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:
"The working man cannot. . . repurchase that which he has produced for his master. It is thus with all trades whatsoever. . . since, producing for a master who in one form or another makes a profit, they are obliged to pay more for their own labour than they get for it." [What is Property, p. 189]
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:
"what is property, what is capital in their present form? For the capitalist and the property owner they mean the power and the right, guaranteed by the State, to live without working. . . [and so] the power and right to live by exploiting the work of someone else . . . those . . . [who are] forced to sell their productive power to the lucky owners of both." [The Political Philosophy of Bakunin, p. 180]
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.
We now move on to why this surplus value exists.
It is the nature of capitalism for the monopolisation of the worker's
product by others to exist. This is because of private property in the
means of production and so in "consequence of [which] . . . [the] worker,
when he is able to work, finds no acre to till, no machine to set in
motion, unless he agrees to sell his labour for a sum inferior to its real
value." [Peter Kropotkin, Kropotkin's Revolutionary Pamphlets, p. 55]
Therefore workers have to sell their labour on the market. However, as
this "commodity" "cannot be separated from the person of the worker like
pieces of property. The worker's capacities are developed over time and
they form an integral part of his self and self-identity; capacities are
internally not externally related to the person. Moreover, capacities or
labour power cannot be used without the worker using his will, his
understanding and experience, to put them into effect. The use of labour
power requires the presence of its 'owner'. . . To contract for the use
of labour power is a waste of resources unless it can be used in the
way in which the new owner requires . . . The employment contract must,
therefore, create a relationship of command and obedience between
employer and worker." [Carole Pateman, The Sexual Contract, pp. 150-1]
So, "the contract in which the worker allegedly sells his labour power
is a contract in which, since he cannot be separated from his capacities,
he sells command over the use of his body and himself. . . The
characteristics of this condition are captured in the term wage slave."
[Ibid., p. 151] Or, to use Bakunin's words, "the worker sells his person
and his liberty for a given time" and so "concluded for a term only and
reserving to the worker the right to quit his employer, this contract
constitutes a sort of voluntary and transitory serfdom." [The
Political Philosophy of Bakunin, p. 187]
This domination is the source of the surplus, for "wage slavery is not
a consequence of exploitation - exploitation is a consequence of the
fact that the sale of labour power entails the worker's subordination.
The employment contract creates the capitalist as master; he has the
political right to determine how the labour of the worker will be used,
and - consequently - can engage in exploitation." [Carole Pateman,
Op. Cit., p. 149]
So profits exist because the worker sells themselves to the capitalist,
who then owns their activity and, therefore, controls them (or, more
accurately, tries to control them) like a machine. Benjamin Tucker's
comments with regard to the claim that capital is entitled to a reward
are of use here. He notes that some "combat. . . the doctrine that
surplus value -- oftener called profits -- belong to the labourer
because he creates it, by arguing that the horse. . . is rightly
entitled to the surplus value which he creates for his owner. So
he will be when he has the sense to claim and the power to take
it. . . Th[is] argument . . is based upon the assumption that
certain men are born owned by other men, just as horses are. Thus
its reductio ad absurdum turns upon itself."
[Instead of a Book,
pp. 495-6]
In other words, to argue that capital should be rewarded is to
implicitly assume that workers are just like machinery, another
"factor of production" rather than human beings and the creator
of things of value. So profits exists because during the working
day the capitalist controls the activity and output of the worker
(i.e. owns them during working hours as activity cannot be
separated from the body and "[t]here is an integral relationship
between the body and self. The body and self are not identical,
but selves are inseparable from bodies." [Carole Pateman, Op. Cit.,
p. 206]).
Considered purely in terms of output, this results in, as Proudhon noted,
workers working "for an entrepreneur who pays them and keeps their
products." [quoted by Martin Buber, Paths in Utopia, p. 29]
The ability of capitalists to maintain this kind of monopolisation of
another's time and output is enshrined in "property rights" enforced by
either public or private states. In short, therefore, property "is the
right to enjoy and dispose at will of another's goods - the fruit of
an other's industry and labour." [P-J Proudhon, What is Property, p. 171]
And because of this "right," a worker's wage will always be less than the
wealth that he or she produces.
