Monday, October 18, 2010


Economics is the scientific study of the mode of wealth production, that is, of the manner and means whereby society procures its food, clothing and shelter, and all that goes to make up its living.

The importance of the study of Economics arises out of the fact that, whereas procuring its living is obviously the most important function of society, it must of necessity very largely influence all other functions or phenomena of society. So much so that it may be taken as an axiom that the mode of production in any society determines its social, political and religious forms; and it is only in the light of a knowledge and understanding of the former that the latter can be accurately understood and explained. Of particular importance to us, therefore, is the study of the economics of our own period – of the capitalist mode of wealth production.


The sum total of all that is produced by human labor is the wealth of the world. Notwithstanding the current use of such terms as “natural wealth”, “mineral wealth”, “forest wealth” and so on, those things known collectively as natural resources are not, for the purposes of political economy, included under the term “wealth”.

It is only when natural resources are, by the hand of labor, worked up into things useful to man, that wealth comes into being. Two factors, then, enters into the production of wealth.

Taking the first commodity that comes to hand, e.g., gold, it is well known that gold is extracted from gold-bearing quartz, or sand. Given this natural resource, man, by the exercise of his physical energy, his power to labor, produces gold, or wealth. This power to labor is called for short, labor-power. It should not be confused with labor, though this is frequently done. Labor is a condition of labor-power. It is the act of applying labour-power to natural resources in order to produce wealth. The wealth thus produced is the embodiment of the labor performed. Its existence is the evidence that a certain quantity of labor has been performed. The sum total of the world’s wealth, therefore, represents the sum total of the labor performed in its production.

The Value of Wealth

We say that wealth has value, i. e., it is worth something. But what is it that gives it that value? We have seen that it is composed of natural resources and labor. But the natural resources of the earth are the free gifts of Nature and count for nothing in this regard. Therefore, it must be labor. The hand of labor alone confers value.

It may be objected that, as natural resources, such as coal-beds, mineral veins and timber limits, are bought and sold, they must have a value. However, natural resources with which human labor has not entered into the slightest relations cannot be regarded as properly being raw materials. And, furthermore, such natural resources are bought and sold on the strength of their potentialities; that is, the possibilities they may present when converted to human use by labor. Without labor no value can be possible.

Use Value

The wealth of a capitalist society, such as we now live under, “presents itself as an immense accumulation of commodities.”

A commodity is, in the first place, “a product of labor”. It is, in the second place, a “use value”, i. e., it will satisfy some want or desire. Thus the use value of a sack of flour is the length of time it will keep a man alive. The utility of an object is dependent upon its natural properties and qualities, but is independent of the quantity of labor required for its production. Thirdly, a commodity is produced for sale, i.e., for exchange. In the act of exchange, the value conferred by labor will manifest itself as exchange value.

Exchange Value

Exchange value is necessarily comparative. It cannot be used except in comparing the relative values of two or more articles. An article by itself cannot be said to have any exchange value until it is compared with something with which it is proposed to exchange it. Furthermore, that with which it is proposed to exchange must be something else than a loaf of bread, it being self-evident that there would be no advantage in exchanging loaves for similar loaves.

We find, therefore, that exchange value comes into play only when it is proposed to exchange two or more dissimilar commodities.

The two commodities being thus dissimilar, their concrete components are necessarily also dissimilar. While the one may be made of flour, the other may be of steel, spirits or wool. There arises, therefore, the difficulty of comparing them, as there appears to be nothing contained in either by which may be ascertained how much of the one should be given in exchange for a certain quantity of the other. Nor will weights and measures serve for the purpose of this comparison. The one may be measured by the pound, the other by the yard or gallon.

We have seen however, that there is one factor that is embodied in all commodities – labor. And it is the only factor common to all commodities, however dissimilar may be the materials of which they are composed, or the means by which they are weighed or measured. Therefore it stands to reason that dissimilar commodities can be compared one with another only on the basis of the labor contained in each. It is on that basis, then, that commodities must be exchanged.

