Lecture
To understand the capitalist form of income and the relations governing its distribution, it is above all necessary to grasp that relations of distribution are merely a specific component part of the relations of production in the broad sense of the term. In this capacity, they are determined by the relations of direct production and, together with them, bear an equally historically determined character. Capitalist incomes — like all economic categories of the capitalist mode of production — have a value-based nature and are produced as values. But not simply as values. The production of values under capitalism is based on the movement of capital, which reproduces itself as self-expanding value. That is why all capitalist forms of income take on the form of component parts of capital. The surface forms of the capitalist production process, and the corresponding doctrines intended to explain these surface forms as natural and self-sufficient social conditions, present the distribution of income in an entirely different way. According to these views, the product of capital is interest alone. The receipt of entrepreneurial profit is then explained by the action of a multitude of quite heterogeneous factors — that is, it is conveniently talked away without finding any theoretical explanation. At best, entrepreneurial income is identified with wages for entrepreneurial activity.
Another form of capitalist income — land rent — is declared to be the product of land. And, finally, wages are presented as the product of labor. The trinity formula: this approach, in which capital appears as yielding interest, land as yielding land rent, and labor as yielding wages, [garbled source text].
If capital, land, and labor are regarded as the material conditions of the production process, then deriving from them particular value-based forms and magnitudes of income is logically inadmissible, and, in any case, fails to explain the origin of these incomes. If, instead, capital is regarded as a source of income in the sense of a definite sum of value, landed property is taken from the same angle, and labor is treated as the substance that produces value, this approach likewise fails to resolve the problem. Above all, it does not explain how capital can yield interest, i.e., how a given sum of value can yield more than it itself amounts to. Equally unclear is how the mere fact of owning land gives rise to any income at all.
It likewise remains entirely unclear how a given quantity of expended labor yields an income smaller than the value of the product of that labor. The Marxist treatment of the distribution of capitalist incomes rests on an examination of the relations under which these incomes are produced. The analysis of the production of surplus value alone shows how and why the worker receives not the value of the product he has produced, but only the equivalent of the value of his labor power (i.e., the outlays needed for its reproduction), while the capitalist appropriates the surplus value produced by the worker. We then see the surplus value produced split into a part that is capitalized and a part that becomes income. Further on, we trace the transformation of surplus value into profit, the formation of a general rate of profit, and the distribution of the average profit thus formed among industrial, commercial, and loan capital, giving rise respectively to entrepreneurial income, commercial profit, and interest. Marx then shows the distribution of profit among all of these and the landowner, who receives capitalist land rent. Modern neoclassical theory still adheres to the very same trinity formula that Karl Marx criticized. Its justification rests on a mathematical calculation of the most advantageous (from the standpoint of the rate of profit) distribution of the value equivalents of the factors of production in producing the capitalist product. By examining the increments of each factor of production, neoclassical theory shows at what ratio among them the maximum result is obtained.
The untenability of explaining income on the basis of the theory of the marginal productivity of factors of production: However, this approach, even setting aside the question of its mathematical correctness, does not in fact explain the connection between the incomes received and the shares of the factors of production being examined. This connection is treated as an axiomatic premise of the analysis. Moreover, the production of profit is taken as the criterion of maximization. Thus, in practice, this approach merely answers the question: how should the capitalist allocate his funds among expenditures on hiring labor power, purchasing means of production, and acquiring natural factors of production so as to obtain maximum profit? That is, under this approach, for example, a wage level is deemed fair and justified if it is the level at which the capitalist's maximum rate of profit is achieved.
However, serious doubts also exist regarding the full mathematical correctness of the approach under consideration. Whereas it is comparatively easy to assess the productivity of labor and the influence of natural factors on productivity (since, by themselves, they possess no productivity at all), operating with the concept of "the productivity of capital" leads to a vicious circle, as Joan Robinson already noted. It is impossible either to determine the aggregate productivity of all the most diverse material elements of capital (a task that is incorrect by definition), or to ascertain the productivity of capital as a given sum of value. In the latter case, productivity is defined as capital's capacity to yield income (profit), but in order to establish the rate of that very income, one needs to already know the magnitude of capital's productivity. The result is a vicious circle.
