Felix the Cat and Capitalist Competition
In this old cartoon Felix the cat owns a goose that lays golden eggs. Because Felix is such a swell guy (cat) he gives away these golden eggs to anyone who wants one. This way everyone can get rich.
In economics we have a name for this principle: “FUCKING STUPID”. It’s quite simple really. If everyone has gold then nobody has gold.
[One might make a similar argument to neo-nazis: Once everyone is white, nobody is white.]
There are many things in our society that everyone has access to in unlimited supply: air, tree leaves, dandelions. These things are all free because they require no labor to obtain them.
Gold has value because it requires a very involved labor process to make. [Obviously by "make" I'm not referring to some alchemy whereby we produce gold in a cauldron, but to the process of locating, mining, purifying etc that goes into gold production.] If we take that labor away and just give away gold then gold has no value at all.
There is a smarter character in this film. Captain Kidd, thinking like a good pirate, realizes that if he steals the goose and keeps it for himself then he can get rich.
Here’s how that works. The gold is free for Captain Kidd. He doesn’t need to do anything at all to get it so it has no value. He could wipe his ass with it or use it as a paper weight. For the rest of the world gold is still of high value. The companies that mine gold spend a lot of labor time getting it out of the ground, purifying it and turning it into coins, circuits and jewelry. In order for consumers and workers to get gold they have to work hard for a paycheck and then go out and buy gold. So there is a real inequality between the value of gold for Captain Kidd and the value of gold to the rest of the world. When Captain Kidd buys commodities with his gold he is getting something for nothing. He’s benefiting from an inequality in exchange.
Of course if Captain Kidd were to ever spend all of the gold the goose made, that gold, once in circulation, would begin to devalue. But, hopefully, by then Captain Kidd would have already taken advantage of this inequality in exchange and made himself rich by buying lots of commodities. So this inequality can only be a temporary one. Captain Kidd must make the most of it while he can.
Now, I’d love to talk about cartoons all day but it’s more fun to talk about capitalists.(They are like pirates in many ways.) Capitalists as well have a situation where they can benefit from a temporary inequality in exchange- a narrow window of opportunity in which they can take advantage over something which only they have in order to get the most out of an exchange. It involves machines, workers and competition.
The ideas here build upon ideas I spoke of in my video DIY exploitation. Capitalist competition drives capitalists to attempt to undersell each other in the marketplace. Under selling means outselling which means more profits. But underselling also means lowering the cost of their product, which means generating less profit per product. But what if capitalists could lower the expense of making the product? Then they could sell it for less and still get more profit per product while also selling more products. This is the goal of capitalist competition- to find a golden egg-some method of making the value of their commodity to them less than the general social value of that commodity in the market.
There are two broad categories of inputs capitalists purchase in order to produce. The first is human labor. The second is dead human labor. By this I don’t mean zombies. I mean commodities already made by other humans in other factories. If we take a can of beans for instance, the company that makes this can just hires workers to soak the beans and then put them in the can. All the other labor- making the can, making the aluminum for the can, picking the beans, making paper for the label, making ink for the label- has already been done by other workers in other factories working for other capitalists. It’s completed labor. It’s no longer active- it’s dead. The values of those commodities- cans, dried beans, etc.- correspond to labor that has been already been completed. The capitalist buys this finished labor (dead labor) and hires workers (living labor) to make this final product to be sold to consumers. Once the can of beans is finished their labor as well becomes dead labor.
The can of beans now represents a collective labor effort spread out in space and time, passing through the hands of many workers working for different capitalists. At each point workers turned their living labor into dead labor until this can of beans rolled onto the shelf in the grocery store. The economic value of this can of beans then corresponds to the amount of labor that went into making it at every stage of the process. It’s price is the way this value is measured in money.
Thus, if capitalists want to undersell their competition by lowering their costs they are going to have to economize on this labor at some stage. The only labor they can economize on is the labor that they have control over- the labor working in their factory at the moment. They can’t economize on the dead labor of their raw materials and machines because this labor has already been done. That’s why we call dead labor “constant capital” and living labor “variable capital”.