However, we may observe that exactly similar shoes may be produced in two different factories, but in the one factory, owing to improved methods and machinery, less labor is involved in the production of a pair of shoes than in the other factory under less efficient methods. While the labor contained in these shoes would be different, their exchange value in the open market would be the same, i. e., the average of the time required for their production. No more could be obtained for the shoes in which more labor is embodied than for the pair in which there is less, because no more labor is actually necessary to the production of shoes of that quality. This brings us a step further in our examination into exchange value. We now have the axiom that commodities exchange one with another according to the necessary labor involved in the production of each.

Another aspect of exchange value has yet to be considered. The labor involved in the production of a pair of shoes is no longer the labor of one individual, but of many. Primitive man made things, for his own use himself. From the materials to hand, he laboriously and painstakingly fashioned all the things he required. Not only did he complete each article himself, but he made the crude tools wherewith he worked. This was individual production in its purest form. Today, however, things are different. Individual production has disappeared; social production has taken its place. No individual produces any article in its entirety. It takes a multitude to make a box of matches. Not only are the leather, nails, thread, etc., of which shoes are made the products of many hands, but in the factory itself the shoes passes through the hands of a large number of operatives, each of whom does a little to it until it is finished. Then it has yet to be transported and handled by the labor of others again before it reaches the consumer. So that, from the ox to the consumer, there is embodied in each pair of shoes a fraction of the labor of each of many individuals. All these transmigrations are a part of the process of production. The labor that is embodied in any commodity is not individual but social labor – the collective labor of a large number of individuals. This completes our definition of exchange value. Thus: the exchange value of a commodity is determined by the socially necessary labor embodied therein.

This socially necessary labor is the cost of production of each commodity. Each commodity being the embodiment of a certain amount of labor, it costs just that much labor to produce it. Commodities, therefore, exchange one with another at cost. Which brings us face to face with the following problem: If everything is sold at cost, where does profit come from? For buying and selling is really nothing more than the exchange of one commodity for another with money as the medium through which that exchange is made.

The generally accepted idea of profit is that it is made by buying cheap and selling dear. But, unless our reasoning up to this point can be proved fallacious, buying cheap and selling dear are out of the question, as the relative values of commodities are predetermined by the socially necessary labor involved in their production.

It is true, that a certain amount of fluctuation in the price of commodities, above and below their exchange value, actually takes place according to the supply and demand for them in the market. But these fluctuations are almost negligible, as will be seen later, and cancel one another in the average. Moreover, they offer no solution of our problem as to the source of profit.

Surplus Value

The solution to this mystery is that buying and selling have nothing whatever to do with the making of profit. It is not in the process of exchange, but in that of production that profit comes in. Profit is acquired, not by paying less for a commodity than it is worth, nor by selling it for more than it is worth.

The chattel slaves, as we have seen, produced wealth, which belonged, of course, to their masters. In this wealth was embodied the labor of the slaves. That was its value. A certain amount of this wealth went to feed, clothe and house the slaves, the surplus accrued to the masters at no cost to themselves. The value of the surplus wealth would be surplus value.

The modern worker – the wage slave – is in much the same position. The wealth of the world is produced by the workers of the world. Its value is determined by the labor they have put into it. It belongs to their masters, the owners of the means of wealth production, the natural resources, mines, mills, factories, etc. A portion of this wealth goes to feed, clothe and house the workers through the medium of wages. The remainder accrues to the masters, the capitalist class. Its value is surplus value. It costs them absolutely nothing. The workers have received all that is coming to them. Having produced all the wealth, they have actually paid their own wages. The capitalists have done nothing except own the means of production. The wealth they thus obtain by virtue of ownership is clear gain – profit.

The Commodity Nature of Labor Power

Wealth being a social product, the individual produces nothing, but only fractions of things. The collective labor of the workers is necessary to produce wealth. The individual is a mere cog in the social machine of production. Being thus unable to produce things for himself, he can procure them only by buying them – unless he begs or steals them. To buy them he must first sell something. In other words, in order to procure the things we need we must give something in exchange for them.

