for the very commodities that the mass of the people lack, and how would it be possible to have to seek this demand abroad, in more distant markets, in order to be able to pay the workers at home the average of the indispensable means of subsistence?
Because only in this specific, capitalist context does the surplus product acquire a form in which its owner can make it available for consumption only insofar as it is reconverted into capital for him. Finally, if it is said that in the last instance the capitalists only have to exchange their commodities among themselves and eat them up, the whole character of capitalist production is forgotten, and so is the fact that what is at stake is the valorization of capital, not its consumption.
In short, all the objections to the palpable manifestations of overproduction (manifestations that pay no heed to such objections) amount to saying that the limits of capitalist production are not limits of production in general, and therefore not limits of this specific mode of production, the capitalist one either. But the contradiction of this capitalist mode of production lies precisely in its tendency towards the absolute development of the productive forces, which comes permanently into conflict with the specific conditions of production within which capital moves, and which are the only ones within which it can move.
Karl Marx. Chapter XV of Book III of "Capital", 1894.
The chronic lack of markets of capitalism could only lead it to reach a limit. A limit that marks the passage from rising capitalism to the decadence of the capitalist mode of production. That limit would be heralded by the entry of capitalism into its imperialist phase and preceded by "winds of catastrophe" of war.
The existence of non-capitalist buyers of surplus value is a direct vital condition for capital and its accumulation. In this sense such buyers are the decisive element in the problem of the accumulation of capital. But one way or another, in fact, the accumulation of capital as a historical process depends in many respects on non-capitalist social strata and forms. (...)
Capitalism needs, for its existence and development, to be surrounded by non-capitalist forms of production. (...) The second fundamental precondition, both for the acquisition of means of production and for the realization of surplus value, is the extension of the action of capitalism to societies with a natural economy. (...)
Imperialism is the political expression of the process of accumulation of capital in its struggle to conquer the non-capitalist environments that are not yet exhausted. Geographically, these environments still cover today the widest territories of the Earth.
But compared with the powerful mass of capital already accumulated in the old capitalist countries, which struggles to find markets for its surplus product and possibilities of capitalization for its surplus value; compared with the speed with which territories belonging to pre-capitalist cultures are today being turned into capitalist ones, or in other words: compared with the high degree of the productive forces of capital, the field still seems small for its expansion.
This determines the international game of capital on the world stage. Given the great development and the increasingly violent competition among the capitalist countries to conquer non-capitalist territories, imperialism increases its aggressiveness against the non-capitalist world, sharpening the contradictions between the contending capitalist countries.
But the more violently and energetically capitalism brings about the total collapse of non-capitalist civilizations, the more rapidly it will cut the ground from under the accumulation of capital. Imperialism is as much a historical method for prolonging the existence of capital as a sure means of objectively putting an end to its existence. This is not to say that this end must be cheerfully reached. The very tendency of capitalist development towards it already manifests itself in winds of catastrophe.
Rosa Luxemburg. "The Accumulation of Capital", 1913.
3. Distribution of the result of exploitation in the form of profit through the capital market
Capital expanded with new profits is not tied to a company. In reality, the various companies are nothing but possible placements of capital, which compete with one another in the capital market to be more attractive, that is, to offer better rates of profit to the capitals seeking placement. The function of the capital market is precisely to homogenize the rates of profit of the different placements.
They behave towards one another as they would if we pictured the total sum of the capitals that make up the capital of the capitalist classes as a single magnitude on which the total surplus value were calculated [...] There is no doubt that, calculated in this way, each fragment of this total capital would receive an aliquot part of the total surplus value, in proportion to its share in it. [...]
The volume of profit depends on the volume of capital, on the number of shares in that general capital which are owned by the capitalist; hence competition among capitals tries to treat each capital in itself as a fragment of the total capital, regulating accordingly its share in surplus value and therefore in profit.
The capitalists tend to divide among themselves (a tendency in which competition precisely consists) the quantity of unpaid labor that they squeeze out of the working class -or the products of that quantity of labor- not in the proportion in which a specific capital directly produces surplus labor, but, first, in the proportion in which this specific capital represents an aliquot part of the total capital and, second, in the proportion in which the total capital produces surplus labor. The capitalists share out the spoils of the appropriated labor of others like hostile brothers, in such a way that on average one appropriates the same quantity of unpaid labor as the other.
Karl Marx. Theories of Surplus Value, Chapter VIII.
By equalizing -or tending to equalize- the rates of profit of the possible placements of capital, the equivalence between the surplus labor/surplus value extracted and the profit obtained by capital in a country or an industrial branch is blown apart, not to mention in a particular company. It becomes at best a coincidence, a statistical anomaly. In fact, generally speaking, surplus value will differ from profit in each particular company.
4. Reincorporation into production as expanded capital (the aim of capital accumulation)
The capital market "closes" capitalism as a system, orienting the uses of capital, that is, the concrete forms of exploitation, towards their most efficient forms for the aims of the system; that is, it "constantly revolutionizes the means of production", incorporating technical and organizational innovations that will allow capital as a whole to extract more surplus labor.
However, one of the characteristics of capitalism in its decadence is that the chronic absence of markets produces a lack of profitable applications for capital. Not everything can be placed without choking the rate of profit. Capital that is "over-accumulated" in relation to demand is diverted towards speculation and becomes fictitious capital: the kind we see on the stock exchanges, the futures markets, etc. A gigantic mass of capital, that is, of rights to exploit, separated from production and therefore with feet of clay, which acts as an accelerant of the catastrophic character of financial crises.