"The final purpose of my work," says Marx in the preface to *Capital*, "is the discovery of the economic law of motion of modern society"{66}, that is, capitalist, bourgeois society. The investigation of the production relations of a given, historically determined, society in their origin, development, and decline – such is the content of Marx's economic doctrine. In capitalist society, commodity production dominates, and therefore Marx's analysis begins with the analysis of the commodity.

## Value

A commodity is, in the first place, a thing that satisfies some human need; in the second place, a thing exchanged for another thing. The usefulness of a thing makes it a use-value. Exchange-value (or simply value) appears first and foremost as a relation, a proportion in the exchange of a definite quantity of use-values of one kind for a definite quantity of use-values of another kind. Daily experience shows us that millions and billions of such exchanges constantly equate to one another all manner of diverse and incomparable use-values. What is common between these different things, constantly equated to each other in a definite system of social relations? What is common to them is that they are products of labour. By exchanging products, people equate the most diverse kinds of labour. Commodity production is a system of social relations in which individual producers create diverse products (the social division of labour), and all these products are equated to one another in exchange. Consequently, what is common to all commodities is not the concrete labour of a definite branch of production, not labour of one kind, but abstract human labour, human labour in general. The entire working capacity of a given society, represented in the sum of the values of all commodities, is one and the same human working capacity: billions of facts of exchange prove this. And, consequently, each individual commodity appears merely as a certain portion of socially-necessary labour time. The magnitude of value is determined by the quantity of socially-necessary labour, or the labour-time socially-necessary for the production of a given commodity, a given use-value. "By equating their various products in exchange to one another, people equate their various kinds of labour to one another. They do not know it, but they do it"{67}. Value is a relation between two persons – as one old economist said; he should only have added: a relation concealed in a material envelope. Only from the standpoint of a system of social production relations of one definite historical form of society, and moreover relations manifesting themselves in mass, repeatedly occurring billions of times in the phenomenon of exchange, can one understand what value is. "As values, commodities are merely definite quantities of congealed labour-time"{68}. Having analyzed in detail the dual character of labour embodied in commodities, Marx proceeds to the analysis of the form of value and money. Marx's chief task here is the investigation of the origin of the monetary form of value, the investigation of the historical process of the development of exchange, beginning with individual, accidental acts of it ("simple, individual, or accidental form of value": a given quantity of one commodity is exchanged for a given quantity of another commodity) up to the general form of value, when a series of different commodities is exchanged for one and the same definite commodity, and up to the monetary form of value, when this definite commodity, the universal equivalent, is gold. Being the highest product of the development of exchange and commodity production, money obscures and conceals the social character of private labours, the social connection between individual producers united by the market. Marx subjects the various functions of money to an extraordinarily detailed analysis, and here too (as indeed throughout the first chapters of *Capital*) it is especially important to note that the abstract and sometimes seemingly purely deductive form of exposition actually reproduces a gigantic mass of factual material on the history of the development of exchange and commodity production. "Money presupposes a certain height of commodity exchange. The various forms of money – simple commodity equivalent, or medium of circulation, or medium of payment, treasure, and world-money – indicate, according to the different degrees of application of this or that function, according to the comparative predominance of one or the other, very different stages of the social process of production" (*Capital*, I){69}.

