How capitalism works
For Karl Marx the author, there was something to smile about, writes Tom O’Lincoln in Socialist Alternative. The first of three volumes, called Capital: A Critique of Political Economy, became a success in his lifetime and by the 1880s it was known across Europe as “the bible of the working class”. One reason, according to Frederick Engels’ 1886 introduction, was the growth and combative spirit of the young proletariat: Capital was a book for fighters. In addition young thinkers, eager to learn the most revolutionary of theories, clamoured to read what Marx had to say. And there was a third cause, perhaps the most important. Something all-too-familiar for us: a devastating economic crisis. Industry was grinding to a halt. Free trade had exhausted its potential. A ten-year business cycle of boom and bust had culminated in “the slough of despair of a permanent and chronic depression,” while the number of unemployed grew relentlessly from year to year. One could almost calculate the moment, Engels concluded, “when the unemployed, losing patience, will take their own fate into their own hands.” He could be writing about today’s Europe.
Marx’s study goes to the heart of a crisis prone economic system, but it isn’t just a book about “Marxist economics”. Neither can we settle for other one-dimensional tags like “philosophy” or “sociology”. While it’s indispensable reading in all of these fields, the greatness of Capital lies mainly in another dimension: apart perhaps from the Communist Manifesto, it’s the greatest argument ever written to fight for a better world.
Compared with other societies, the capitalist system is a morass of concealment and deception. Under slavery the exploitation of bonded labour was visible and obvious; under feudalism, the landlord blatantly seized his portion of a serf’s crop. Under capitalism by contrast, wages are set in a seemingly fair labour market. The worker and the employer, Marx writes, “meet in the market, and deal with each other as on the basis of equal rights”. They contract as free agents; and this labour market appears “a very Eden of the innate rights of man”. It’s no surprise, therefore, that mainstream social analysis focuses more on the labour market than on the workplace. If we look closely at power relations where we work, however, we find a dramatically different situation. The workplace is a dictatorship, a fact that makes itself felt even as we pass the factory gate:
“He, who before was the money-owner now strides in front as capitalist; the possessor of labour-power follows as his labourer. The one with an air of importance, smirking…the other timid and holding back, like on who is bringing his own hide to market, and has nothing to expect but – a hiding.”
Even in the market place things are not as free as they seem. We go out looking for work because we must work to live. The fact that the labour market operates this way is no accident, says Marx. The system “hurls the labourer(s) onto the market as a vendor of his labour-power”, their subjugation both brought about and concealed by the periodic sale of themselves.
Competition imposes secrecy of other kinds. In April 2012 the press slammed the $10 million spent on shredders in government departments, linking this to the way governments obstruct FOI requests. Readers will assume someone is hiding financial scandals. Maybe, but most shredding isn’t done to hide dirty tricks. Much of it is to protect financial details of people and companies. The biggest problem here is that capitalism makes us hide crucial information from each other. With it available we could plan more of the economy. With it hidden in fragmentary personal files, we can get into trouble. The 2008 global financial crisis, for example, exploded a vast world of misinformation about a sick system, concealed by financial derivatives.
But even accurate economic data would not be enough to prevent crisis. Dividends, interest rates and share prices also conceal crucial trends. Financials markets, for example, claim to “create wealth” The reality that you and I create wealth by working every day – and that share traders just shuffle it around – drifts into obscurity. The most hopeful prospects of overcoming the crisis, by working and fighting together, are pushed into the background. Our personal links to the market place and work itself are obscured because the system turns each of our lives into a marketable, tradeable, disposable item – a commodity.
The perverted world of commodities
The first volume of Capital starts with individual commodities (goods for sale). This isn’t mainly about the good and services being sold; it’s primarily about the social relations and conflicts that lurk behind them.
Marx points to two aspects of commodities, a fateful division that readers will return to again and again. We discover that commodities have two kinds of value. A perennial use value expresses their concrete, practical functions; while a specifically capitalist value, commonly called exchange value, underlies prices in the capitalist market. There is a complex inter-relation, and yet a sharp polarisation between use value and exchange value. The polarisation affects us as workers: we have the ability to make use values (useful things) but under capitalism the employer will only hire us if we can also create exchange values, which set prices on the market. Our activities at work rotate around the same two poles: they combine concrete useful labour (which generates practical goods and services) with abstract labour which generates exchange values. Companies will only hire us if we can create both. The fact that making medicines saves lives is very useful, but industry won’t hire us to produce them unless they can be sold.
