3.1 Define the terms “constant capital,” “variable capital,” and “surplus value.” What role do these three factors play in the process of capital accumulation?
The definition of terms ‘constant capital’ and ‘variable capital’ can be found in Marx’s Das Kapital. According to Marx, constant capital is the value that capitalists invest in obtaining the means of production. Means of production are comprised of materials and components obtained for making of products and embodied in them when they are sold, and materials and components which are used and damaged in the process of production and have to be replaced with new or similar ones. The latter type of materials is for all intents the same as the former type. The definition of constant capital can refer to the means of production itself or to the invested value.
Variable capital can be defined as the value that capitalists invested in obtaining labor power. In practice, such value corresponds to the wages for workers. Labor power is embodied in the value of wage goods, which are needed in order for workers to maintain their labor power. Thus, the definition of variable capital refers to labor power itself or to the invested value (Cleaver, 2001). Marx uses the word ‘variable’, since such type of capital constantly transforms from a constant into a variable magnitude and, if it is utilized effectively, creates a new value, which is called a surplus value.
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The surplus value can be defined as the product, which is above the value of wage goods, meaning that it is more than what workers need to live. Value can be measured in workers labor power or in labor time. Therefore, surplus value is the accumulated result of labor power that was not paid to the workers but instead transfers into the form of profit for the capitalist class, which owns the means of production (Marxists Internet Archive, n.d.).
Marx himself believed that his notion of surplus value was his principal contribution to the development of economic analysis. The reason for giving so much significance to the concept of surplus values is that it is the income of capitalist class, which may be reduced to the product of unpaid labor of the working class. Such view on the surplus is the central idea behind Marx’s theory of exploitation of workers by their employers as the surplus value is what remains after the workers have received their wages, which are equal to the value of their labor power (Mandel, 2003). From such definition of surplus value, it may seem that given relationship is unjust to the working class. However, they do not have other option than to sell their labor and time, since they do not own the means of production, and thus, cannot possibly retrieve any value from their labor power (Marxists Internet Archive, n.d.). Therefore, there is a logical rationale for the capitalists claiming the right for the surplus value. They purchase all the materials, as well as labor of their employees, meaning that they own the resulting product. It, in turn, certainly means that they own the profit from the sale of such product, and they are free to administer received profit the way they want, given that they fulfill their obligations to pay the worker’s wages.
Thus, such state of things is not unfair towards the working class, since otherwise it would result in paradox. In case if workers appropriated the surplus value, the capitalist would receive no income and subsequently had no interest in starting such endeavor. Bourgeois society, being built on the basis of division of labor, inevitably has a surplus manifested in the form of capital, and “surplus value is in fact the essence of production in capitalism” (Marxists Internet Archive, n.d.). Thus, only productive efforts, or the ones resulting in surplus value, are maintained, while all unproductive ones are rejected. In other words, knowing that capitalists would receive all the surplus value makes them buy the means of production and labor power. Another assumption that can be drawn from such employer-worker relationship is that both parties are equally dependent upon each other. Such notion is not entirely true as the dependence is not equal and capitalists have clearly more advantages than the working class.
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Such fact is the reason why workers do not earn salaries that are equal to the value of the products they make and have limited ability to control the amount of compensation. The capitalist class has the ability, to some extent, to ensure that the value the employees produce is greater than the value of the wage goods. Although having advantage over workers in regulating the amount of compensation results in the fact that the capitalist class tries to make benefit of such situation. Luckily for them, there is “the industrial reserve army of workers” ready to take others places. The reserve army of labor is principally consisting of people who do not have job. The notion itself is important for the understanding of capitalism as it has a great impact on the ability of employers to regulate the amount of compensation and workers’ demands. In fact, from the point of view of the capitalists, the purpose of the reserve army of labor is to produce some level of job insecurity across the working class. Obviously, the bigger the reserve army is, the higher the surplus value becomes. Another factor that relates to the state of labor market and that can be used for the capitalists’ benefit relates to the different kinds of work and different kind of workers’ skills (Yates, 2003). Marx claimed, “It would be possible to write quite a history of the inventions made since 1830 for the sole purpose of supplying capital with weapons against the revolt of the working class” (as cited in League for the Revolutionary Party, n.d.). Ironically, the Marx’s “general law of capitalist accumulation” involved continuous efforts to expulse workers from the process of production (League for the Revolutionary Party, n.d.).
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Regarding the above-mentioned information, the capitalists can take the liberty of increase the sum of surplus value, which they obtain from the workers, by making either or both of the following decisions:
- by the means of absolute surplus value, which involves increasing the working day and the intensity of workers’ performance as much as possible. At the same time, such practice increases resistance of employees. However, there is another option for capitalists, which presupposes reducing of the production costs by purchasing materials and equipment more cheaply.
- by the means of relative surplus value, which involves reducing salaries (Marxists Internet Archive, n.d.).
Additionally, some individual capitalists attempt to increase their income by implementing machinery, adopting new strategies and techniques of production. However, such approach is more likely to fail due to the competition in the market. Even if the individual is the first to adopt the new technology, the competitors would soon copy it and restore the equilibrium. Enhancements of production may improve the productivity of the workforce, but the rate of profit will eventually decrease (Marxists Internet Archive, n.d.).
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Surplus value may be used by capitalists differently. They may spend it for consumption or may return it further in their production, for example, by hiring more mangers or investing in more labor power and means of production. In the latter case, they would use money to generate more money, which refers to the process of capital accumulation. Such process is considered successful if the original capital is lower than the value of the products and the revenue obtained from their sale. After accumulating capital, the capitalists have to distribute surplus value to landlords for the rent, bankers for the interest of the credit funds, shareholders for dividends and salaries to middle-class managers, as well as paying taxes (Marxists Internet Archive, n.d.).
To sum up, variable capital and surplus value are newly created values in the process of production, while constant capital is the one that appeared when the means of production were first obtained without further changes throughout the process. Therefore, constant is embodied in such means of production and gradually wears of transferring itself into “the commodities that are carriers of the newly created value” (Yates, 2003). Between the two parts of the new value, variable capital and surplus value, an issue of class struggle appears between workers and their employers. It occurs due to the fact that the latter ones gain income from the surplus value, which is the amount of unpaid wages to the former ones. On the basis of such definition, the superiors attempt to increase the amount of surplus values as much as possible as it is the source of their capital accumulation. On the other hand, there are workers who wish for variable capital to be increased, which is, in fact, the value of wage goods, or, in other words, the factor that comprises the employees’ shopping basket. The conflict of surplus distribution is not equal, but is in favor of the capitalist class, as it has the reserve army of labor to be used any time. The number of unemployed people in the labor market leads to increase of perceived level of job insecurity. Thus, such situation gives the possibility for capitalists to either dictate their terms of job compensation to the workers who conform to the specified conditions or easily hire new workers available in the labor reserve.