## Surplus-Value

At a definite stage in the development of commodity production, money is transformed into capital. The formula of commodity circulation was: C (commodity) – M (money) – C (commodity), that is, the sale of one commodity in order to purchase another. The general formula of capital is, on the contrary, M – C – M, that is, purchase in order to sell (with profit). Marx calls surplus-value this increase in the initial value of the money set in circulation. The fact of this "growth" of money in capitalist circulation is well known. It is precisely this "growth" that transforms money into capital, as a particular, historically determined, social relation of production. Surplus-value cannot arise from commodity circulation, for it knows only the exchange of equivalents, it cannot arise from a markup on price either, for the mutual losses and gains of buyers and sellers would balance out, and we are dealing precisely with a mass, average, social phenomenon, not an individual one. To obtain surplus-value, "the owner of money must find on the market such a commodity, whose use-value itself possesses the original property of being a source of value"{70}, such a commodity whose process of consumption would at the same time be a process of creating value. And such a commodity exists. It is human labour-power. Its consumption is labour, and labour creates value. The owner of money buys labour-power at its value, determined, like the value of any other commodity, by the socially-necessary labour-time necessary for its production (that is, by the value of the maintenance of the worker and his family). Having bought labour-power, the owner of money has the right to consume it, that is, to make it work the whole day, say, 12 hours. Meanwhile the worker, in the course of 6 hours ("necessary" labour-time) creates a product that reimburses his maintenance, and in the course of the next 6 hours ("surplus" labour-time) creates an unpaid by the capitalist "surplus" product or surplus-value. Consequently, in capital, from the standpoint of the process of production, one must distinguish two parts: constant capital, expended on means of production (machines, tools of labour, raw material, etc.) – its value passes over into the finished product (all at once or in portions) without change – and variable capital, expended on labour-power. The value of this capital does not remain unchanged, but increases in the process of labour, creating surplus-value. Therefore, to express the degree of exploitation of labour-power by capital, one must compare surplus-value not with the entire capital, but only with the variable capital. The rate of surplus-value, as Marx calls this ratio, will be, for example, in our example 6/6, that is, 100%.

The historical precondition for the origin of capital is, in the first place, the accumulation of a definite sum of money in the hands of individual persons at a comparatively high level of development of commodity production in general, and in the second place, the existence of "free" labour in a twofold sense – free from all constraints or restrictions on the sale of labour-power and free from land and generally from the means of production, a destitute worker, a "proletarian" worker, who has nothing to live on except the sale of labour-power.

An increase in surplus-value is possible by means of two fundamental methods: by lengthening the working day ("absolute surplus-value") and by shortening the necessary working day ("relative surplus-value"). Analyzing the first method, Marx unfolds a gigantic picture of the struggle of the working class for the shortening of the working day and the intervention of state power for lengthening the working day (14th–17th centuries) and for shortening it (factory legislation of the 19th century). After *Capital* appeared, the history of the working movement of all civilized countries of the world provided thousands and thousands of new facts illustrating this picture.

Analyzing the production of relative surplus-value, Marx investigates three fundamental historical stages of the increase in labour productivity by capitalism: 1) simple cooperation; 2) the division of labour and manufacture; 3) machinery and large-scale industry. How deeply Marx has laid bare here the fundamental, typical features of the development of capitalism is evident, among other things, from the fact that investigations of the so-called "domestic" industry of Russia provide the richest material for illustrating the first two of these three stages. And the revolutionizing action of large-scale machine industry, described by Marx in 1867, revealed itself during the half-century that followed in a whole series of "new" countries (Russia, Japan, and others).

Furthermore. Of the highest importance and novelty with Marx is the analysis of the accumulation of capital, that is, the transformation of a part of surplus-value into capital, its use not for the personal needs or whims of the capitalist, but for new production. Marx demonstrated the error of all previous classical political economy (beginning with Adam Smith), which believed that all surplus-value transformed into capital goes into variable capital. In reality it is divided between means of production plus variable capital. Of tremendous significance in the process of the development of capitalism and its transformation into socialism is the more rapid increase in the share of constant capital (in the total sum of capital) as compared with the share of variable capital.

The accumulation of capital, by accelerating the displacement of workers by machinery, creating wealth at one pole and destitution at the other, also generates the so-called "reserve army of labour," a "relative surplus" of workers, or "capitalist overpopulation," assuming extraordinarily diverse forms and giving capital the ability to expand production with extraordinary speed. This possibility, in connection with credit and the accumulation of capital in means of production, provides, among other things, a key to understanding the crises of overproduction, which periodically occurred in capitalist countries, at first on the average every 10 years, then at longer and less definite intervals. From the accumulation of capital on the basis of capitalism one must distinguish the so-called primitive accumulation: the violent separation of the worker from the means of production, the expulsion of peasants from the land, the theft of communal lands, the system of colonies and state debts, protective tariffs, etc. "Primitive accumulation" creates at one pole a "free" proletarian, at the other the owner of money, a capitalist.