The realm of abstraction is a realm of exploitation, something which is indispensable for the system because it’s the source of profit. For Marx, exploitation didn’t just mean outrageous rip-offs. It meant that the employer extracts surplus value from extra hours worked by employees, beyond the time taken to create the value equivalent of their wages.
Some of the resulting profit is used for the luxurious consumption of the capitalists, but more is used for new investment – leading to further profits. This is the cycle of capital accumulation. None of this cycle is obvious at first glance: for example unionists who win a favourable pay settlement may not appear to be exploited, and they might even stoutly deny it. But in the context of abstract labour where they produce surplus value for a boss, they are exploited – and they must be exploited for the system to go on growing. “Accumulate, accumulate! That is Moses and the Prophets”, wrote Marx of capitalism’s early stage. These eight sparse words still capture much of the system’s dynamic today.
In a world plagued by abstraction, time spent in the workplace can be tragically barren. The things we would like to do on the job may be socially useful but for capitalism that’s not the most important thing. For employers, the most important thing is making employees work enough hours to generate a pile of exchange value; for workers, it is putting in enough working hours to support us and our dependents. Eight hours brings so many dollars, and whether you’re making medicines to cure people or guns to kill them becomes secondary to putting in those eight hours. Capitalist society is torn between its abstract and concrete dimensions; they interact and clash with each other like tectonic plates, setting off explosions and collapses. The concrete, useful side is vital for the survival of the human race, while the abstract side is crucial for the survival of capitalism. They are bound together, yet inseparably at odds with each other
So it is with two other factors: capital and labour. In fact Marx writes about the labour of workers, as “variable capital” because exploiting it increases (varies) the bosses’ total wealth. Tomorrow that wealth will be bigger than today. This accumulation of labour has another startling feature. We find that the products of past labour oppress and exploit today’s living labour force. The most obvious form this takes is when the pace of an assembly line dominates the workers. Another is what happens to our free time. We work hard to pay for our leisure hours, yet ultimately they don’t belong to us. In modern society recreation – sport for example – has become intensively commodified. We can see this instantly from logos on athletes’ jumpers, the stadiums bearing corporate names, and TV commercials every seven minutes. Recreation, created by workers’ past labour, becomes a vehicle for the realisation of more value.
Marx has evocative names for such evils. Two in particular fascinate readers. The more lurid is vampirism, the more revealing is fetishism.
Vampirism. Capital, writes Marx, “is dead labour, that, vampire-like, only lives by sucking living labour, and lives the more, the more labour it sucks”. He flogs this metaphor, insisting that a longer working day “only slightly quenches the vampire thirst” and the capitalists won’t let go “while there remains a single…drop of blood”. Another way to look at it is this: our subjugation to the wealth we’ve made is, in a sense, slavery to our own past. We are also subordinated to the bosses, (who represent the past, whereas the working class represents the future) but that’s a more superficial phenomenon. Much as Marx hated the ruling class, they were for him only “personifications” of capital, driven by an accumulation process beyond even their control. The central task of socialist revolution isn’t to get rid of the bosses, important though this is, but to emancipate living labour. That requires a democratically planned society, with an economy built on use value and concrete, useful labour.
Fetishism. Most of this analysis is far from obvious. It’s not just that the details are obscure, but that capitalism creates a world of illusion. It must obscure its exploitative nature, or the exploited would never tolerate it. It is, Marx writes, “an enchanted, perverted, topsy-turvy world, in which Monsieur le Capital and Madame la Terre [Land] do their ghost-walking as social characters and at the same time directly as mere things”  So a careful interpretation is needed to make sense of the system’s nature.
Niles Eldredge writes of the San tribe in the Kalahari: “All their food, their clothing, their shelter, their medicines… everything came from the productivity of their surroundings, the plants and animals on which they completely depended for a living.” He should have added that the San also sustained themselves through concrete, useful labour by which they helped each other. And this labour was transparent to them – they saw it in operation. We shouldn’t idealise earlier societies where life was sometimes “nasty, brutish and short”. But because they were simple in structure, some earlier human societies have had a clearer picture of how they created wealth. In capitalism, so many of the relations between producers take the form of relations between things – specifically commodities. Relations between workers today run through retail cash registers. This can be dehumanising. In my local coffee shop, busy waiters ask me, “Are you the long black?” That’s relatively harmless in itself, but it can take much worse forms.
