how do employers make their money where
the profits come from
how can these profits be maximized today
we're going to dive into karl marx's law
of value to unveil the answers to these
burning questions of our time and more
get the notepads out and let's go
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marx begins capital volume 1 by stating
that the wealth of those societies in
which the capitalist mode of production
prevails presents itself as an immense
accumulation of commodities its unit
being a single commodity
our investigation will therefore begin
with the analysis of a commodity
so what is a commodity at its most basic
level a commodity is a product that is
created for exchange in order to make
money
take for example a chair that is bought
and sold in a shop that chair will be
purchased by a consumer for their own
personal use from a capitalist who seeks
to realize a profit from the exchange
as suggested from this commodities like
our chair contain both use value
and exchange value within them a
commodity's use value is simply that
which it is useful for
our chair is used for sitting on for
comfort and maybe for aesthetic purposes
if it's a particularly handsome chair
which it is a commodity's exchange value
is that ratio at which it is exchanged
for something else
for example one chair could be exchanged
for 20 hats or
60 kilograms of rice of course it's not
very practical to carry around 20 hats
or 60 kilograms of rice
and the seller of the chair may not even
need them so instead we use
money as the universal equivalent so our
chair could instead be exchanged for 100
euros
it's a very very handsome chair this
price of 100 then
represents the exchange value of the
chair but what determines the ratio at
which different commodities are
exchanged
what is one handsome chair equivalent to
20 hats
or 100 euro exchange value is determined
by a product's value which is determined
by the
socially necessary labor time required
to produce it
so the price that you see in a shop is
not the product's actual value
in and of itself but rather assuming
supply and demand are in equilibrium
an estimate of the product's value which
is again determined by the socially
necessary labour time that has been
required to produce it
the shares price of 100 euro is an
estimate of how much socially necessary
labour time has gone into its production
so to quickly reiterate there's use
value exchange value
and value use value is a product's
usefulness
exchange value is the ratio at which one
commodity can be exchanged for another
usually represented by the universal
equivalent of the money commodity
value is the socially necessary labour
time required to create the product
airchair's use value is that it can be
sat upon and enjoyed for its
handsomeness
our chair's exchange value is equivalent
to 100 euros
our chair's value is the socially
necessary labour time that it took to
produce
let's say four hours so for marx value
isn't just some subjective phenomenon
but rather objectively determined by
labor
hence the labor theory of value or ltv
but marx wasn't the first person to
theorize the labour theory of value
liberal political economists like adam
smith and david ricardo also employed
versions of the labor theory of value
long before marx
however it was marx who was able to
clarify that it isn't just any old form
of labor that creates value but rather
socially necessary labour that is labor
that meets the wants and needs of
society in one way or another
labor that produces use value four hours
spent working on the creation of our
handsome chair is useful
it creates value for air spent running
around a city hammering random rocks
while certainly difficult and even
laborious isn't producing anything of
use for anyone so it's not socially
necessary labor
and does not produce value furthermore
our chair isn't going to be twice as
valuable if i decide to work
slowly and it takes me double the amount
of time to complete nor half as valuable
if i work at double speeds
socially necessary labour time is
determined by the average amount of
labour required in average conditions
with average tools to produce
for one person they may be able to
produce the chair in three hours
for another it may take five hours the
socially necessary labor time then in
this case
would be the average between them four
hours
of course with technological development
and automation with the development of
productive forces
the socially necessary labor time
decreases and with it the value of the
product and the capitalist's potential
for realizing profit also decreases
which as you can imagine if you think of
this tendency of the rate of profit to
fall on a soil scale has troubling
implications for the capitalist ruling
class
a chair that once required four hours of
socially necessary labour may now be
produced in one hour with the aid of
machines
so its exchange value represented in
price is forced to represent its new
lower value
meaning the use value of the commodity
remains the same but the exchange value
decreases and subsequently less profits
can be derived from the same commodity
but let's put the magnitude of profits
aside for now
how is it that capitalists end up with
these profits in the first place
where exactly did it come from one of
marx's most important contributions to
the labor theory of value to this
marxist law of value more broadly is his
analysis of surplus value and the
exploitation of labour
in order to understand where capitalists
profits come from we need to understand
wage labor
capitalism relies on the proletariat
selling its capacity to labor to the
capitalists for fixed periods of time
whether that's an hourly wage or an
annual salary the important point is
that workers don't sell their labor
directly
but rather they sell their ability to do
labor for a given period of time
that is workers sell their labor power
through this system of wage
labor and this selling of labor power
the capacity to do work over a period of
time
rather than labor itself facilitates the