Corresponding to the relations of production examined above and the relations of distribution that flow from them, the principal forms of capitalist income take shape, along with the principal classes of capitalist society that live off these incomes. Wage workers (the proletariat, the working class1) — receive the equivalent of the value of their labor power, which is used to produce surplus value. The proletariat (working class) are persons who possess no means of production and derive their main income from the sale of their [labor power]. Capitalists — industrial, commercial, and loan capitalists — divide among themselves the surplus value produced through the exploitation of wage labor, which takes the form of profit. What they have in common is that, although production 1 This latter designation is used to emphasize the fact that representatives of this class are defined as workers in contrast to exploiters.
A mere reference to the wage-labor character of work alone may conceal, behind the common form of hiring, the distinction between the capitalist and the worker.
Thus, the hired director of a joint-stock company in fact acts as a capitalist in relation to the worker. of surplus value is concentrated chiefly in the hands of industrial capital, the basis for the appropriation of portions of the surplus value produced, for all these forms of capital, is their exploitation of wage labor. Capitalists are persons who derive their main income from the exploitation of wage labor power. Finally, the landowner appropriates part of capitalist profit in the form of land rent, not only producing nothing, but not even directly taking part in the exploitation of wage labor, basing his income solely on the monopoly of private property in land.
Landowners (landlords) are persons who derive their main income in the form of land rent. The capitalist class has a complex internal structure, determined by the particular features of its participation in the production and appropriation of surplus value. These features have in their main outlines been described above. Capitalists are divided into industrial, commercial, and loan capitalists. Industrial capitalists are engaged in exploiting wage workers in the sphere of producing goods and services. And here it makes no difference in which branch they produce surplus value — industry, agriculture, or show business. Commercial capital exploits workers in the sphere of circulation, and takes some part in the production of surplus value insofar as this concerns additional costs of circulation. However, the greater part of the profit obtained by the commercial capitalist rests on the ability of the workers he exploits to reduce the costs of circulation through specializing in servicing the circulation of goods. This reduction in the costs of circulation is the basis on which industrial capital hands over the functions of circulation to specialized commercial capital, and, together with this, cedes to it a part of the profit produced. Loan capital appropriates part of the profit in the form of interest.
But in terms of class division, the personification of loan capital is not homogeneous. Among the personifications of loan capital, one can distinguish, first, the owners of temporarily free money capital, who may be anyone — from land magnates to fairly poor workers. Being representatives of loan capital is merely one of their economic guises. However, there are those owners of money funds whose main income comes from placing their temporarily free money funds at interest — whether in banks or by purchasing securities. Such persons are called rentiers. Rentiers are persons who derive their main income from investing money capital in banks or securities. Another guise of loan capital is the banker. He too may place his own money funds at interest. But his main role is different — he serves as an intermediary between the owners of temporarily free money funds and borrowers. The banker's profit consists of the difference between the interest he pays to the owners of money placed with the bank and the interest he charges the debtors to whom he lends this money. The separation of money capital from real capital, which occurs with the development of the securities market and the formation of fictitious capital, gives rise to a social stratum that participates in a particular kind of loan relations characteristic of the movement of fictitious capital.
These are stock market speculators, whose income consists of the redistribution of money invested in operations on the market for fictitious capital. Finally, landowners also belong to the exploiting classes under capitalism. They do not engage directly in the exploitation of wage labor and do not take part in the production of surplus value. They appropriate part of capitalist profit on the basis of their monopoly over plots of land. The class of wage workers likewise has a complex internal structure.
Industrial workers (here, "industry" refers not to a branch of the economy but to the entire sphere in which industrial capital operates — the sphere of producing goods and services) produce, through their labor, surplus value for the entire class of capitalists and landowners. The commercial and clerical proletariat (employed in trade, banking, and in organizing accounting and record-keeping), although it does not produce surplus value, is nevertheless also exploited by capitalists. This part of the wage-earning workforce does not produce surplus value, since it produces no new use value and, consequently, no value. However, the labor they perform saves costs for industrial capital, which extracts surplus value from its workers. Their working time, too, is divided into necessary and unpaid surplus labor. The value of their labor power is covered by industrial capital, which pays the costs of circulation taken on by commercial capital, in such a way that the commercial capitalist is able to cover the costs of circulation incurred, including paying for the labor power expended by commercial workers, and even to receive part of the surplus value created by industrial workers. Clerical and bank employees (operators, bookkeepers, cashiers, etc.) are remunerated in an entirely analogous way. Wage workers also differ from the standpoint of their possible participation in the exploitation of other people's labor.