In the realm of consumption, liberal critics have pointed to the social ills of “affluenza”, where people can get fixated with owning “stuff” and sometimes fill their houses with consumer junk. Concerns about this run the risk of intersecting with and reinforcing reactionary ideas that blame workers for wanting to consume. Nothing could be further from the spirit of Marx. Still, consumer addictions do exist and they reflect the commodity fetishism at the heart of the system. Worse than most ordinary consumer addictions is the website WhatsYourPrice.com which “provides a platform where generous and attractive singles can negotiate and agree on a price for a first date”. Yes, it helps you trade money for a social life.
Mainstream opinion agrees that such a gross example is degrading, but it’s only the extreme edge of a society-wide malaise, which ensures that relations between objects shape our own social lives. If you work in a factory competing with American imports, you might find yourself in a trade war against American people; and even if you “win” it by working harder, the resulting unemployment in the USA can pose new competitive threats.
Even counter-cultures hostile to the established order fail to escape these patterns. Alternative fashions are still dictated to us by the media – even if it’s alternative media. We buy things we don’t need, because we feel naked without them. This can happen without us realising. A liberal writer like Clive Hamilton tends to blame such things on people’s personal greed, but it’s much better understood as stemming from their sense of helplessness in the face of social forces that dominate society. Hamilton also fails to grasp the way that relations at work are poisoned by the same malaise – and indeed it’s the malaise at work that is critical for any revolutionary strategy. If we understand the exploitation inherent in the buying and selling of labour power, and grasp the tragedy implied in the term “abstract labour”, we can see that struggles on the job must be the core of any strategy to overcome social alienation. 
That human relations become goods for sale in the most advanced capitalist societies wouldn’t have surprised Marx, who saw this sort of commodity fetishism as bearing stamped upon it in “unmistakeable letters that they belong to a state of society, in which the process of production has the mastery over man, instead of being controlled by him”. The term “fetishism” comes from earlier human cultures who made gods out of their own artistic creations, such as brass idols, and were then ruled by products of their own creation. Capitalism does something similar with our economic creations.
Relationships between producers in modern society are extensive and complex. They extend across cities and nation-states and beyond, to the point where you could say there is a global network of workers, stretched across a globe, in which you and I collaborate. The creation of that network is one of the ways capitalism lays the basis for a planned socialist economy. The international division of labour helps create wealth. But because people operate in a world divided into national states and conflicting markets, these economic relations appear foreign to us. Rising labour productivity in other countries, which should be a blessing, appears a threat. The fetishism of commodities has its origins, writes Marx, in the “peculiar social character of the labour that produces them”, i.e. abstract labour. Objectively we’re part of a useful global collaboration; but your individual labour and mine appear unconnected, except through the poisonous relations of the market.
The ironic fate of capital
Where did the resources come from for this ghastly but dynamic system? Industry can’t get off the ground without a certain minimum level of investment so how did the new capitalists scrape together the cash? There are fairy stories about this, writes Marx: fables in which a small minority of industrious folk made money through toil, and then invested it. At the same time, so the stories go, the profligate majority squandered their opportunities, and ultimately had to work for the industrious minority. Only the gullible believe such fables, says Marx. In reality, gouging resources for investment was a sordid and even brutal occupation.
As part of the spread of capitalist agriculture, capitalists drove the working people off the land in Britain, using strategies like enclosures, in which lands held in common for communal grazing and agriculture were fenced off for private use, typically sheep runs. Artisans saw their businesses destroyed. Much of the rural population were driven into the cities, where they found work in the new factories springing up in the industrial revolution. Marx wrote of Scots forced off the land and into Glasgow’s industrial districts, that “by 1835 some 15,000 Gaels had already been replaced by 131,000 sheep”. This land seizure was “written in the annals of mankind in letters of blood and fire.” Alienation became a great social phenomenon as the primitive accumulation nightmare separated vast numbers of people from the land and other means of production. They migrated to the cities, where they survived by selling their only remaining commodity: their ability to work, or “labour power”.  In doing so they lost control of most of their waking hours. If they produced commodities, those commodities became someone else’s property as soon as they were produced, and for the workers they became an “alien power”.
The capitalists’ drive to create a profitable new society meant a war on the people who actually produced society’s wealth. The new ruling class took stark, cruel measures to win it. On the new industrial terrain, owners of capital confronted so-called free labourers in the jobs market. Marx’s use of the term “free labour” was full of ironies. Under capitalism, the labourers were “free in the double sense”. They weren’t part and parcel of the means of production, as slaves are, but neither did the means of production belong to them – they had been “freed” from those too. Today we celebrate the triumph of “free” labour markets over slavery and serfdom, and that’s partly justified, especially when it gives us more space to fight the system. The right to choose our employer isn’t entirely illusory either. But there are major negatives too: in a free labour market, if we can’t find work we are in deep trouble; and even if we do find it, once inside the workplace we confront the dictatorship of the boss.