The size of this surplus, the amount of unpaid labour, can be changed
by changing the duration and intensity of work (i.e. by making workers
labour longer and harder). If the duration of work is increased, the
amount of surplus value is increased absolutely. If the intensity is
increased, e.g. by innovation in the production process, then the amount
of surplus value increases relatively (i.e. workers produce the equivalent
of their wage sooner during their working day resulting in more unpaid
labour for their boss).
Such surplus indicates that labour, like any other commodity, has a use
value and an exchange value. Labour's exchange value is a worker's wages,
its use value their ability to work, to do what the capitalist who buys
it wants. Thus the existence of "surplus products" indicates that there
is a difference between the exchange value of labour and its use value,
that labour can potentially create more value than it receives back
in wages. We stress potentially, because the extraction of use value from
labour is not a simple operation like the extraction of so many joules
of energy from a ton of coal. Labour power cannot be used without subjecting
the labourer to the will of the capitalist - unlike other commodities,
labour power remains inseparably embodied in human beings. Both the
extraction of use value and the determination of exchange value for labour
depends upon - and are profoundly modified by - the actions of workers.
Neither the effort provided during an hours work, nor the time spent in
work, nor the wage received in exchange for it, can be determined
without taking into account the worker's resistance to being turned
into a commodity, into an order taker. In other words, the amount of
"surplus products" extracted from a worker is dependent upon the
resistance to dehumanisation within the workplace, to the attempts by
workers to resist the destruction of liberty during work hours.
Thus unpaid labour, the consequence of the authority relations explicit
in private property, is the source of profits. Part of this surplus
is used to enrich capitalists and another to increase capital, which
in turn is used to increase profits, in an endless cycle (a cycle,
however, which is not a steady increase but is subject to periodic
disruption by recessions or depressions - "The business cycle." The basic
causes for such crises will be discussed later, in sections C.7 and C.8).
In a word, no. As we will attempt to indicate, capitalists are not justified
in appropriating surplus value from workers. No matter how this appropriation
is explained by capitalist economics, we find that inequality in wealth and
power are the real reasons for this appropriation rather than some actual
productive act. Indeed, neo-classical economics reflects this truism. In
the words of the noted left-wing economist Joan Robinson:
If profits are the result of private property and the inequality it
produces, then it is unsurprising that neo-classical theory would be
as foundationless as Robinson argues. After all, this is a political
question and neo-classical economics was developed to ignore such questions.
Here we indicate why this is the case and discuss the various rationales
for capitalist profit in order to show why they are false.
Some consider that profit is the capitalist's "contribution" to the value
of a commodity. However, as David Schweickart points out, "'providing
capital' means nothing more than 'allowing it to be used.' But an act of
granting permission, in and of itself, is not a productive activity. If
labourers cease to labour, production ceases in any society. But if owners
cease to grant permission, production is affected only if their authority
over the means of production is respected." [Against Capitalism, p. 11]
This authority, as discussed earlier, derives from the coercive mechanisms
of the state, whose primary purpose is to ensure that capitalists have this
ability to grant or deny workers access to the means of production.
Therefore, not only is "providing capital" not a productive activity, it
depends on a system of organised coercion which requires the appropriation
of a considerable portion of the value produced by labour, through taxes,
and hence is actually parasitic. Needless to say, rent can also be considered
as "profit", being based purely on "granting permission" and so not a
productive activity. The same can be said of interest, although the
arguments are somewhat different (see section C.2.6).
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:
"The proprietor, on the contrary, does not yield his implement; eternally he
is paid for it, eternally he keeps it." [Op. Cit., pp. 169-170]
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.
