PRINCIPLES OF MARXISM-LENINISM
A STUDY COURSE
CLASS TWO : HOW CAPITALISM WORKS
By W.B. Bland.
1. WHAT IS A COMMODITY?
Something produced for exchange, not for the personal use of
A peasant who grows vegetables for his family is not engaged in commodity
production, but in production for use. But if he grows them in order to exchange
them with the landlord of the local inn for ale, he is engaged in production for
exchange, in commodity production.
2. WHAT IS SIMPLE COMMODITY PRODUCTION?
The production of commodities by producers who own their own means of
production, like that carried on by artisans under the feudal system.
3. WHAT IS CAPITALIST COMMODITY PRODUCTION?
The production of commodities by working class producers in a capitalist
society, that is, by producers who do not own their means of production and so
are compelled, in order to live, to seek employment with capitalists who do own
means of production.
4. WHAT IS A MARKET?
An area where those who wish to dispose of a commodity and
those who wish to acquire it are in contact. Thus, we may speak of a local
livestock market or a world oil market.
A market where there are a number of separate individuals or firms competing to
dispose of a commodity and a number of individuals or firms competing to acquire
it is called a competitive market.
5. WHAT IS THE RATE OF EXCHANGE OF A COMMODITY?
The number of commodities of other kinds for which that
commodity can be exchanged in a particular market at a particular time. If a cow
can be exchanged in a town's cattle market on a particuar day for two pigs, the
rate of exchange of a cow is equal to two pigs, while the rate of exchange of a
pig is one- half of a cow.
6. WHAT IS THE VALUE OF A COMMODITY?.
Clearly, it is not necessarily equal to its rate of exchange
in a particular market, for in the last example we may speak of a cow being
'worth more' or 'worth less' than its actual exchange value.
At the basis of the exchange rate between two commodities
lies the relative quantity of work required to produce them. In fact, the value
of a commodity is the necessary labour time required to produce it. So, if it
takes 4,000 times more hours to produce a car than to produce a briar pipe, the
value of a car is 4,000 times that of the pipe.
7. WHAT DETERMINES THE RATE OF EXCHANGE OF A COMMODITY IN A
Supply and demand, which causes the rate of exchange to
fluctuate above or below its value.
If, for example, there is a shortage of sugar in a particular
market, those who wish to obtain it will tend to offer more than its value in
order to obtain it. On the other hand, if there is a glut of sugar in a
particular market, those who wish to dispose of it will tend to offer it at less
than its value in order not to have it left on their hands.
However, if the rate of exchange of a commodity is above its
value as a result of shortage, the production of sugar will yield exceptionally
high returns, Consequently, more people will go in for producing it, and the
production of sugar will rise until its rate of exchange goes down to its value.
The reverse process operates if the rate of exchange of sugar is below its value
as a result of supply exceeding 'demand'; the production of sugar then yields
exceptionally low returns, so that the production of sugar will decrease until
its rate of exchange rises to its value.
Thus, in each competitive market there is a tendency for the
rate of exchange of each commodity to correspond, in the long run, to its value.
8. WHAT IS BARTER?
The direct exchange of one commodity for another, e.g., wheat
9. WHAT IS MONEY?
A commodity (or token of a commodity, such as a banknote,
which is the token for a certain quantity of gold) which is generally acceptable
within a particular community as a medium of exchange.
The introduction of a monetary system removes many of the
difficulties inherent in a barter system. Under the latter, if a weaver wishes
to obtain a pair of shoes, he must search for a shoemaker who wants cloth. But
when money is in social use, he may sell his cloth to anyone for money and use
this to buy shoes from any shoemaker.
10. WHAT IS PRICE?
The rate of exchange of a commodity expressed in terms of
11. WHY DO PRECIOUS METALS SUCH AS GOLD AND SILVER COME INTO
USE AS MONEY?
For convenience of use and transport. Being rare, their
production involves a very large amount of labour time, so that a small quantity
of them embodies a very large value.
12. WHAT IS LABOUR POWER?
The capacity of a worker to work for a certain period of
The worker, owning no means of production of his own, is compelled in order to
live to try to sell his labour power to a capitalist. Thus, in a capitalist
society, labour power is a commodity.
13. WHAT DETERMINES THE VALUE OF LABOUR POWER?
As in the case of other commodities, the amount of socially
necessary labour time involved in its production, that is, the value of the
commodities required to produce, maintain and reproduce it.
The value of labour power is not, however, that of the bare
subsistence of the worker and his dependents (who form the next generation of
workers) but depends on such additional factors as the subsistence necessary to
train a skilled worker, the degree of 'civilisation' of the country concerned,
and so on.
14. WHAT ARE WAGES?
The price of labour power.
