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Karl MarxEconomic and Philosophic Manuscripts of 1844
Nonfiction | Book | Adult | Published in 1843A modern alternative to SparkNotes and CliffsNotes, SuperSummary offers high-quality Study Guides with detailed chapter summaries and analysis of major themes, characters, and more.
Essay 2Chapter Summaries & Analyses
Essay 2 Summary: “Profit of Capital”
Marx shifts focus from the worker to capital and its owners. Capital is not merely the means of production that extracts value from the labor of others. It also represents a system of law and governance that is designed to grant political legitimacy to the owners of capital and to ensure that society caters to their interests. The one weakness in the capitalist position is that they are as beholden to capital as the workers are beholden to them. To examine the nature of capital, Marx turns to the work of Adam Smith, widely known to this day as the definitive philosopher of capitalism. Marx puts forth a series of quotations from Smith’s The Wealth of Nations, interspersed with his own commentary. Smith concedes the distinction between wages, which derive from labor, and capital, the total wealth which accrues to the owner even though the owner does little if any of the labor.
Owners demand profits because they have no interest in the production of a good or service if it only earns enough revenue to replenish supplies. Profits are highly variable and difficult to predict, but the most reliable asset is money, which can generate interest from investments. Capitalists also have tools at their disposal to help inflate profits, such as trade secrets, new markets, and sophisticated division of labor that increases its profitability with each step from raw material to finished product. Smith admits that profit is the primary concern of the capitalist and that the overall welfare of society hardly matters. Smith even concedes that the interests of capitalists and society are usually in conflict, as owners want to establish monopolies whereas the public wants competition among sellers to keep prices low.
Competition should provide a check on the power of the capitalists, but according to Marx, capitalism is ultimately fatal to competition because it invariably leads to concentration. More advanced industries or corporations will have an advantage over smaller, less developed competitors. Furthermore, a growing supply of money lessens its value, lowering interest rates to the point where only immense fortunes can generate profits. As inflation drives up the costs of production while reducing profits, only the largest firms will be able to survive, destroying their opponents and establishing monopolistic control. Turning to a variety of sources, Marx shows how large capitalists have consolidated power, using the example of Great Britain and its textile industry.
Automation led to a steep decline in the price of cloth, and so producers tried to make up the difference by increasing their output. This only drove prices down further, bankrupting several factories and leaving their workers destitute. Economic competition should be based on the right of human beings to produce what they wish and trade the fruits of their labor however they see fit. Capitalism on the other hand turns competition into a struggle for survival where unseen forces can cause ruin at any moment. Human life has become a form of capital, worth only as much as it is capable of producing. Conditions will only continue to worsen, as the wealthiest producers strengthen their grip on the production process and multiply their revenue streams until they control every aspect of their workers’ lives from their wages to their housing and leisure activities. Once capitalists have resolved their competition with one another, the victors will enjoy power over everyone else.
Essay 2 Analysis
By quoting extensively from Adam Smith’s The Wealth of Nations and only occasionally dropping in brief comments, Marx lets capitalism reveal itself through the words of its greatest intellectual champion. Smith’s crucial admission, according to Marx, is that capital furnishes “a certain command over all the labor, or all the produce of labor” (78). This constitutes two separate but related forms of alienation: the worker is cut off from their labor and the capitalist earns something for which they did not work. Capital is itself (as Smith concedes) an accumulation of labor, and so the capitalist does nothing other than gather together the work of others. This fact is even more troubling when paired with another one of Smith’s distinctions between capital and wages. Smith freely admits wages do not increase when capital levels are rising. The capitalists’ interest in maximizing profits is taken as a given, a fact of nature requiring no additional explanation. One might surmise that an increasingly sophisticated division of labor would serve the advantage of workers, at least as a group, as multiple stages of production render the capitalist even more dependent on a group of workers who could presumably organize and withhold their labor to earn fair wages. The division of labor ends up benefiting the capitalist because it reduces the overall share of the worker’s role in the finished product, thereby diminishing the value of each worker. Their value declines still further because the advanced division of labor produces many more units at a unit cost that must be equal or lesser than before, or else the innovation would not have been worth the investment.
In the meantime, on the capital side, each stage of the division of labor represents an asset that attracts investment along with greater profits for the finished product since sales will rise while labor costs flatten or decrease. In this case, also, there is a reasonable expectation that the owner would benefit, even after Marx has clarified that the worker suffers. For all but a tiny number of capitalists, the capital needed for a complex division of labor forces them to rely on a bank or other investor. The investing party is only likely to see a return under conditions of economic growth where demand is growing enough to meet growth in supply. If that turns out to be incorrect, the producer will be left with unsold inventory, and they will likely lose their base of capital to the investor.
If demand does in fact rise, the increase in the money supply causes inflation, diminishing the profits of the producer. According to Smith, supply and demand constitute iron laws of nature that fluctuate in accordance with a shift in the other. Marx, shifting his source from Smith to contemporary socialists, instead depicts supply and demand as a random guessing game where nobody has a clear understanding of either, much less the relationship between them. The only people who can reliably profit are those whose fortunes are already so great that they can afford to play the game, and lose, with only a modest dip in their overall standing. For example, under a division of labor, everyone will tend to overproduce, but this matters less to whoever can make enough money off of interests (or seizures of assets in the case of a failed producer) to offset diminishing unit costs. Either way, the big capitalist wins, progressing toward a fusion between finance and the owners of the means of production. Ultimately, landowners will provide the bridge between them, and thus Marx turns his attention to them next.
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