There is a given amount of surplus value in existence within the economy at
any one time. How this surplus is created by or divided between firms is
determined by competition, within which innovation plays an important role.
Innovation occurs in order to expand profits and so survive competition
from other companies. While profits can be generated in circulation (for
example by oligopolistic competition or inflation) this can only occur at the
expense of other people or capitals (see C.5 - Why does Big Business get a
bigger slice of profits? and C.7 - What causes the capitalist business
cycle? - respectively). Innovation, however, allows the generation of profits
directly from the new or increased productivity (i.e. exploitation) of labour.
This is because it is in production that commodities, and so profits, are
created and innovation results in new products and/or new production methods.
New products mean that the company can reap excess profits until competitors
enter the new market and force the market price down by competition. New
production methods allow the intensity of labour to be increased, meaning
that workers do more work relative to their wages (in other words, the
cost of production falls relative to the market price, meaning extra
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.
Contrary to much capitalist apologetics, innovation is not the monopoly
of an elite class of humans. It is within all of us, although the
necessary social environment needed to nurture and develop it in ordinary
workers is crushed by the authoritarian workplaces of capitalism. If
workers were truly incapable of innovation, any shift toward greater
control of production by workers should result in decreased productivity.
What one actually finds, however, is just the opposite: In the few
examples where workers' control has been implemented, productivity
increased dramatically as ordinary people were given the chance, usually
denied them, to apply their skills, talents, and creativity.
As Christopher Eaton Gunn notes, there is "a growing body of empirical
literature that is generally supportive of claims for the economic
efficiency of the labour-managed firm. Much of this literature focuses
on productivity, frequently finding it to be positively correlated
with increasing levels of participation. . . Studies that encompass
a range of issues broader than the purely economic also tend to support
claims for the efficiency of labour managed and worker-controlled
firms. . . In addition, studies that compare the economic preference
of groups of traditionally and worker-controlled forms point to
the stronger performance of the latter." [Workers' Self-Management
in the United States, pp. 42-3]
This has been strikingly confirmed in studies of the Mondragon
co-operatives in Spain, where workers are democratically involved in
production decisions and encouraged to innovate. As George Bennello
notes, "Mondragon productivity is very high -- higher than in its
capitalist counterparts. Efficiency, measured as the ratio of utilised
resources -- capital and labour -- to output, is far higher than in
comparable capitalist factories." [The Challenge of Mondragon,
p. 216]
The example of the Lucus workers in Britain, during the 1970's, again
indicates the creative potential waiting to be utilised. The workers in
Lucus created a plan which would convert the military-based Lucus company
into a company producing useful goods for ordinary people. The workers in
Lucus designed the products themselves, using their own experiences of
work and life. The management just were not interested.
During the Spanish Revolution of 1936-39, workers self-managed many
factories following the principles of participatory democracy.
Productivity and innovation in the Spanish collectives was exceptionally
high. The metal-working industry is a good example. As Augustine
Souchy observes, at the outbreak of the Civil War, the metal industry
in Catalonia was "very poorly developed." Yet within months, the
Catalonian metal workers had rebuilt the industry from scratch,
converting factories to the production of war materials for the
anti-fascist troops. A few days after the July 19th revolution, the
Hispano-Suiza Automobile Company was already converted to the manufacture
of armoured cars, ambulances, weapons, and munitions for the fighting
front. "Experts were truly astounded," Souchy writes, "at the expertise
of the workers in building new machinery for the manufacture of arms and
munitions. Very few machines were imported. In a short time, two hundred
different hydraulic presses of up to 250 tons pressure, one hundred
seventy-eight revolving lathes, and hundreds of milling machines and
boring machines were built." [The Anarchist Collectives: Workers'
Self-management in the Spanish Revolution, 1936-1939, ed. Sam Dolgoff,
p. 96]
Similarly, there was virtually no optical industry in Spain before the
July revolution, only some scattered workshops. After the revolution, the
small workshops were voluntarily converted into a production collective.