In a competitive market, the price of labour power, like that of other
commodities, may fluctuate above or below its value according to supply and
demand, but in the long run its price tends to correspond to its value.
15. WHAT IS SURPLUS VALUE?
The new value created in the course of production by a
worker's labour over and above the value of his labour power. If a worker
receiving £100 a week in wages were to create only £100 a week in value, his
employer would obtain no benefit from employing him and would cease to do so.
An employer will employ a worker only if he produces in a
week an amount of new value which exceeds what is paid to him in wages. The
difference is the surplus value -- value which is created by the worker but
appropriated by his employer. If a worker creates £200 of new value in a week
but is paid £100 in wages, his employer has obtained £100 in surplus value from
that worker. So, if he employs 1,000 such workers, he obtains a total of
£100,000 of surplus value in a week.
This is the mechanism by which the capitalist class exploits
the working class. Clearly, exploitation under capitalism has a more concealed
character than under slavery or feudalism.
16. WHAT IS CAPITAL?
All that is owned or hired by capitalists in a capitalist
society -- land, buildings, machinery, raw materials, labour power -- enabling
them to acquire surplus value, that is, enabling them to exploit workers.
The money expended by capitalists for this purpose -- a process known as
investment -- is also called capital.
17. WHAT IS CONSTANT CAPITAL?
All capital except that used for the buying of labour power.
Land, buildings, machinery and raw materials do not
themselves create new value, but are merely the instruments with which human
labour power creates new value. Since the capital expended on these items does
not change in value in the course of capitalist production, it is called
18. WHAT IS VARIABLE CAPITAL?
Capital expended on the purchase of labour power.
Since the new value created in the course of capitalist
production is created entirely by the worker's labour power, the capital
expended on this item may be regarded as having changed -- increased -- in value
in the course of capitalist production. It is, therefore, called variable
19. WHAT ARE RENT, INTEREST AND PROFIT?
The portions of surplus value which are appropriated by
different sections of the exploiting class (or by different exploiting classes)
in a capitalist society.
Rent may be paid by the employer (the entrepreneur) to a
landlord for the hire of land and/or buildings where his enterprise is carried
Interest may be paid by the entrepreneur to a financier or
bank for the hire of money capital he requires to carry on his enterprise.
Profit is that portion of the surplus value which the
entrepreneur retains for himself after paying any rent or interest.
Rent, interest and profit, being portions of the surplus
value produced in the course of capitalist production, all have their source in
the exploitation of the workers. An entrepreneur who owns his own land,
buildings and money capital retains, of course, all three portions of the
surplus value for himself.
20. WHAT IS COMMERCIAL PROFIT?
The profit obtained by a commercial capitalist, that is, one
engaged in the distribution (i.e., selling) of commodities.
21. WHAT IS THE SOURCE OF COMMERCIAL PROFIT?
Value is created only by produtive labour, and surplus value
is created only by labour employed in capitalist production. No value is created
in the process of distribution.
The source of commercial profit (as well as the source of the
wages of employed distributive workers) lies in the surplus value created by
employed production workers. The capitalist engaged in production sells his
finished commodities to a capitalist engaged in distribution at a discount,
below their value. The capitalist engaged in distribution realises his
commercial profit by reselling them at their value.
In other words, the capitalists engaged in production pass to
the capitalists engaged in distribution a portion of the surplus value created
by their employed production workers in the course of capitalist production.
22. WHAT IS THE MOTIVE OF PRODUCTION UNDER CAPITALISM?
Each capitalist firm strives to make for itself the maximum possible amount of
23. CRITICISE THE FOLLOWING ANALYSIS:
'BECAUSE OF THE OPERATION OF THE PRINCIPLE OF SUPPLY AND
DEMAND IN A CAPITALIST SOCIETY AS DESCRIBED IN PARAGRAPH 7 ABOVE, THE PROFIT
MOTIVE AUTOMATICALLY GEARS PRODUCTION TO DEMAND'.
The 'demand' which is satisfied as a result of the operation
of the profit motive is not the needs of the masses of the people. It is what is
called 'effective demand', that is, 'demand' measured in terms of the money
which consumers are willing and able to spend on the satisfaction of their
If the entire population of a capitalist country were to
demonstrate in the streets for bread, there would be no 'effective demand' for
bread unless they had the necessary money to offer in the bakers' shops.
Thus, the profit motive gears production approximately to the
needs of those people with enough money to express their needs in effective
demand. That is why, although there has long been a housing shortage for working
people in capitalist Britain, capitalist building firms do not use the resources
of the building industry to build houses and flats for working people but,
instead, use them to construct such things as office buildings (which may stand
empty for years). They do so because the latter course is more profitable,
although the social need for it is incomparably smaller.
Only when the profit motive has been abolished and production
is consciously planned can it be geared to the real needs of the people.