Marx characterizes the "historical tendency of capitalist accumulation" in the following famous words: "The expropriation of the immediate producers is accomplished with the most pitiless vandalism, and under the impulses of the most infamous, the most sordid, the most petty, and the most odious passions. Private property, hard-won, self-earned, and to be so to say made one's own by the sweat of one's brow" (of the peasant and craftsman), "is supplanted by capitalistic private property, which rests on exploitation of the nominally free, but practically enslaved labour-power of others… Hereby the last capitalist is expropriated. But now the expropriation is the work of immanent laws of capitalistic production itself, of the centralization of capital. One capitalist always strikes down many. Hand in hand with this centralization, or this expropriation of many capitalists by few, develop, on an ever-extending scale, the co-operative form of the labour-process, the conscious technical application of science, the methodical cultivation of the soil, the transformation of the instruments of labour into instruments that can be used only in common, the economizing of all means of production by their use as means of production of combined, socialized labour, the entanglement of all peoples in the net of the world-market, and therefore the international character of the capitalistic régime. Along with the constantly diminishing number of the magnates of capital, who usurp and monopolize all advantages of this process of transformation, grows the mass of misery, oppression, slavery, degradation, exploitation; but with this too grows the revolt of the working-class, a class always increasing in numbers, and disciplined, united, organized by the very mechanism of the process of capitalist production itself. The monopoly of capital becomes a fetter upon the mode of production, which has sprung up and flourished along with, and under it. Centralization of the means of production and socialization of labour at last reach a point where they become incompatible with their capitalist integument. This integument is burst asunder. The knell of capitalist private property sounds. The expropriators are expropriated" (*Capital*, I){71}.

Of the highest importance and novelty, further, is the analysis given by Marx in Volume II of *Capital* of the reproduction of social capital as a whole. Here Marx again takes not an individual, but a mass phenomenon, not a fraction or snippet of the economy of society, but the whole economy in its entirety. Correcting the error of the classics mentioned above, Marx divides all social production into two large departments: I) production of means of production, and II) production of articles of consumption, and examines in detail, using the numerical examples he has taken, the circulation of the entire social capital as a whole, both in reproduction at the same scale and in accumulation. In Volume III of *Capital* the question of the formation of the average rate of profit on the basis of the law of value is resolved. A great step forward in economic science, in the person of Marx, consists in the fact that the analysis is conducted from the standpoint of mass economic phenomena, the whole aggregate of social economy, rather than from the standpoint of individual cases or the external surface of competition, which is where vulgar political economy or the modern "theory of marginal utility" often confine themselves. First Marx analyzes the origin of surplus-value and then goes on to its division into profit, interest, and ground rent. Profit is the ratio of surplus-value to all capital invested in the enterprise. Capital of "high organic composition" (that is, with constant capital predominating over variable capital in proportions above the average social level) yields a rate of profit below the average. Capital of "low organic composition" – above the average. Competition between capitals, the free movement of them from one branch to another will, in both cases, reduce the rate of profit to the average. The sum of the values of all commodities of a given society coincides with the sum of the prices of commodities, but in individual enterprises and individual branches of production, commodities, under the influence of competition, are sold not at their values, but at prices of production (or production prices), which equal the advanced capital plus average profit.

Thus, the well-known and undisputed fact of prices deviating from values and the equality of profits is fully explained by Marx on the basis of the law of value, for the sum of the values of all commodities coincides with the sum of prices. But the reduction of (social) value to (individual) prices does not occur in a simple, not in an immediate, but in a very complicated way: quite naturally, in a society of scattered commodity-producers, connected only by the market, regularity cannot manifest itself except as an average, social, mass regularity, with the mutual cancellation of individual deviations in one direction or another.