For example, an engineer is just as much an exploited wage worker as a machine operator. Just as much — but not quite. His functions in the production process are bound up with ensuring the operation of constant capital, and in this respect he stands opposed to "ordinary" wage workers as a representative of capital. The same holds for hired managers, starting with the lowest ranks (foremen, rate-setters, shift supervisors, and heads of sections and shops). On the one hand, they are a necessary component part of the aggregate worker, exploited workers performing managerial labor. On the other hand, they take part in organizing the exploitation of wage labor by capital. This distinction becomes especially pronounced when it comes to senior engineers, senior managers, and the top tier of commercial, clerical, and bank employees. Here their difference from "ordinary" workers shows up not only in performing functions that assist in exploitation, but also in the sources of the income they receive. Capital allots this stratum a certain share of the surplus value extracted, even if in form this income appears merely as wages
. But often the form in which this income is received also differs — various kinds of bonuses, director's fees, stock options, and so on appear. Under capitalism there exist social strata that belong neither to the capitalists nor to the wage workers, and that do not occupy an intermediate position between them either. These are small producers who work with their own means of production, who do not exploit the labor of others, or who exploit it only on a scale that does not make exploitation the main source of their income. Such a social stratum is called the petty bourgeoisie (not to be confused with small capitalists, who live off the exploitation of the labor of others and differ from large capitalists only in the size of their capital). The petty bourgeoisie are small private owners who possess means of production and derive their main income from using them to produce goods through their own labor.
In characterizing the proletariat, one should not lose sight of the fact — which, unfortunately, is very often done — that the proletariat, not only by its historical origin but also by its position within the system of capitalist production relations, has a genetic kinship with the petty bourgeoisie. The proletarian is not only a wage worker, but also a trader — a seller of his labor power and a buyer of the means of subsistence — and not only a trader, but also a small commodity producer — the producer of the commodity "labor power." This feature of his social position inevitably leaves its mark on his class interests and class psychology. Such are the main class and intra-class divisions in capitalist society. Real-world capitalism also retains more or less significant survivals of pre-capitalist relations. Where these relations are sufficiently widespread, the social groups and classes characteristic of them may also be preserved. Where, however, only individual features of pre-capitalist relations survive, capitalist classes and social groups become involved in them in one way or another. For example, capitalist landowners may also take part in pre-capitalist forms of exploiting the peasantry; alongside the relations of loan capital, purely usurious operations may also be carried on, and so forth. In addition, capitalism retains a stratum of persons providing personal services (even at the dawn of industrial capitalism, this stratum still numerically exceeded wage workers). This stratum occupies an intermediate position between wage workers and the petty bourgeoisie. In form, they may enter into either relations of hire or transactions involving the sale of their services. Usually, this stratum consists of persons who work not for a free and unknown market, but for a very narrow circle of clients. Since their labor is exchanged for someone's personal income (whether that of capitalists or of representatives of other classes), in the capitalist sense they are unproductive workers. Subsequently (beginning from the period of the late 19th and early 20th centuries), the classical Marxist conceptions of the system of capitalist production relations that took shape as a result of the Industrial Revolution, and of the social structure of capitalist society, continued to be refined on the basis of studying data on the further historical evolution of the capitalist mode of production. These refinements will be set out below.
THE TRINITY FORMULA: the approach in which capital appears as yielding interest, land as yielding land rent, and labor as yielding wages — Karl Marx called this the "trinity formula."
THE PROLETARIAT (WORKING CLASS) — persons who possess no means of production and derive their main income from the sale of their labor power.
CAPITALISTS — persons who derive their main income from the exploitation of wage labor power.
LANDOWNERS (LANDLORDS) — persons who derive their main income in the form of land rent.
RENTIERS — persons who derive their main income from investing money capital in banks or securities.
THE PETTY BOURGEOISIE — small private owners who possess means of production and derive their main income from using them to produce goods through their own labor.
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