C.2 Where do profits come from?

As mentioned in the last section, profits are the driving force of capitalism. If a profit cannot be made, a good is not produced, regardless of how many people "subjectively value" it. But where do profits come from?

In order to make more money, money must be transformed into capital, i.e., workplaces, machinery and other "capital goods." By itself, however, capital (like money) produces nothing. Capital only becomes productive in the labour process when workers use capital ("Neither property nor capital produces anything when not fertilised by labour" - Bakunin). Under capitalism, workers not only create sufficient value (i.e. produced commodities) to maintain existing capital and their own existence, they also produce a surplus. This surplus expresses itself as a surplus of goods, i.e. an excess of commodities compared to the number a workers' wages could buy back. Thus Proudhon:

In other words, the price of all produced goods is greater than the money value represented by the workers' wages (plus raw materials and overheads such as wear and tear on machinery) when those goods were produced. The labour contained in these "surplus-products" is the source of profit, which has to be realised on the market. (In practice, of course, the value represented by these surplus-products is distributed throughout all the commodities produced in the form of profit -- the difference between the cost price and the market price).

Obviously, pro-capitalist economics argue against this theory of how a surplus arises. However, one example will suffice here to see why labour is the source of a surplus, rather than (say) "waiting", risk or capital (these arguments, and others, will be discussed below). A good poker-player uses equipment (capital), takes risks, delays gratification, engages in strategic behaviour, tries new tricks (innovates), not to mention cheats, and earns large winnings (and can even do so repeatedly). But no surplus product results from such behaviour; the gambler's winnings are simply redistributions from others with no new production occurring. Thus, risk-taking, abstinence, entrepreneurship, etc. might be necessary for an individual to receive profits but are far from sufficient for them not to be the result a pure redistribution from others (a redistribution, we may add, which can only occur under capitalism if workers produce goods to sell).

Thus, in order for a profit to be generated within capitalism two things are required. Firstly, a group of workers to work the available capital. Secondly, that they must produce more value than they are paid in wages. If only the first condition is present, all that occurs is that social wealth is redistributed between individuals. With the second condition, a surplus proper is generated. In both cases, however, workers are exploited for without their labour there would be no goods to facilitate a redistribution of existing wealth nor surplus products.

The surplus value produced by labour is divided between profits, interest and rent (or, more correctly, between the owners of the various factors of production other than labour). In practice, this surplus is used by the owners of capital for: (a) investment (b) to pay themselves dividends on their stock, if any; (c) to pay for rent and interest payments; and (d) to pay their executives and managers (who are sometimes identical with the owners themselves) much higher salaries than workers. As the surplus is being divided between different groups of capitalists, this means that there can be clashes of interest between (say) industrial capitalists and finance capitalists. For example, a rise in interest rates can squeeze industrial capitalists by directing more of the surplus from them into the hands of rentiers. Such a rise could cause business failures and so a slump (indeed, rising interest rates is a key way of regulating working class power by generating unemployment to discipline workers by fear of the sack). The surplus, like the labour used to reproduce existing capital, is embodied in the finished commodity and is realised once it is sold. This means that workers do not receive the full value of their labour, since the surplus appropriated by owners for investment, etc. represents value added to commodities by workers -- value for which they are not paid.

So capitalist profits (as well as rent and interest payments) are in essence unpaid labour, and hence capitalism is based on exploitation. As Proudhon noted, "Products, say economists, are only bought by products. This maxim is property's condemnation. The proprietor producing neither by his own labour nor by his implement, and receiving products in exchange for nothing, is either a parasite or a thief." [Op. Cit., p. 170] It is this appropriation of wealth from the worker by the owner which differentiates capitalism from the simple commodity production of artisan and peasant economies. All anarchists agree with Bakunin when he stated that:

Obviously supporters of capitalism disagree. Profits are not the product of exploitation and workers, capitalists and landlords get paid the value of their contributions to output, they say. A few even talk about "making money work for you" (as if pieces of paper can actually do any form of work!) while, obviously, human beings have to do the actual work (and usually for money). However, all agree that capitalism is not exploitative (no matter how exploitative it may look) and present various arguments why capitalists deserve to keep the products others make. This section of the FAQ presents some of the reasons why anarchists reject this claim.