The new urban labour force had no reason to respect the private property amassed by the upper classes, or their laws aiming at social control. The new workers were rebellious; so to control them, the emerging capitalist class used fierce new laws and policing methods, such as transporting troublemakers off to Australia. “Thus were the agricultural people first expropriated from the soil,” writes Marx, “driven from their homes, turned into vagabonds , and then whipped, branded, tortured, by laws grotesquely terrible, into the discipline necessary for the wages system.”
In addition to these vile features of Europe’s “primitive accumulation”, colonial empires offered ways to make super-profits, again at a terrible human price. They stole land from Australian Aborigines, they stole land from Native Americans, they stole land from Maoris, Zulus and many others. Today at the great silver mines above Potosí in Bolivia, horrified tourists learn how 8-9 million indigenous miners died to enrich the Spanish empire. But even this doesn’t match the death toll from the Atlantic slave trade. Plantation economies in the New World relied on unspeakably mistreated slave labour to gouge out precious metals, cotton, sugar and tobacco. The buzzing coffee houses of Europe would have been impossible without the anguish of the slaves.
Marx pointed to British working people’s separation from the land as a key factor in the first modern environmental crisis. Migration to the cities caused a huge transfer of food to places like London, but after human digestion the nutrients no longer returned to the soil. They polluted the cities until sewerage systems were built to take them out to sea. To keep getting crops from the impoverished land, fertilisers had to be poured into them: Capitalism, Marx argued, threatened the health of both workers and environment:
“…all progress in capitalistic agriculture is a progress in the art, not only of robbing the labourer but of robbing the soil … [Capitalism] develops technology, and the combining together of various processes into a social whole, only by sapping the original sources of all wealth – the soil and the labourer.”
Not only does a system of exploitation turn labour into a commodity, making relations with our fellow workers remote, but something in the same vein happens to our relationship with the planet. As nature’s fruits become commodities they too become alien and are treated accordingly. Nature is degraded by the logic of the market – which is why market mechanisms can never resolve the environmental crisis today.
After its challenging opening chapter, the first volume of Capital builds up a picture of capitalist production and markets; the exploitation of labour and accumulation. The picture is complex and subtle, yet still far simpler than industrial reality. The model Marx presents doesn’t grow or change much, and the competition that’s so vital in practice plays a modest role in the book. That all changes later. Volume 2 provides a far more dynamic model, featuring flows and reproduction of capital.
In the third and final volume, Marx outlines the causes of serious capitalist depression. As capital – dead labour – accumulates, it becomes increasingly massive compared with living labour. Think of the huge investments capitalists make in production machinery, ships and planes, information technology. Today’s office has computers everywhere. But living labour is the only source of new value, and hence the only source of profit. Growth in the system, therefore, undermines profitability. The contradictions in this situation are astonishing. The perennial quest to accumulate value and turn everything into a commodity is the lifeblood of capital, yet it is also a mortal threat to capital. The exploitation of labour is essential for the survival and growth of the system, yet now it becomes the cause of its demise.
When crisis arrives, nothing can stop falling profit rates leading to depression. Ironically, the system’s own growth causes the worst problems. In Marx’s words, “The real barrier of capitalist production is capital itself.” Crises are only overcome when this barrier is cleared away. That happens through the destruction of capital – which restructures the economy. This can take horrible forms, as when the destruction caused by World War II allowed the system to recover. But it can also take the form of socialist revolution. This too results from the system’s growth. Not only do the mounting economic and social contradictions provoke rebellion and resistance, but capitalism creates its “gravediggers” – the working class.
Marx generally disliked blueprints for how such a revolution would unfold. But Capital offers a sketch. In a breathtaking passage he shows how struggle can sweep aside obstacles to progress. The capitalist market, originally open and diverse, evolves through competition into oligopoly as “one capitalist always kills many”. Along with the diminishing number of capitals grows “the mass of misery, oppression, slavery, degradation, exploitation”; and this too generates the revolt of the working class, in which the workers are increasingly “disciplined, united, organised by the very process of capitalist production itself”. An underlying socialisation process turns the dynamics of capitalism itself against the system. Here’s Marx’s prose becomes thrilling. “The knell of capitalist private property sounds. The expropriators are expropriated.”