"The greatest innovation," according to Souchy, "was the construction of a
new factory for optical apparatuses and instruments. The whole operation
was financed by the voluntary contributions of the workers. In a short
time the factory turned out opera glasses, telemeters, binoculars,
surveying instruments, industrial glassware in different colours, and
certain scientific instruments. It also manufactured and repaired optical
equipment for the fighting fronts . . . What private capitalists failed to
do was accomplished by the creative capacity of the members of the Optical
Workers' Union of the CNT." [Op. Cit., pp. 98-9]
Therefore, far from being a threat to innovation, workers' control
would increase it and, more importantly, direct it towards improving the
quality of life for all as opposed to increasing the profits of the few.
This aspect an anarchist society will be discussed in more detail in
section I (What would an anarchist society look like?). In addition,
see sections J.5.10, J.5.11 and J.5.12 for more on why anarchists
support self-management and why, in spite of its higher efficiency
and productivity, the capitalist market will select against it.
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.
Of course it could be argued that executives are also "workers" and so
contribute to the value of the commodities produced. However, this is
not the case. Though they may not own the instruments of production,
they are certainly buyers and controllers of labour power, and under
their auspices production is still capitalist production. The creation
of a "salary-slave" strata of managers does not alter the capitalist
relations of production. In effect, the management strata are de facto
capitalists. As exploitation requires labour ("There is work and there is
work." as Bakunin noted, "There is productive labour and there is the
labour of exploitation" [The Political Philosophy of Bakunin, p. 180]),
management is like the early "working capitalist" and their "wages" come
from the surplus value appropriated from workers and realised on the
market. Or, to use a different analogy, managers are like the slave
drivers hired by slave owners who do not want to manage the slaves
themselves. The slave drivers' wages come from the surplus value
extracted from the slaves; it is not in itself productive labour.
Thus the exploitative role of managers, even if they can be fired,
is no different from capitalists. Moreover, "shareholders and
managers/technocrats share common motives: to make profits and to
reproduce hierarchy relations that exclude most of the employees from
effective decision making" [Takis Fotopoulos, "The Economic Foundations
of an Ecological Society", p. 16, Society and Nature No.3, pp. 1-40]
This is not to say that 100 percent of what managers do is exploitative.
The case is complicated by the fact that there is a legitimate need for
co-ordination between various aspects of complex production processes --
a need that would remain under libertarian socialism and would be filled
by elected and recallable (and in some cases rotating) managers (see
Section I). But under capitalism, managers become parasitic in proportion
to their proximity to the top of the pyramid. In fact, the further the
distance from the production process, the higher the salary; whereas the
closer the distance, the more likely that a "manager" is a worker with
a little more power than average. In capitalist organisations, the less
you do, the more you get. In practice, executives typically call upon
subordinates to perform managerial (i.e. co-ordinating) functions and
restrict themselves to broader policy-making decisions. As their
decision-making power comes from the hierarchical nature of the firm,
they could be easily replaced if policy making was in the hands of
those who are affected by it.
The idea that interest is the reward for "abstinence" on the part of
savers is a common one in capitalist economics. As Alfred Marshall argues,
"[i]f we admit it [a commodity] is the product of labour alone, and not of
labour and waiting, we can pp. e that is generally supportive of claims for the economic
efficiency of the labour-managed firm. Much of this literature focuses
on productivity, frequently finding it to be positively correlated
with increasing levels of participation. . . Studies that encompass
a range of issues broader than the purely economic also tend to support
claims for the efficiency of labour managed and worker-controlled
firms. . . In addition, studies that compare the economic preference
of groups of traditionally and worker-controlled forms point to
the stronger performance of the latter." [Workers' Self-Management
in the United States, pp. 42-3]
This has been strikingly confirmed in studies of the Mondragon
co-operatives in Spain, where workers are democratically involved in
production decisions and encouraged to innovate. As George Bennello
notes, "Mondragon productivity is very high -- higher than in its
capitalist counterparts. Efficiency, measured as the ratio of utilised
resources -- capital and labour -- to output, is far higher than in
comparable capitalist factories." [The Challenge of Mondragon,
p. 216]
The example of the Lucus workers in Britain, during the 1970's, again
indicates the creative potential waiting to be utilised. The workers in
Lucus created a plan which would convert the military-based Lucus company
into a company producing useful goods for ordinary people. The workers in
Lucus designed the products themselves, using their own experiences of
work and life. The management just were not interested.