The capitalists can very well do this because to them belongs all the wealth that is produced, by virtue of their ownership of the means of production. The workers, however, have no property in the means of production, and therefore own none of that wealth. The vast majority of them have absolutely nothing to give in exchange for their necessities – that is nothing tangible. They have, however, the power to labor. In order to procure food, clothing and shelter they must, then, sell their labor power. This is what working for wages amounts to. The worker is not paid for what he does. He is paid for so much labor power. This is what working for wages amounts to. The worker is not paid for what he does. He is paid for so much labor power, just as he in turn pays the grocer for so much flour and potatoes. He is paid, not for the wealth he produces, but merely for the exertion of producing it. To the wealth he produces, therefore, he has not a vestige or right or title. It belongs by right to those who bought his labor power, by means of which it was produced. To admit the capitalists’ claim to the ownership of the means of production is to admit their right to the whole of the product of labor.

Labor power, being bought and sold, ranks, therefore, as a commodity, and is subject to the law governing the exchange of commodities.

The law governing the exchange of commodities is that they shall exchange, on the average, at their cost of production, as has been shown. The cost of production of any commodity is the social labor necessary for its production. Labor power is the physical energy of the individual. The labor necessary to produce this is the labor that is involved in producing the individual’s living. The exchange value of labor power then, is determined by the socially necessary labor involved in the production of those things that go to make up the laborer’s living from day to day. And that is exactly what the workers get on average – their living according to the prevailing standard. It is true that some of them get a little more than is actually necessary for them to exist on, but, on the other hand, millions get less and are actually dying of slow starvation at their work.


Wages are generally regarded as so much money: two dollars a day or sixty a month. A closer examination shows two other aspects before which the mere money wage dwindles into insignificance. These are the “relative wage”, and the “real wage”.

The Relative Wage

The relative wage is that which the worker receives in comparison with what he produces.

Owing to the improvements in the machinery of production, the relative wage has fallen greatly during the last century, and is continually becoming less. Under handicraft production the worker could not produce very much more than he consumed. Under modern machine production the worker produces far more than he consumes, even if the standard of living has risen.

The Real Wage

The real wage is what is bought with the money wage, the food, clothing, housing, etc., of the worker. It is what the workers actually receive in exchange for their labor power. While the money wage, the price of labor power may rise, the real wage may at the same time be falling. Thus during the last decade, United States statistics show a rise in wages of some 20 per cent, and a rise in the cost of living of some 30 per cent. Here the money wage would be raised 20 per cent, but the real wage would have fallen 10 per cent, so that in place of receiving 20 per cent more, the workers are actually receiving 10 per cent less in exchange for their labor power. [This was written before 1914.] A rise in prices, therefore, means to the worker, not so much a rise in his cost of living as a fall in his real wage, that is, a reduction in his standard of living.


As the money wage has been referred to as the price of labour power, a consideration of price itself would not be out of place. Price is the approximate monetary expression of the exchange value of a commodity. Money itself arises out of the inconveniences attendant upon the direct exchange, or barter, of one commodity for another. To overcome these inconveniences one commodity is employed to which all other commodities are compared, and their exchange values are expressed in terms of this commodity.

The commodity employed becomes in time segregated from all others and is looked upon as having a fixed value. Nevertheless it should be remembered that in reality it remains a commodity, and is subject to such fluctuations in exchange value as are other commodities.

At present, gold is the money commodity. In terms of gold the exchange value of other commodities are expressed. Actually this is equivalent to comparing the exchange values of other commodities with that of gold. Thus if we say a pair of shoes is worth five dollars, we assert that the same quantity of necessary social labor is embodied in a pair of shoes as in five dollars of gold. The coinage of gold merely signifies that the government certifies the coin to contain so much gold of such and such a fineness. The gold itself being the product of labor, its exchange value is determined by the labor it embodies.

Fluctuations in Value and Price

Fluctuations in the exchange value of a commodity can only take place when changes take place in the quantity of labor involved in its production. Thus, with the development of labor-saving machinery, the production of commodities involves less labor, and their exchange value decreases. Price, being the approximate monetary expression of exchange value, necessarily follows these fluctuations. It is, however, subject to fluctuations from other causes, one of the most important being the fluctuations in the exchange value of gold itself.

So great has been the saving of labor recently in the production of gold, that its exchange value has decreased more than has been the case in other commodities, which accounts largely for the so-called “high cost of living”.