extraction of surplus value from workers
hidden within the production process the
end result is that while a worker may
get paid for working for four hours the
worker is not getting paid the full
value of that four hours work
and in fact the only reason that the
worker's been hired to do this wage
labor is because the capitalist knows
that the worker is going to produce
more value than the capitalist is going
to pay for it
let's take a look at the general formula
of capital to see this in action
the capitalist starts off with money m
then he purchases commodities
c then he sells commodities and ends up
with more money than he initially spent
m prime the added value being
represented by the prime
now value is not created by circulation
by simply trading back and forth
but rather value is created by socially
necessary labor
so therefore if the capitalist wants to
make a profit then the value producing
commodity he has to purchase will be
labor power
so the capitalist purchases this
commodity then sells the product of this
labor power to realize the profit
the capitalists can then use that profit
to purchase more commodities to realize
greater profits and so on into infinity
but this mcm circuit is perhaps a little
bit simplistic and doesn't fully reveal
where the profit comes from
instead just showing us that it exists
by the end so let's look at the expanded
form of the general formula of capital
to pinpoint it exactly
our capitalist friend starts with money
m with this money he's going to purchase
two things
that is two types of commodities labor
power
lp in the form of wage labor based on
hourly daily weekly or monthly wages
which is referred to as variable capital
and means of production mop the tools
needed for production
the factory as well as the raw materials
necessary for said production
importantly these contain a certain
amount of dead labour congealed within
them
due to the previous labor that was
necessary to produce them like cutting
down the trees for wood like the
manufacturing of the tools and so on
and this value will be passed on to the
final product which is why we also refer
to this as constant capital
though this doesn't create new value
like variable capital does
so our capitalist friend has purchased
these commodities labor power and the
means of production
and now we proceed to the actual
production process p
through which living labor creates new
value the result of this production is
that a new commodity has been created
c prime which contains value over and
above the value that had been spent on
the earlier commodities of labor power
and means of production
that is surplus value has now suddenly
appeared
and this surplus value is realized in
profit when the capitalist
takes that new commodity to the market
and sells it for a sum of money greater
than what they paid initially for labor
power and means of production
m prime let's run through that again
using our handsome chair to demonstrate
our capitalist
starts off with 60 euro he uses 20 euro
to purchase the wood
the hammer the nails etc necessary for
this chair the means of production
he uses the remaining 40 euro to
purchase 4 hours of labor power from a
worker
the worker then gets to work on the
creation of this chair in the production
process
and the final result of that is a
finished handsome chair imbued with
value over and above that which was
spent on the labor power and the means
of production
so now the capitalists can take this new
chair to the market and assuming supply
and demand are in equilibrium
sell it for 100 euro to realize a profit
of 40 euro over and above the initial
sum of money spent
but how can this be well we know that 20
euro was transferred into it through the
dead labour imbued within the raw
materials and tools used for its
production
the constant capital but this means that
80 euro has been generated from living
labor in the production process
the variable capital 40 euro of this was
paid to the worker for four hours of
their labor power
but this leaves a further 40 euro
remaining as a surplus
so while the worker worked for 4 hours
and was paid 40 euro for working for 4
hours
the worker actually produced value
translating to 80 euro over that period
the worker was only compensated for half
the value of their labour
and the capitalists made off with the
rest the 40 euro profit that the
capitalists realized
is the unpaid labor of the worker the
value of the labor was realised as 80
euro while the worker only received 40
euro as payment for their labor power
the capitalist paid 40 euro for
something that was worth double that
the labor power was then purchased at a
lower cost than the labour itself
produced within that period of time
so now we see how while the worker was
paid for working for four hours
they were not paid for four hours work
and this wouldn't be a unique situation
the entire capitalist system is premised
on capitalists appropriating the unpaid
labor of the proletariat through wage
labor and this purchasing of labor power
which enables the hidden exploitation of
labour
only half of the time spent working in
this situation was actually necessary
labor
that is labor necessary to cover the
costs of the worker's wage
the other half was surplus labor labor
that produced surplus value which was
then appropriated by the capitalists
two hours of necessary labor and two
hours of surplus labor
for every hour that was worked only half
of that error was necessary to cover the
10 euro paid in hourly wages while a
further half hour was worked for free
and the capitalist pocketed the value
generated by it if this surplus labor
hadn't taken place
then the commodity that resulted from
the production process wouldn't have any
surplus value imbued within it
meaning the capitalists wouldn't be able
to realise a profit and would instead
just break even
exploitation this appropriation of the
proletariat's unpaid labor
is a necessary condition for capitalism
and there are different levels of
exploitation that may occur
the rate of exploitation can be measured