Lastly, we would like to point out that some apologists for capitalism cite the empirical fact that, in a modern capitalist economy, a large majority of all income goes to "labour," with profit, interest and rent adding up to something under twenty percent of the total. Of course, even if surplus value was less than 20% of a workers' output, this does not change its exploitative nature. These apologists of capitalism do not say that taxation stops being "theft" just because it is around 10% of all income. However, this value for profit, interest and rent is based on a statistical sleight-of-hand, as "worker" is defined as including everyone who has a salary in a company, including managers and CEOs (income to "labour" includes both wages and salaries, in other words). The large incomes which many managers and all CEOs receive would, of course, ensure that a large majority of all income does go to "labour." Thus this "fact" ignores the role of most managers as de facto capitalists and exploiters of surplus value and ignores the changes in industry that have occurred in the last 50 years (see section C.2.5 - Aren't Executives workers and so creators of value?).

To get a better picture of the nature of exploitation within modern capitalism we have to compare workers wages to their productivity. According to the World Bank, in 1966, US manufacturing wages were equal to 46% of the value-added in production (value-added is the difference between selling price and the costs of raw materials and other inputs to the production process). In 1990, that figure had fallen to 36% and (using figures from 1992 Economic Census of the US Census Bureau) by 1992 it had reached 19.76% (39.24% if we take the total payroll which includes managers and so on). In the US construction industry, wages were 35.4% of value added in 1992 (with total payroll, 50.18%). Therefore the argument that because a large percentage of income goes to "labour" capitalism is fine hides the realities of that system and the exploitation its hierarchical nature creates.

C.2.1 Why does this surplus exist?

C.2.2 Are capitalists justified in appropriating a portion of surplus value for themselves (i.e. making a profit)?

Another problem with the capitalists' "contribution to production" argument is that one must either assume (a) a strict definition of who is the producer of something, in which case one must credit only the worker, or (b) a looser definition based on which individuals have contributed to the circumstances that made the productive work possible. Since the worker's productivity was made possible in part by the use of property supplied by the capitalist, one can thus credit the capitalist with "contributing to production" and so claim that he or she is entitled to a reward, i.e. profit.

However, if one assumes (b), one must then explain why the chain of credit should stop with the capitalist. Since all human activity takes place within a complex social network, many factors might be cited as contributing to the circumstances that allowed workers to produce -- e.g. their upbringing and education, the government maintained infrastructure that permits their place of employment to operate, and so on. Certainly the property of the capitalist contributed in this sense. But his contribution was less important than the work of, say, the worker's mother. Yet no capitalist, so far as we know, has proposed compensating workers' mothers with any share of the firm's revenues, and particularly not with a greater share than that received by capitalists! Plainly, however, if they followed their own logic consistently, capitalists would have to agree that such compensation would be fair.

Therefore, as capital is not autonomously productive and is the product of human (mental and physical) labour, anarchists reject the idea that providing capital is a productive act. As Proudhon pointed out, "Capital, tools, and machinery are likewise unproductive. . . The proprietor who asks to be rewarded for the use of a tool or for the productive power of his land, takes for granted, then, that which is radically false; namely, that capital produces by its own effort - and, in taking pay for this imaginary product, he literally receives something for nothing." [Op. Cit., p. 169].

Of course, it could be argued (and it frequently is) that capital makes work more productive and so the owner of capital should be "rewarded" for allowing its use. This, however, is a false conclusion, since providing capital is unlike normal commodity production. This is because capitalists, unlike workers, get paid multiple times for one piece of work (which, in all likelihood, they paid others to do) and keep the result of that labour. As Proudhon argued:

Therefore, providing capital is not a productive act, and keeping the profits that are produced by those who actually do use capital is an act of theft. This does not mean, of course, that creating capital goods is not creative nor that it does not aid production. Far from it! But owning the outcome of such activity and renting it does not justify capitalism or profits.