An increase in labour productivity means a more rapid growth of constant capital compared with variable capital. And since surplus-value is a function of variable capital alone, it is clear that the rate of profit (the ratio of surplus-value to all capital, not only to its variable part) has a tendency to fall. Marx analyzes this tendency in detail and a series of circumstances that obscure it or counteract it. Without dwelling on the transmission of the extraordinarily interesting sections of Volume III devoted to usurious, commercial, and monetary capital, we will proceed to the most important matter: to the theory of ground rent. The price of production of agricultural products, owing to the limitedness of land area, which is entirely occupied by individual proprietors in capitalist countries, is determined by the costs of production not on average, but on the worst soil, not under average, but under the worst conditions of delivering the product to the market. The difference between this price and the price of production on better soils (or under better conditions) yields differential or rent. Analyzing it in detail, showing its origin in the difference in fertility of individual parcels of land, in the difference in the scale of capital investment in land, Marx fully laid bare (see also the *Theories of Surplus-Value*, where special attention deserves the critique of Rodbertus) Ricardo's error that differential rent is obtained only with a successive transition from better lands to worse ones. On the contrary, there are also reverse transitions, there is a transformation of one category of lands into another (owing to the progress of agricultural technique, the growth of cities, etc.), and a deep error, an attributing to nature of the defects, limitations, and contradictions of capitalism is the notorious "law of diminishing soil fertility." Next, the equality of profit in all branches of industry and the economy in general presupposes complete freedom of competition, freedom of the flow of capital from one branch to another. Meanwhile private property in land creates a monopoly, an obstacle to this free flow. By virtue of this monopoly the products of agriculture, distinguished by a lower organic composition of capital and consequently an individually higher rate of profit, do not enter fully into the process of equalization of the rate of profit; the landowner, as a monopolist, obtains the ability to maintain the price above the average, and this monopoly price generates absolute rent. Differential rent cannot be abolished under the existence of capitalism; absolute rent, however, can be – for example, with the nationalization of land, with its transition into the ownership of the state. Such a transition would mean an undermining of the monopoly of private proprietors, would mean a more consistent, more complete implementation of freedom of competition in agriculture. And therefore radical bourgeois figures, Marx notes, have repeatedly appeared in history with this progressive bourgeois demand for the nationalization of land, which, however, frightens the majority of the bourgeoisie, since it comes too close to "touching" another, in our day especially important and "sensitive" monopoly: the monopoly of the means of production in general. (It is remarkable how popularly, concisely, and clearly Marx himself expounded his theory of average profit on capital and absolute ground rent in his letter to Engels of 2 August 1862. See *Correspondence*, Vol. III, pp. 77–81. Cf. also the letter of 9 August 1862, ibid., pp. 86–87){72}. – For the history of ground rent it is also important to point out Marx's analysis, showing the transformation of labour-rent (when the peasant by his labour on the landlord's land creates surplus product) into rent in products or in kind (the peasant on his own land produces surplus product, giving it to the landlord by virtue of "extra-economic compulsion"), then into monetary rent (the same rent in kind, transformed into money, "obrok" of old Russia, by virtue of the development of commodity production), and finally into capitalist rent, when in place of the peasant appears an entrepreneur in agriculture, conducting cultivation by means of hired labour. In connection with this analysis of the "genesis of capitalist ground rent" should be noted a series of profound (and especially important for backward countries, like Russia) thoughts of Marx on the evolution of capitalism in agriculture. "The transition from payment in kind to money payment is not only accompanied by, but even preceded by, the formation of a class of destitute day-labourers, hired for wages. During the genesis of this class, at a time when it appears only sporadically, those more affluent peasants, obliged to pay rent, naturally develop the custom of exploiting agricultural wage-labourers on their own account – in much the same way as in feudal times the more affluent serf-peasants themselves in turn held serfs. In the hands of these