During the Spanish Revolution of 1936-39, workers self-managed many
factories following the principles of participatory democracy.
Productivity and innovation in the Spanish collectives was exceptionally
high. The metal-working industry is a good example. As Augustine
Souchy observes, at the outbreak of the Civil War, the metal industry
in Catalonia was "very poorly developed." Yet within months, the
Catalonian metal workers had rebuilt the industry from scratch,
converting factories to the production of war materials for the
anti-fascist troops. A few days after the July 19th revolution, the
Hispano-Suiza Automobile Company was already converted to the manufacture
of armoured cars, ambulances, weapons, and munitions for the fighting
front. "Experts were truly astounded," Souchy writes, "at the expertise
of the workers in building new machinery for the manufacture of arms and
munitions. Very few machines were imported. In a short time, two hundred
different hydraulic presses of up to 250 tons pressure, one hundred
seventy-eight revolving lathes, and hundreds of milling machines and
boring machines were built." [The Anarchist Collectives: Workers'
Self-management in the Spanish Revolution, 1936-1939, ed. Sam Dolgoff,
p. 96]
Similarly, there was virtually no optical industry in Spain before the
July revolution, only some scattered workshops. After the revolution, the
small workshops were voluntarily converted into a production collective.
"The greatest innovation," according to Souchy, "was the construction of a
new factory for optical apparatuses and instruments. The whole operation
was financed by the voluntary contributions of the workers. In a short
time the factory turned out opera glasses, telemeters, binoculars,
surveying instruments, industrial glassware in different colours, and
certain scientific instruments. It also manufactured and repaired optical
equipment for the fighting fronts . . . What private capitalists failed to
do was accomplished by the creative capacity of the members of the Optical
Workers' Union of the CNT." [Op. Cit., pp. 98-9]
Therefore, far from being a threat to innovation, workers' control
would increase it and, more importantly, direct it towards improving the
quality of life for all as opposed to increasing the profits of the few.
This aspect an anarchist society will be discussed in more detail in
section I (What would an anarchist society look like?). In addition,
see sections J.5.10, J.5.11 and J.5.12 for more on why anarchists
support self-management and why, in spite of its higher efficiency
and productivity, the capitalist market will select against it.
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.
Of course it could be argued that executives are also "workers" and so
contribute to the value of the commodities produced. However, this is
not the case. Though they may not own the instruments of production,
they are certainly buyers and controllers of labour power, and under
their auspices production is still capitalist production. The creation
of a "salary-slave" strata of managers does not alter the capitalist
relations of production. In effect, the management strata are de facto
capitalists. As exploitation requires labour ("There is work and there is
work." as Bakunin noted, "There is productive labour and there is the
labour of exploitation" [The Political Philosophy of Bakunin, p. 180]),
management is like the early "working capitalist" and their "wages" come
from the surplus value appropriated from workers and realised on the
market. Or, to use a different analogy, managers are like the slave
drivers hired by slave owners who do not want to manage the slaves
themselves. The slave drivers' wages come from the surplus value
extracted from the slaves; it is not in itself productive labour.
Thus the exploitative role of managers, even if they can be fired,
is no different from capitalists. Moreover, "shareholders and
managers/technocrats share common motives: to make profits and to
reproduce hierarchy relations that exclude most of the employees from
effective decision making" [Takis Fotopoulos, "The Economic Foundations
of an Ecological Society", p. 16, Society and Nature No.3, pp. 1-40]
This is not to say that 100 percent of what managers do is exploitative.
