Karl Marx was the first to discover how and why capitalism works, and we are going to reveal the secret in this little module.

But first, let's make sure we are in line with the masters. In the last lesson on the special commodity labor power, we made some statements that are easy to understand but hard to accept:

Let's quote Engels' "Synopsis of Capital" to make sure we understand labor power the way he did:

"Labor-power has an exchange-value which is determined like that of all other commodities: by the labor-time required for its production, and hence for its reproduction as well. The value of labor-power is the value of the means of subsistence necessary for the maintenance of its owner, and, what is more, his maintenance in a state of normal capacity for work."

Is everything equal to everything else?

In our three lessons on commodities, we have seen that all value comes from labor. Further, that supply and demand may temporarily change prices, but that prices tend to average out to the same as value. What kind of world are we describing? If all commodities are traded at their value, then the capitalists are just moving things around and no new value is being created. We might say that the capitalists are just providing a service for the rest of us by creating commodities, exchanging them, and transporting them to us consumers. In fact, that's pretty much what the capitalists tell us, innocently.

We know better

We know that new values are being created, somewhere somehow, and that the capitalist knows all about it. In fact, he's pocketing most of those new values for himself!

The secret lies in the very special commodity, labor power. That one commodity, and it alone, has the power to create new, previously unseen, value.

It works like this

The capitalist hires a worker for one week, that is, he purchases the workers' labor power for one week (he doesn't even pay for it until after he's used it, by the way). In a short period, the labor power creates more than enough wealth to pay for itself. That is, enough wealth to maintain or replace that same worker for that same one week.

But the worker doesn't stop at that point, he/she goes right on working until the end of the week! The extra amount that he/she creates is taken as the legal property of the capitalist! It is extra value, new value, and it is a surplus above and beyond the capitalists' costs!

This unpaid labor, this surplus, is the only new value created in the entire economic system.

Look back at history

In our lesson on social development, recall that people could barely feed themselves when we were savages. We spent all day every day hunting for food and avoiding predators. But, as history went on, we became more and more productive. We created a surplus as soon as we domesticated cattle and started practicing farming! As time went on, we invented machines and new ways to deploy our labor so that we became more and more productive.

Incidentally, machinery and new ways of working also painfully alienated the workers from their product. There's a short BBC video on alienation.

Who got the surplus? Not us! Class society developed and the ruling class always got the surplus, while the rest of us continued working as hard as we could, even though we knew we were producing much more than we, as workers, needed!

So it is with capitalism. We continue working much longer and harder than necessary for our own upkeep. We create a surplus, and the rulers (capitalists in this modern age) get the surplus.

Now we can go slightly further than we did in the three lessons on commodities:

  1. A commodity is an item or service produce for sale or trade. It has a use value and an exchange value
  2. All value comes from labor
  3. Money is a special commodity
  4. Labor power is an even more special commodity, but a commodity nevertheless
  5. All commodities, including labor power, generally trade at their value
  6. Labor power has the special ability to create, as it is itself consumed, more value than it possesses.
  7. Capitalists take the surplus!


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