More ironies. As an exploited class, the workers are victims. But as creators of value, they are also potentially powerful. By choking off the flow of profits they can bring the system to a halt; and more importantly, they can re-open industry on a new and democratic basis. The victims are also potential fighters, in a class war for liberation.
The narrative here is sketchy, and history hasn’t unfolded at the pace Marx anticipated. But as a statement of how the dynamic of revolution can emerge out of the contradictions of the system we are fighting, it remains unparalleled. You will sense, on reading it, that you are in the presence not only of a great writer, but of a great revolutionary. And if you’re not involved in the historic movement he launched, you will think again.
Bloodworth, Sandra, A Crime Beyond Denunciation: A Marxist Analysis of Capitalist Crisis, Socialist Alternative, Melbourne, 2009.
Callinicos, Alex, The Revolutionary Ideas of Karl Marx, Bookmarks, London, 1995.
Foster, John Bellamy, Marx’s Ecology, Monthly Review Press, New York, 2000.
Mandel, Ernest, The Formation of the Economic Thought of Karl Marx, Monthly Review Press, New York, 1971.
Marx, Karl, Capital, 3 Volumes, various editions.
 Frederick Engels, “Preface to the English Edition”, in Karl Marx, Capital, Vol.1, International Publishers, New York, 1984, pp.16-7.
 For an outline of the economics, see Sandra Bloodworth, A Crime Beyond Denunciation: A Marxist Analysis of Capitalist Crisis, Socialist Alternative, Melbourne, 2009.
 Capital, Vol.1, pp.165 & 172.
 Capital, Vol.1, pp.541-2.
 Philip Norling, “Reform on FOI Bogs Down”, Sunday Age, 9 April 2012, p.1.
 Marx was content to use the term exchange value as “an abbreviation” in place of value, but actually value and exchange value are two different things. See Capital, Vol.1, ch 1, sections 3,8,4, p.66.
 Capital, Vol.1, p.558.
 Capital, Vol.1, p.224; Mark Neocleous, “The Political Economy of the Dead: Marx’s Vampires”, History of Political Thought, Vol.24, No 4, 2003; Mark Matcott, “Vampires and Socialism”, Revolutionary Communist Club, Monash University, March 1974.
 Expressed several times in slightly different ways in Capital, Vol.3, ch 48.
 Capital, Vol.3, p.830
 Niles Eldredge, Life in the Balance: Humanity and the Biodiversity Crisis, Princeton University Press, Princeton, 1998, ch 5.
 Though not always. The quote is from Thomas Hobbes, Leviathan, http://ebooks.adelaide.edu.au/h/hobbes/thomas/h68l/chapter13.html
 Ernest Mandel was similarly told: “You’re the corned beef and cabbage.” Ernest Mandel and George Novack, The Marxist Theory of Alienation, Pathfinder Press, New York, 1976, p.26.
 Clive Hamilton, Affluenza, When Too Much is Never Enough, Allen & Unwin, Sydney, 2005. My critique of Hamilton appears in Tom O’Lincoln, “Hearts Starve As Well As Bodies”, Overland, No.189, Summer 2007.
 Capital, Vol.1, p.85.
 Capital, Vol.1, pp.77-8.
 Capital, Vol.1, pp.683, 669.
 Capital, Vol.1, pp.668-9.
 Karl Marx, Economic and Philosophical Manuscripts of 1844, http://www.marxists.org/archive/marx/works/1844/manuscripts/labour.htm
 Capital, Vol.1, p.688.
 Capital, Vol.1, pp.474-5.The authoritative discussion of Marx’s “metabolic rift” is John Bellamy Foster, Marx’s Ecology, Monthly Review Press, New York, ch 5.
 Paul Burkett, Marx and Nature: A Red and Green Perspective, St Martin’s Press, New York, 1999, p.80 ff offers a discussion of value and nature, unfortunately in arcane language.
 Capital, Vol.3, A Critique of Political Economy, Progress Publishers, Moscow, 1978, p.250. A recent attempt to apply Marx’s theory to the current world economic crisis is Andrew Kliman, The Failure of Capitalist Production: Underlying Causes of the Great Recession, London, Pluto Press, 2011.
 Capital, Vol.3, A Critique of Political Economy, Progress Publishers, Moscow, 1978, p.250
 Capital, Vol.1, pp.714-5.