Some supporters of capitalism claim that profits represent the productivity of capital. They argue that a worker is said to receive exactly what she has produced because (according to the neo-classical answer) if she ceases to work, the total product will decline by precisely the value of her wage. However, this argument has a flaw in it. This is because the total product will decline by more than that value if two or more workers leave. This is because the wage each worker receives under conditions of perfect competition is assumed to be the product of the last labourer in neo-classical theory. The neo-classical argument presumes a "declining marginal productivity," i.e. the marginal product of the last worker is assumed to be less than the second last and so on.

In other words, in neo-classical economics, all workers bar the mythical "last worker" do not receive the full product of their labour. They only receive what the last worker is claimed to produce and so everyone bar the last worker does not receive exactly what he or she produces. It looks like the neo-classical claim of no exploitation within capitalism seems invalidated by its own theory.

This is recognised by the theorists. Because of this declining marginal productivity, the contribution of labour is less than the total product. The difference is claimed to be precisely the contribution of capital. But what is this "contribution" of capital? Without any labourers there would be no output. In addition, in physical terms, the marginal product of capital is simply the amount by which production would decline is one piece of capital were taken out of production. It does not reflect any productive activity whatsoever on the part of the owner of said capital. It does not, therefore, measure his or her productive contribution. In other words, capitalist economics tries to confuse the owners of capital with the machinery they own.

Indeed, the notion that profits represent the contribution of capital is one that is shattered by the practice of "profit sharing." If profits were the contribution of capital, then sharing profits would mean that capital was not receiving its full "contribution" to production (and so was being exploited by labour!). Moreover, given that profit sharing is usually used as a technique to increase productivity and profits it seems strange that such a technique would be required if profits, in fact, did represent capital's "contribution." After all, the machinery which the workers are using is the same as before profit sharing was introduced -- how could this unchanged capital stock produce an increased "contribution"? It could only do so if, in fact, capital was unproductive and it was the unpaid efforts, skills and energy of workers' that actually was the source of profits. Thus the claim that profit equals capital's "contribution" has little basis in fact.

While it is true that the value invested in fixed capital is in the course of time transferred to the commodities produced by it and through their sale transformed into money, this does not represent any actual labour by the owners of capital. Anarchists reject the ideological sleight-of-hand that suggests otherwise and recognise that (mental and physical) labour is the only form of contribution that can be made by humans to a productive process. Without labour, nothing can be produced nor the value contained in fixed capital transferred to goods. As Charles A. Dana pointed out in his popular introduction to Proudhon's ideas, "[t]he labourer without capital would soon supply his wants by its production . . . but capital with no labourers to consume it can only lie useless and rot." [Proudhon and his "Bank of the People", p. 31] If workers do not get paid the full value of their contributions to the output they produce then they are exploited and so, as indicated, capitalism is based upon exploitation.

So, in and of themselves, fixed costs do not create value. Whether value is created depends on how investments are developed and used once in place. In the words of the English socialist Thomas Hodgskin:

But, then again, capitalist economics is more concerned with justifying the status quo than being in touch with the real world. To claim that a workers wage represents her contribution and profit capital's is simply false. Capital cannot produce anything (nevermind a surplus) unless used by labour and so profits do not represent the productivity of capital.

Other common justifications of profit are based on claims about the "special abilities" of a select few, e.g. as "risk taking" or "creative" ability, and are equally unsound as the one just outlined.

As for risk taking, virtually all human activity involves risk. To claim that capitalists should be paid for the risks associated with investment is to implicitly state that money is more valuable that human life. Afterall, workers risk their health and often their lives in work and often the most dangerous workplaces are those associated with the lowest pay (safe working conditions can eat into profits and so to reward capitalist "risk", the risk workers face may actually increase). In the inverted world of capitalist ethics, it is usually cheaper (or more "efficient") to replace an individual worker than a capital investment.