The case is complicated by the fact that there is a legitimate need for
co-ordination between various aspects of complex production processes --
a need that would remain under libertarian socialism and would be filled
by elected and recallable (and in some cases rotating) managers (see
Section I). But under capitalism, managers become parasitic in proportion
to their proximity to the top of the pyramid. In fact, the further the
distance from the production process, the higher the salary; whereas the
closer the distance, the more likely that a "manager" is a worker with
a little more power than average. In capitalist organisations, the less
you do, the more you get. In practice, executives typically call upon
subordinates to perform managerial (i.e. co-ordinating) functions and
restrict themselves to broader policy-making decisions. As their
decision-making power comes from the hierarchical nature of the firm,
they could be easily replaced if policy making was in the hands of
those who are affected by it.
The idea that interest is the reward for "abstinence" on the part of
savers is a common one in capitalist economics. As Alfred Marshall argues,
"[i]f we admit it [a commodity] is the product of labour alone, and not of
labour and waiting, we can pp. e that is generally supportive of claims for the economic
efficiency of the labour-managed firm. Much of this literature focuses
on productivity, frequently finding it to be positively correlated
with increasing levels of participation. . . Studies that encompass
a range of issues broader than the purely economic also tend to support
claims for the efficiency of labour managed and worker-controlled
firms. . . In addition, studies that compare the economic preference
of groups of traditionally and worker-controlled forms point to
the stronger performance of the latter." [Workers' Self-Management
in the United States, pp. 42-3]
This has been strikingly confirmed in studies of the Mondragon
co-operatives in Spain, where workers are democratically involved in
production decisions and encouraged to innovate. As George Bennello
notes, "Mondragon productivity is very high -- higher than in its
capitalist counterparts. Efficiency, measured as the ratio of utilised
resources -- capital and labour -- to output, is far higher than in
comparable capitalist factories." [The Challenge of Mondragon,
p. 216]
The example of the Lucus workers in Britain, during the 1970's, again
indicates the creative potential waiting to be utilised. The workers in
Lucus created a plan which would convert the military-based Lucus company
into a company producing useful goods for ordinary people. The workers in
Lucus designed the products themselves, using their own experiences of
work and life. The management just were not interested.
During the Spanish Revolution of 1936-39, workers self-managed many
factories following the principles of participatory democracy.
Productivity and innovation in the Spanish collectives was exceptionally
high. The metal-working industry is a good example. As Augustine
Souchy observes, at the outbreak of the Civil War, the metal industry
in Catalonia was "very poorly developed." Yet within months, the
Catalonian metal workers had rebuilt the industry from scratch,
converting factories to the production of war materials for the
anti-fascist troops. A few days after the July 19th revolution, the
Hispano-Suiza Automobile Company was already converted to the manufacture
of armoured cars, ambulances, weapons, and munitions for the fighting
front. "Experts were truly astounded," Souchy writes, "at the expertise
of the workers in building new machinery for the manufacture of arms and
munitions. Very few machines were imported. In a short time, two hundred
different hydraulic presses of up to 250 tons pressure, one hundred
seventy-eight revolving lathes, and hundreds of milling machines and
boring machines were built." [The Anarchist Collectives: Workers'
Self-management in the Spanish Revolution, 1936-1939, ed. Sam Dolgoff,
p. 96]
Similarly, there was virtually no optical industry in Spain before the
July revolution, only some scattered workshops. After the revolution, the
small workshops were voluntarily converted into a production collective.
"The greatest innovation," according to Souchy, "was the construction of a
new factory for optical apparatuses and instruments. The whole operation
was financed by the voluntary contributions of the workers. In a short
time the factory turned out opera glasses, telemeters, binoculars,
surveying instruments, industrial glassware in different colours, and
certain scientific instruments. It also manufactured and repaired optical
equipment for the fighting fronts . . . What private capitalists failed to
do was accomplished by the creative capacity of the members of the Optical
Workers' Union of the CNT." [Op. Cit., pp. 98-9]
Therefore, far from being a threat to innovation, workers' control
would increase it and, more importantly, direct it towards improving the
quality of life for all as opposed to increasing the profits of the few.