by s over v
or the surplus value over the variable
capital
here the surplus value is manifested in
the profit of 40 euro while the variable
capital is the amount spent on wages
which is also 40 euro so that'd be 40
over 40
meaning a rate of exploitation of 100
if the profit was 20 euro it'd be 20
over 40 and the rate of exploitation
would be 50
if the profit was 80 euro then the rate
of exploitation would be 200
again always assuming supply and demand
are in equilibrium
and a higher rate of exploitation is
precisely what capitalists continually
strive for leading to higher profit
margins for them
not due to any malice ill intent or
moral failures on their behalf but
simply because the system of capitalism
necessitates it in order to perpetuate
itself
so how might they do that how do
capitalists maximize surplus value
let's recall that time spent laboring is
divided into two sections
necessary labor which covers the cost of
wages and surplus labor which generates
value
above and beyond that paid to the worker
it's in the interest of the capitalists
profits to make it so that there's as
little necessary labor as possible and
as much surplus labor as possible
the first way they can do this and have
done this historically is by augmenting
the length of the working day
this increases what's called absolute
surplus value
however as a result of organized labor
action many countries now have limits to
the number of hours a person can work a
particular job
generally about 40 hours a week this
means that aside from snatching a few
extra minutes here and there before or
after work or during the lunch break
absolute surplus value is no longer the
most viable route for maximizing surplus
value
instead capitalists turn to increasing
what's called relative surplus value
this means keeping the overall number of
errors worked as they are but instead
simply maximizing the surplus labor
within that time period by decreasing
the necessary labor
and you'll notice very well yourself
through the modern obsession with
endlessly increasing worker productivity
while real wages remain stagnant
so you work harder and generate more
value but capitalists pay you the same
hourly rate at least in terms of real
wages
where does the added surplus value from
this increased productivity go
straight into the pocket of the
capitalist aside from the
intensification of labor another way of
maximizing relative surplus value is for
capitalists to lower the cost of labor
power
capitalists need to pay the minimum wage
of subsistence for labor to be able to
reproduce itself
you can't work if you haven't got enough
money to pay for life's necessities like
shelter
food water clothing etc so the amount
covering those bare necessities will be
the lower limit in this regard
but if the capitalists can lower the
cost of life's necessities then they can
get away with paying lower wages which
will reduce the necessary labor and
increase surplus labor
there are other ways that a capitalist
might attempt to increase relative
surplus value and we see this playing
out for example in the gig economy and
with zero error contracts
but the main ways that relative surplus
value will be increased generally comes
down to either
intensification of labor or reducing the
cost of labor by various ways and means
today we've taken a look at the marxist
law of value we began by looking at
commodities their use value what they're
useful for
exchange value the proportion at which
they can be exchanged for other
commodities
usually represented by the universal
equivalent of money and the determining
factor of their overall value
socially necessary labour time we then
proceeded to look at marx's law of value
as distinguished from other versions of
the labour theory of value and the
importance of understanding that it's
only socially necessary labor that
produces value
we then moved on to analyzing wage labor
and the process by which a capitalist
purchases labor power rather than labor
directly and how this conceals the
capitalists appropriation of the workers
unpaid labor
we pinpointed the location in the
process of production at which this
occurs by looking at the expanded
general formula of capital to reveal the
point at which necessary labor and
surplus labor take place
bringing to light the capitalist's
exploitation of the worker
we also demonstrated how this
exploitation can even be measured
surplus value over variable capital so
that we can see in plain sight the rate
of exploitation occurring
lastly we proceeded to look at how the
capitalist seeks to maximize this
exploitation by increasing absolute
surplus value through longer working
hours and increasing relative surplus
value by intensifying labour and
reducing its costs
this is the marxist law of value however
we've only really been going to scratch
the surface of it to get a thorough
understanding of marx's law of value in
all of its components you'll need to
dive into the reading yourself
there's a full reading list on this
topic in the description box below
including various other sources like
podcasts and some great youtube videos
to help supplement your study
hopefully this video will make things a
little bit easier for you as you're
working through that reading
thanks very much to the supporters on
patreon who've made this video possible
thank you ian mcshea you got nick annex
magnus borko gorilla
ryan hodgson soup madeline sonic232
sagan michaela schmid christian the
palace brian rose alfonso dingle torres
menkelova
keith of the fields rock artist zakassi
anglo irish bolshevik
todd sprang nikki desaid train age 13
miocifer hunter johnson rare hero
donald wislove six new villain kale
marks roja mlm in practice
eric lindell ck guri laverna wintermore
kyle rapp
luchko droma oyophora becky pastor
schubert a mouthwash bottle mr miyamoto
kyle king
reverend lon nom hollywood wonderbad jt
chapman jose
joseph shepherd jack schneidman carmine
amara weltford of 99 percent
spoop and trailer park communists cheers
everyone august longo foe