Moreover, the risk theory of profit fails to take into account the different risk-taking abilities of that derive from the unequal distribution of society's wealth. As James Meade puts it, while "property owners can spread their risks by putting small bits of their property into a large number of concerns, a worker cannot easily put small bits of his effort into a large number of different jobs. This presumably is the main reason we find risk-bearing capital hiring labour" and not vice versa [quoted by David Schweickart, Op. Cit., pp. 129-130]. Needless to say, the most serious consequences of "risk" are usually suffered by working people who can lose their jobs, health and even lives. So, rather than individual evaluations determining "risk", these evaluations will be dependent on the class position of the individuals involved. Risk, therefore, is not an independent factor and so cannot be the source of profit. Indeed, as indicated, other activities can involve far more risk and be rewarded less.

As for the "creative" spirit which innovates profits into existence, it is true that individuals do see new potential and act in innovative ways to create new products or processes. However, as discussed in the next section, this is not the source of profit.

C.2.3 Why does innovation occur and how does it affect profits?

So while competition ensures that capitalist firms innovate, innovation is the means by which companies can get an edge in the market. This is because innovation means that "capitalist excess profits come from the production process. . . when there is an above-average rise in labour productivity; the reduced costs then enable firms to earn higher than average profits in their products. But this form of excess profits is only temporary and disappears again when improved production methods become more general." [Paul Mattick, Economics, Politics and the Age of Inflation, p. 38]

In addition, innovation in terms of new technology is also used to help win the class war at the point of production for the capitalists. As the aim of capitalist production is to maximise profits, it follows that capitalism will introduce technology that will allow more surplus value to be extracted from workers. As Cornelius Castoriadis argues, capitalism "has created a capitalist technology, for its own ends, which are by no means neutral. The real essence of capitalist technology is not to develop production for production's sake: it is to subordinate and dominate the producers." [Workers' Councils and the Economics of a Self-Managed Society, p. 13]

Therefore, technological improvement can also be used to increase the power of capital over the workforce, to ensure that workers will do as they are told. In this way innovation can maximise surplus value production by trying to increase domination during working hours as well as by increasing productivity by new processes.

These attempts to increase profits by using innovation is the key to capitalist expansion and accumulation. As such innovation plays a key role within the capitalist system. However, the source of profits does not change and remains in the labour, skills and creativity of workers in the workplace. And we must stress that innovation itself is a form of labour -- mental labour. Indeed, many companies have Research and Development departments in which groups of workers are paid to generate new and innovative ideas for their employers. And we must also point out that many new innovations come from individuals who combine mental and physical labour outside of capitalist companies. In other words, arguments that mental labour alone is the source of wealth (or profits) are false. That this is the case can be seen from various experiments in workers' control (see the next section) where increased equality within the workplace actually increases productivity and innovation. As these experiments show workers, when given the chance, can develop numerous "good ideas" and, equally as important, produce them. A capitalist with a "good idea," on the other hand, would be powerless to produce it without workers and it is this fact that shows that innovation, in and of itself, is not the source of surplus value.

C.2.4 Wouldn't workers' control stifle innovation?

In short, rather than being a defence of capitalist profit taking (and the inequality it generates) the argument that freedom increases innovation and productivity actually points towards libertarian socialism and workers' self-management. This is unsurprising, for only equality can maximise liberty and so workers' control (rather than capitalist power) is the key to innovation. Only those who confuse freedom with the oppression of wage labour would be surprised by this.

C.2.5 Aren't Executives workers and so creators of value?

C.2.6 Is interest not the reward for waiting, and so isn't capitalism just?

C.2.7 But wouldn't the "time value" of money justify charging interest in a more egalitarian capitalism?

Even if we ignore the problem that inequality influences the subjective "time preference" of individuals, the theory still does not provide a defence of interest. It is worthwhile quoting the noted post-Keynesian economist Joan Robinson on why this is so:

So, interest has little to do with "time preference" and a lot more to do with the inequalities associated with the capitalist system. In effect, the "time preference" theory assumes what it is trying to prove. Interest is positive simply because capitalists can appropriate surplus value from workers and so current money is more valuable than future money because of this fact. Indeed, in an uncertain world future money may be its own reward (for example, workers facing unemployment in the future could value the same amount of money more then than in the present). It is only because money provides the authority to allocate resources and exploit wage labour that money now is more valuable. In other words, the capitalist does not supply "time" (as the "time value" theory argues), it provides authority/power.