This aspect an anarchist society will be discussed in more detail in
section I (What would an anarchist society look like?). In addition,
see sections J.5.10, J.5.11 and J.5.12 for more on why anarchists
support self-management and why, in spite of its higher efficiency
and productivity, the capitalist market will select against it.
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.
Of course it could be argued that executives are also "workers" and so
contribute to the value of the commodities produced. However, this is
not the case. Though they may not own the instruments of production,
they are certainly buyers and controllers of labour power, and under
their auspices production is still capitalist production. The creation
of a "salary-slave" strata of managers does not alter the capitalist
relations of production. In effect, the management strata are de facto
capitalists. As exploitation requires labour ("There is work and there is
work." as Bakunin noted, "There is productive labour and there is the
labour of exploitation" [The Political Philosophy of Bakunin, p. 180]),
management is like the early "working capitalist" and their "wages" come
from the surplus value appropriated from workers and realised on the
market. Or, to use a different analogy, managers are like the slave
drivers hired by slave owners who do not want to manage the slaves
themselves. The slave drivers' wages come from the surplus value
extracted from the slaves; it is not in itself productive labour.
Thus the exploitative role of managers, even if they can be fired,
is no different from capitalists. Moreover, "shareholders and
managers/technocrats share common motives: to make profits and to
reproduce hierarchy relations that exclude most of the employees from
effective decision making" [Takis Fotopoulos, "The Economic Foundations
of an Ecological Society", p. 16, Society and Nature No.3, pp. 1-40]
This is not to say that 100 percent of what managers do is exploitative.
The case is complicated by the fact that there is a legitimate need for
co-ordination between various aspects of complex production processes --
a need that would remain under libertarian socialism and would be filled
by elected and recallable (and in some cases rotating) managers (see
Section I). But under capitalism, managers become parasitic in proportion
to their proximity to the top of the pyramid. In fact, the further the
distance from the production process, the higher the salary; whereas the
closer the distance, the more likely that a "manager" is a worker with
a little more power than average. In capitalist organisations, the less
you do, the more you get. In practice, executives typically call upon
subordinates to perform managerial (i.e. co-ordinating) functions and
restrict themselves to broader policy-making decisions. As their
decision-making power comes from the hierarchical nature of the firm,
they could be easily replaced if policy making was in the hands of
those who are affected by it.
The idea that interest is the reward for "abstinence" on the part of
savers is a common one in capitalist economics. As Alfred Marshall argues,
"[i]f we admit it [a commodity] is the product of labour alone, and not of
labour and waiting, we can pp. e that is generally supportive of claims for the economic
efficiency of the labour-managed firm. Much of this literature focuses
on productivity, frequently finding it to be positively correlated
with increasing levels of participation. . . Studies that encompass
a range of issues broader than the purely economic also tend to support
claims for the efficiency of labour managed and worker-controlled
firms. . . In addition, studies that compare the economic preference
of groups of traditionally and worker-controlled forms point to
the stronger performance of the latter." [Workers' Self-Management
in the United States, pp. 42-3]
This has been strikingly confirmed in studies of the Mondragon
co-operatives in Spain, where workers are democratically involved in
production decisions and encouraged to innovate. As George Bennello
notes, "Mondragon productivity is very high -- higher than in its
capitalist counterparts. Efficiency, measured as the ratio of utilised
resources -- capital and labour -- to output, is far higher than in
comparable capitalist factories." [The Challenge of Mondragon,
p. 216]
The example of the Lucus workers in Britain, during the 1970's, again
indicates the creative potential waiting to be utilised. The workers in
Lucus created a plan which would convert the military-based Lucus company
into a company producing useful goods for ordinary people. The workers in
Lucus designed the products themselves, using their own experiences of
work and life. The management just were not interested.