Of course capitalists do seek out cheaper constant capital. They may scour the earth for cheaper beans (agricultural capitalists who economize more on their labor power by paying their migrant workers even less). This cheaper constant capital could be their goose that laid the golden egg. But in a market economy all capitalists can buy from that source as well. So as soon as everyone finds that source of cheaper inputs the golden egg disappears and the market is equalized again.
Variable capital (workers) offers more opportunity for discovering some golden eggs because it’s variable. It’s ability to produce value is dependent on the capitalist’s capacity to extract value from workers. If you can get your workers to produce more for less then perhaps this can be your golden egg. The quest for labor efficiency is one of the strongest drives in capitalism. Capitalists are constantly seeking ways to structure and restructure labor in order to make it more efficient.
I go into this more thoroughly in my video DIY exploitation: eventually there is a lower limit to how low one can set wages, how hard workers can work and how efficient the production process can be set. This is why technical innovation becomes such a unique obsession in a capitalist society. When a capitalist introduces a new labor-saving machine into the work process, that is, a machine that makes labor work more efficiently, he then can produce more commodities with the same amount of labor.
But now, to that capitalist, isn’t that new commodity of lesser value than before since it takes less labor to make? No because even though it takes less labor for him to make, it still takes the original amount of labor for everyone else to make.
Here an important concept should be mentioned: socially necessary labor time. The value of a commodity is set by the social necessary amount of labor that goes into making it. If I make a can of beans myself and it takes me forever because I don’t have access to all of the machines and raw materials a big company does I still have to sell it at the socially necessary cost. Nobody’s going to pay me for the whole day I spent making it when in only takes another company 30 seconds to make.
The goal of capitalist innovation is to economize on labor enough to create a product at slightly below the socially necessary labor time. This lets them benefit from an inequality in exchange, just like Captain Kidd. But also like Captain Kidd, this is only possible if the capitalist keeps this innovation to himself. Capitalists do put a lot of effort into keeping their company secrets secret. But they also spend a lot of time trying to discover the secrets of their competitors. In fact there is a whole industry devoted to inter-capitalist spying. It’s called the “competitive information industry”. It is essentially an industry for capitalist pirates all trying to steal golden eggs from each other.
And of course, once a secret gets out, once a labor-saving technology gets spread amongst a whole industry the socially necessary labor time of those commodities falls and so does their price. We now have a new equilibrium price- a leveled playing field- and capitalists must again set about innovating to try and outsmart each other. Thus there is a constant, never-ending process of innovation of the material forces of production- machines- which is essential to capitalist competition.
Of course, then we get another problem. If labor is the sole source of value, and the competitive process drives capitalists to constantly seek to economize on labor we have the model for an economic process which over time diminishes the actual amount of value in society. This sets the stage for what is called the “Falling Rate of Profit”, a topic which I will discuss in more detail in some upcoming videos. But let me sketch in the basic argument here.
The difference between the value of the commodity and the wages paid to workers is capitalist profit. We call this surplus value and we call the process of extracting surplus value from workers exploitation. Capitalists seek to raise their overall profits by increasing the amount of surplus they extract from workers. The rate of profit is best represented algebraically as p=s/(c+v) or the rate of profit equals surplus value divided by the cost of constant and variable capital. The goal is to raise S relative to C+V.
I have just shown that what happens in competition is a process of increasing the amount of C relative to V- a constant process of revolutionizing the forces of production by introducing more machines into the production process. So in our equation we have this paradox where we are tying to increase the numerator by increasing the denominator- a dangerous game. The argument of the falling rate of profit is that although S always increases with innovation in C, it increases at a declining rate, thus we get a falling rate of profit the more we increase C.
Falling rates of profit mean economic crisis because value creation in a capitalist society is a social creation. The profit rate falls for everyone and effects everyone. But this is merely the bare mathematical skeleton of the argument. What remains to be shown is all of the countervailing tendencies away from a falling rate of profit. This will have to wait for a future video.