So, does someone who saves deserve a reward for saving? Simply put, no. Why? Because the act of saving is no more an act of production than is purchasing a commodity. Clearly the reward for purchasing a commodity is that commodity. By analogy, the reward for saving should be not interest but one's savings -- the ability to consume at a later stage.

Capitalists assume that people will not save unless promised the ability to consume more at a later stage, yet close examination of this argument reveals its absurdity. People in many different economic systems save in order to consume later, but only in capitalism is it assumed that they need a reward for it beyond the reward of having those savings available for consumption later. The peasant farmer "defers consumption" in order to have grain to plant next year, the squirrel "defers consumption" of nuts in order to have a stock through winter. But neither expects to see their stores increase in size over time. Therefore, saving is rewarded by saving, as consuming is rewarded by consuming. In fact, the capitalist "explanation" for interest has all the hallmarks of apologetics. It is merely an attempt to justify an activity without careful analysing it.

To be sure, there is an economic truth underlying this argument for justifying interest, but the formulation by supporters of capitalism is inaccurate and unfortunate. There is a sense in which 'waiting' is a condition for capital increase, though not for capital per se. Any society which wishes to increase its stock of capital goods may have to postpone some gratification. Workplaces and resources turned over to producing capital goods cannot be used to produce consumer items, after all. So, like most capitalist economics there is a grain of truth in it but this grain of truth is used to grow a forest of half-truths and confusion.

Any economy is a network, where decisions affect everyone. Therefore, if some people do not consume now, production is turned away from consumption goods, and this has an effect on all. Or, to put it slightly differently, aggregate demand -- and so aggregate supply -- is changed when some people postpone consumption, and this affects others. The decrease in the demand for consumer goods affects the producers of these goods. Under capitalism, this may result in other people having to "defer consumption," as they cannot sell their goods on the market; but supporters of capitalism assume that only capitalists are affected by their decision to postpone consumption, and therefore that they should get a reward for it. Indeed, why should someone be rewarded for a decision which may cause companies to go bust, so reducing the available means of production as reduced demand results in job loses and idle factories, is not even raised as an issue by the supporters of capitalism.

Lastly, we must consider what interest actually means. It is not the same as other forms of exchange. Proudhon pointed out the difference:

Thus selling the use of money (paid for by interest) is not the same as selling a commodity. The seller of the commodity does not receive the commodity back as well as its price. In effect, as with rent and profits, interest is payment for permission to use something and, therefore, not a productive act which should be rewarded. Ultimately, interest is an expression of inequality, not exchange:

Therefore, money lending is, for the poor person, not a choice between more consumption now/less later and less consumption now/more later. If there is no consumption now, there will not be any later. In addition, even in a relatively egalitarian capitalism, interest implies that the producer of new capital is not producing commodities. Would-be capitalists have "deferred consumption" and allowed a machine to be created. They then offer to let others use it for a fee, but they are not selling a commodity, they are renting the use of something. And giving permission is not a productive act (as noted above).

Therefore, providing capital and charging interest are not productive acts. As Proudhon argued, "all rent received (nominally as damages, but really as payment for a loan) is an act of property - of robbery [theft]." [What is Property, p. 171]. In other words, capitalism is based on usury, i.e. paying for the use of something. The machine owner has "deferred consumption" and so is "rewarded" with wage labourers to boss about and payment in excess of what he or she originally put forward. In addition, the commodity producers have made goods which the owner of the machine gets paid for and still has the machine! This means that the interest paid has been taken from the labour of those who use the machine, who end up with nothing at the end beyond their wages and so are still wage slaves, looking for a new boss. Little wonder Proudhon argued that "Property is theft!"

Interest is a con, pure and simple. Little wonder both social and individualist anarchists have opposed it. Ben Tucker assumed that mutual banking, besides reducing interest to zero, would also increase the power of workers in the economy, meaning that workers would be in a position to refuse to work for a capitalist unless they agreed to a hire-purchase deal on the capital they used (see section G). As for the social anarchists, they realised that free agreements between syndicates and communes would ensure suitable investment in new means of production. They also recognised the network of common influence in any advanced economy, and thus that since everyone is affected by investment decisions, all should have a say in them (see section I).