The minor fluctuations in prices that are continually taking place are due mainly to supply and demand. In a staple market, wherein the supply of, and demand for, all commodities exactly balanced one another, prices and exchange values would be equivalent. But, as such is not the case, as supply and demand do not balance, prices of commodities continually fluctuate above and below their exchange values. When the demand for a commodity is greater than the supply, its price rises. When the supply is greater than the demand, the price falls. But, whenever from this cause, the price of a commodity rises, a flow of capital takes place in that direction and the price is brought down to its normal level, and wherever the price falls, production is retarded until the normal level is resumed. So that these fluctuations in process of time cancel one another, and commodities exchange, on the average, at their cost of production, that is, according to the socially necessary labor involved in their production.

Fluctuations in Wages

The money wage, being the price of the commodity labor power, is subject to the same fluctuations as in the price of any other commodity. That the supply of labor power exceeds the demand at most times, and often to such an extent as to produce a veritable glut, is so patent that it may be taken as proved.

This excess of supply over demand naturally gives the price of labor power a constantly downward trend.

Apparently, however, wages have risen. This apparent rise is due to the decrease in the value of gold. As has been shown, the real wage has fallen 10 per cent, even in a period of capitalist prosperity. And now that that period is over and the industrial depression following it has immeasurably swelled the ranks of the unemployed, thus increasing the disproportion between supply and demand in the labor market, the money wage has come tumbling down.

In the case of a fall in the prices of other commodities this would be remedied by a restriction of production, but no such restriction of the production of labour power is possible. The worker’s labor power being his physical energy, his very life force, he must continue producing it while he lives, and he will not continue to live very long if he does not find a buyer for it.

The inevitable result of the downward trend of wages is an ever-increasing portion of misery and privation for the workers, in spite of the constant struggle which they are compelled to carry on in the industrial field to obtain a better price for their labor power, etc. Strikes have been fought with the greatest determination; privation and suffering have been endured with a heroism of which the working class alone is capable; millions of dollars have been spent; the unions were never so strong as during the first decade of this century, and yet, in spite of it all, the wage has fallen. Here and there, in favored trades, they have attained some success. Capitalism is the great leveller of the working class, the great abolisher of individuality. All trades are being reduced to a common level. In one line after another the skilled worker has been replaced by a machine and a “hand”. And locality after locality is being brought more and more within the full dominance of capitalism.

At one time, when the workers fought against individual capitalists with no great capital, some measure of success was possible. But now the odds are against them. Monster Capitalism sits enthroned! Employers are now grown to giant corporations, with millions at their command. Out of the very rise and fall in stocks consequent upon strikes and lockouts, the masters may reap a richer harvest than what they lose by stoppage of industries. And all the powers of government are theirs to do their bidding, the policeman and his club, the thug with his revolver, the soldier with his rifle, the court with its injunctions, and the legislature with its law. Weapon after weapon has been wrested from the hands of the workers until today, in the words of a Western labor union official, “the only remaining usefulness of the labor unions is in resisting the petty tyrannies of the masters”.

The workers today are fighting not only against the man-made laws of capitalism, but also against all the laws of economics. So long as their labour power remains a commodity they cannot essentially better their condition. So long as they allow the capitalists’ claim to the resources of the earth and the machinery of production, slaves they must remain, and as slaves they must expect to be treated. Their only hope lies in their emancipation from slavery – and they alone can achieve that emancipation.

All the wealth the capitalist class possess has been produced by the working class. In taking it the working class would but be taking it back. Wealth is not a fixed and indestructible quantity. It is being constantly destroyed and renewed. Even the most stable portions are being constantly worn out and replaced. The workers of one generation may be said to produce with their own hands practically all the wealth in existence at the end of their generation, so that in taking it they would actually be taking the very things they themselves produced, things taken from them without any compensation. They would therefore owe compensation for them to none. And, indeed, there can be no question of compensating the capitalists.

The outcome of the struggle between the capitalist class and the working class will be the Social Revolution. By political force the working class must wrest from the capitalist class the reins of government and must use the powers of the State to legislate in its own interests. By that stroke classes will be overthrown and labor power cease to be a commodity; production will be for use and not for profit; government of persons will die out and be replaced by an administration of things. The workers, controlling the means of production, will also control the resultant wealth and they will then be able to individually enjoy what they collectively produce.

From an understanding of the foregoing facts of history and of economics the Socialist Party came into being. We now propose to outline the principles governing the policy of the Socialist Party in the field of politics.

No comments:

Post a Comment