peasants there thus gradually develops the possibility of accumulating some capital and of transforming themselves into future capitalists. Among the old independent peasants a nursery of capitalist farmers thus arises, whose development is conditioned by the general development of capitalist production outside agriculture" (*Capital*, Volume III, Book 6, p. 332){73}… "The expropriation and eviction of a part of the rural population not only 'sets free' for industrial capital the labourers, their means of subsistence, and their instruments of labour, but also creates a home market" (*Capital*, I, 2nd edn., p. 778){74}. The impoverishment and ruin of the rural population plays, in its turn, a role in creating the reserve army of labour for capital. In every capitalist country "a part of the rural population is therefore constantly on the point of passing over into an urban or manufacturing" (i.e., non-agricultural) "population. This source of relative surplus-population thus flows on continually… The rural labourer is therefore permanently below the minimum of wages, and below the town-worker, and he stands always on the verge of the condition of a pauper" (*Capital*, I, 2nd edn., p. 668){75}. The private property of the peasant in the land he cultivates is the foundation of small production and the condition of its prosperity, the attainment of it of its classical form. But this small production is compatible only with narrow, primitive bounds of production and of society. Under capitalism "the exploitation of the peasant differs from the exploitation of the industrial proletariat only in form. The exploiter is the same – capital. Individual capitalists exploit individual peasants by mortgages and usury; the class of capitalists exploits the class of peasants by means of the state taxes" (*The Class Struggles in France*){76}. "The peasant parcel of land is merely the pretext which allows the capitalist to draw profit, interest and rent from the soil, while leaving it to the farmer to extract his wages as best he can" (*The Eighteenth Brumaire*){77}. Commonly the peasant even gives up to capitalist society, that is, to the class of capitalists, a portion of his wages, sinking "to the level of the Irish farmer – in the guise of a private proprietor" (*The Class Struggles in France*){78}. What is the basis for "one of the reasons why in countries with predominant small-peasant land-holding the price of grain is lower than in countries with the capitalist method of production"? (*Capital*, III, 2nd edn., p. 340). It is that the peasant gives to society (that is, to the class of capitalists) for nothing a portion of the surplus product. "Consequently, such a low price (of grain and other agricultural products) is the consequence of the poverty of the producers, but by no means the result of the productivity of their labour" (*Capital*, III, 2nd edn., p. 340). Small land property, the normal form of small production, is degraded, destroyed, ruined under capitalism. "Small landed property excludes by its very nature: the development of the social productive forces of labour, the social forms of labour, the social concentration of capitals, stock-raising on a large scale, the progressive application of science. Usury and the tax system necessarily lead everywhere to its impoverishment. The use of capital in the purchase of land withdraws it from the use in the cultivation of land. Endless subdivision of means of production and dispersion of the producers themselves" (Cooperation, that is to say, the associations of small peasants, playing an extraordinarily progressive bourgeois role, only weaken this tendency, but do not eliminate it; it should also not be forgotten that these cooperatives give much to the rich peasants and very little, almost nothing, to the mass of the poor, and then the associations themselves become exploiters of hired labour.) "The colossal waste of human force. The constant increase in deterioration of the conditions of production and in the dearness of the means of production is a law of parcelized property"{79}. Capitalism, both in agriculture as in industry, transforms the process of production only at the cost of "the martyrdom of producers." "The dispersion of the rural workers over large areas breaks their power of resistance, whereas the concentration of the urban workers increases it. In modern, capitalist, agriculture as in modern industry, an increase in the productive power of labour and greater mobility of labour are purchased at the cost of a crippled and exhausted condition of the labour-power itself. Moreover, every advance in capitalist agriculture is a progress not only in the art of robbing the labourer, but also in the art of robbing the soil… Capitalist production, therefore, develops the technique and the degree of combination of the social process of production only by exhausting at the same time the original sources of all wealth – the soil and the worker" (*Capital*, I, end of Chapter 13){80}.