“That’s a big honor,” commented Larry. “The passenger, while they were high up, threw something and hit the pilot, the seaplane went out of control, the man jumped—and then cut free his parachute, cut the sack holding the emeralds, and hid in the swamp.” “I see a light,” Sandy said as the airplane swung far out over the dark water. “A green light, but the hydroplane wouldn’t carry lights.” "No, no; it's a good deal, but it ain't too much. Not that it could be more, very well," he added, and he glanced furtively at the woman within, who had stretched out on the lounge with her face to the wall. Mrs. Taylor was fanning her. But though the 21st of January was to be the day of the grand attack on the Ministry, the battle was not deferred till then. Every day was a field-day, and the sinking Minister was dogged step by step, his influence weakened by repeated divisions, and his strength worn out by the display of the inevitable approach of the catastrophe. The first decided defeat that he suffered was in the election of the Chairman of Committees. The Ministerial candidate, Giles Earle, was thrown out by a majority of two hundred and forty-two to two hundred and thirty-eight, and the Opposition candidate, Dr. Lee, was hailed by a shout that rent the House. Other close divisions followed. The fall of Walpole was now certain, and he would have consulted both his dignity and comfort in resigning at once. This was the earnest advice of his friends, but he had been too long accustomed to power to yield willingly. He was oppressed with a sense of his defeats, and the insolence of enemies whom he had so long calmly looked down upon without fear. He was growing old and wanted repose, but he still clung convulsively to his authority, though he had ceased to enjoy it. "Should think they was bride and groom, if they wasn't so old." "March them right over to that shed there," said the Major, "and the Quartermaster will issue them muskets and equipments, which you can turn over again when you reach Chattanooga. Good-by. I hope you'll have a pleasant trip. Remember me to the boys of the old brigade and tell them I'll be with them before they start out for Atlanta." The train finally halted on a side-track in the outskirts of Chattanooga, under the gigantic shadow of Lookout Mountain, and in the midst of an ocean of turmoiling activity that made the eyes ache to look upon it, and awed every one, even Si and Shorty, with a sense of incomprehensible immensity. As far as they could see, in every direction, were camps, forts, intrenchments, flags, hordes of men, trains of wagons, herds of cattle, innumerable horses, countless mules, mountains of boxes, barrels and bales. Immediately around them was a wilderness of trains, with noisy locomotives and shouting men. Regiments returning from veteran furlough, or entirely new ones, were disembarking with loud cheering, which was answered from the camps on the hillsides. On the river front steamboats were whistling and clanging their bells. "Go out and git you a rebel for yourself, if you want to know about 'em," Shorty had snapped at the Orderly. "There's plenty more up there on the hill. It's full of 'em." "Drat 'em! durn 'em!" "He's dead," said Realf. Should you leave me too, O my faithless ladie!" The odds were generally on Reuben. It was felt that a certain unscrupulousness was necessary to the job, and in that Backfield had the advantage. "Young Realf wudn't hurt a fly," his champions had to acknowledge. Though the money was with Reuben, the sympathy was mostly with Realf, for the former's dealings had scarcely made him popular. He was a hard man to his customers, he never let them owe him for grain or roots or fodder; his farm-hands, when drunk, spoke of him as a monster, and a not very tender-hearted peasantry worked itself sentimental over his treatment of his children. Caro was frightened, horrified—she broke free, and scrambled to her feet. She nearly wept, and it was clear even to his muddled brain that her invitation had been merely the result of innocence more profound than that which had stimulated her shyness. Rough seaman though he was, he was touched, and managed to soothe her, for she was too bashful and frightened to be really indignant. They walked a few yards further along the path, then at her request turned back towards Odiam. Calverley reluctantly departed on his mission, cursing the interruption that prevented his enjoying the degradation of his rival, and the baron now inquired whether Holgrave had confessed himself his villein. HoME 国家产免费一级毛卡片 ENTER NUMBET 0017
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