During the Spanish Revolution of 1936-39, workers self-managed many
factories following the principles of participatory democracy.
Productivity and innovation in the Spanish collectives was exceptionally
high. The metal-working industry is a good example. As Augustine
Souchy observes, at the outbreak of the Civil War, the metal industry
in Catalonia was "very poorly developed." Yet within months, the
Catalonian metal workers had rebuilt the industry from scratch,
converting factories to the production of war materials for the
anti-fascist troops. A few days after the July 19th revolution, the
Hispano-Suiza Automobile Company was already converted to the manufacture
of armoured cars, ambulances, weapons, and munitions for the fighting
front. "Experts were truly astounded," Souchy writes, "at the expertise
of the workers in building new machinery for the manufacture of arms and
munitions. Very few machines were imported. In a short time, two hundred
different hydraulic presses of up to 250 tons pressure, one hundred
seventy-eight revolving lathes, and hundreds of milling machines and
boring machines were built." [The Anarchist Collectives: Workers'
Self-management in the Spanish Revolution, 1936-1939, ed. Sam Dolgoff,
p. 96]
Similarly, there was virtually no optical industry in Spain before the
July revolution, only some scattered workshops. After the revolution, the
small workshops were voluntarily converted into a production collective.
"The greatest innovation," according to Souchy, "was the construction of a
new factory for optical apparatuses and instruments. The whole operation
was financed by the voluntary contributions of the workers. In a short
time the factory turned out opera glasses, telemeters, binoculars,
surveying instruments, industrial glassware in different colours, and
certain scientific instruments. It also manufactured and repaired optical
equipment for the fighting fronts . . . What private capitalists failed to
do was accomplished by the creative capacity of the members of the Optical
Workers' Union of the CNT." [Op. Cit., pp. 98-9]
Therefore, far from being a threat to innovation, workers' control
would increase it and, more importantly, direct it towards improving the
quality of life for all as opposed to increasing the profits of the few.
This aspect an anarchist society will be discussed in more detail in
section I (What would an anarchist society look like?). In addition,
see sections J.5.10, J.5.11 and J.5.12 for more on why anarchists
support self-management and why, in spite of its higher efficiency
and productivity, the capitalist market will select against it.
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.2.1 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)?
"the neo-classical theory did not contain a solution to the problems
of profits or of the value of capital. They have erected a towering
structure of mathematical theorems on a foundation that does not exist."
[Contributions to Modern Economics, p. 186]
"He [the worker] who manufactures or repairs the farmer's tools receives
the price once, either at the time of delivery, or in several payments;
and when this price is once paid to the manufacturer, the tools which he has
delivered belong to him no more. Never can he claim double payment for the
same tool, or the same job of repairs. If he annually shares in the products
of the farmer, it is owing to the fact that he annually does something for
the farmer.
"Fixed capital does not derive its utility from previous, but present labour;
and does not bring its owner a profit because it has been stored up, but
because it is a means of obtaining a command over labour." [Labour Defended
against the Claims of Capital]
Which brings us back to labour (and the social relationships which exist
within an economy) as the fundamental source of profits. Moreover the idea
(so beloved by pro-capitalist economics) that a worker's wage is the
equivalent of what she produces is one violated everyday within reality.
As one economist critical of neo-classical dogma put it:
"Managers of a capitalist enterprise are not content simply to respond
to the dictates of the market by equating the wage to the value of
the marginal product of labour. Once the worker has entered the
production process, the forces of the market have, for a time at least,
been superseded. The effort-pay relation will depend not only on
market relations of exchange but also. . . on the hierarchical relations
of production - on the relative power of managers and workers within
the enterprise." [William Lazonick, Business Organisation and the
Myth of the Market Economy, pp. 184-5]
C.2.3 Why does innovation occur and how does it affect profits?
C.2.4 Wouldn't workers' control stifle innovation?
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.2.5 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.2.5 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?