This is a follow up video to “where does profit come from?”
In that video: labor creates value. therefore labor is the source of profit.
of all inputs in production, only one input is capable of producing more value than you pay for it.
this video is for capitalists, and wannabe capitalists- a tutorial of sorts on how to exploit your workers
1st, to review, why is it important to exploit workers? (see my video where does profit come from?)
You wake up in the morning with money. You spend your money on labor and capital. Soon you have commodities to sell. At the end of the day you have more money than you started with. you’ve made a profit.
you’re not the only capitalist in the world. there are lots of them. they are competing with you. If they can make more profit than you, they can afford to sell their commodities for slightly less than you. That would put you out of business.
You need to take your profit and reinvest it back into production in ways that will increase your returns on investment. And all of the capitalists you are competing with are constantly trying to do the same thing. There is an imperative need to constantly improve production to make it more profitable. That is what I am here to help with.
If you are going to end up, at the end of the day, with more money than you started with, you are going have to create more value than you pay for in the production process. Now I know you’re thinking- “Couldn’t I just charge more for my products than it costs me to make them?” Well, not really- you are competing in the marketplace with other capitalists, all of which are trying to lower their prices to out-sell each other, you can’t just raise your prices arbitrarily to create profit. (It almost seems like a paradox- lower prices and increase profits) Instead of worrying about prices in the marketplace you need to figure out a way to create more value in the production process than you pay for.
You have two different types of input: constant capital and variable capital. Constant capital inputs are incapable of creating more value. That’s why we call them constant. Machines, raw materials, factories… as they are used up, these inputs pass on their value to the commodities you produce. There is no way to make them create more value than they are initially worth. (ie. a microchip is a microchip. it can’t turn itself into two microchips. A machine only works at a given speed for a limited a lifetime- you can’t whip it to make it work harder or longer.)
Variable capital can create more value than you pay for it. That’s because variable capital is human labor. When you pay a worker to work for an hour, you have no idea how much value they are going to produce. They could work hard, or take it easy. They could be productive or unproductive. They can be cheap of expensive to hire. Everything is variable. It will be a constant struggle to figure out the best way to get the most value out of them at the least cost. Sometimes they will even resist. They’re a huge pain in the ass but you’re going to have to get used to them because this unique variability is what allows you to make a profit at all.
So, how exactly do you go about exploiting them? That’s what this video is all about.
there’s also c, but since c can’t be exploited we leave it out.
This equation measures the rate of exploitation. In the denominator is the money you have spent on variable capital (ie- what you spend on wages). In the nominator is the surplus that you the workers produce for you (profit). Workers will work to produce enough value to cover the money you laid out for their wages. The rest of the work the workers do is surplus value- your source of profit. Constant capital (c) is missing from the equation. Constant capital does impart it’s value/cost onto the commodities as well but it cannot produce extra surplus, that is why it’s not in the equation. Your goal is to increase e. Let’s look at some different strategies for doing that.
First of all, what happens if you increase both s and v (and c as well, obviously)? You could do this by hiring more workers or making the same amount of workers work longer hours. This would increase the total amount of surplus extracted but it wouldn’t increase the rate at which surplus was extracted. Still, it would be more profit. Let’s look at the “hiring more workers” strategy first. If all capitalists pursued this strategy, pretty soon there would be full employment- and you know what that means…. higher wages because the demand for labor is rising. Higher wages mean an increase in your denominator. Falling rate of exploitation= less profit.
Capitalists are always trying to get workers to work longer. And if it wasn’t for the 40 hour work week we might still have 60, 70 120 hour work weeks like some industries used to have in this country- and a lot of countries still do. But even with the 40 hour work week, there are plenty of ways to get workers to work longer: limit their vacation and sick time, make them work longer anyway and threaten to fire them if they complain (that really works), or you could even hire other workers to work a night shift. I mean, you gotta realize that while your workers are at home sleeping and eating all of your constant capital is just sitting in an empty workplace being totally useless. At that same moment other capitalists are out there pumping out commodities. You can’t let them be more efficient/productive than you!
Both of these approaches – hiring more workers or making them work longer- are effective in increasing the total (or absolute) surplus value extracted from workers. In times of expansion in often makes sense to increase outlays on v. But this strategy is much more powerful when combined with a tactic that changes the ratio of S to V so that workers are producing more surplus value. There are many ways to do this.
First, you could just pay the workers less, but make them do the same amount of work. This would lower V while keeping S the same, thus raising the rate of exploitation. Capitalists are always finding ways to cut wages. You could not raise wages in pace with inflation. You can cut pensions, benefits, or actual wages. You can limit or eliminate paid sick days. Is there any limit to how low you can set wages? Well, keep this in mind: workers will use their wages to buy food, clothing, housing, entertainment. etc. These things are all necessary in order to keep them alive and healthy enough to come to work each day and create a surplus for you. We call this “reproducing the worker”. If you didn’t pay them enough to reproduce them (keep them alive) they wouldn’t come work for you. Of course, the standard of living changes from country to country, so you can always move production to a country where it’s cheaper to reproduce the worker.
The state is quiet helpful to you in reproducing the worker. In many countries, the state and private charities usually provides a modicum of education and social services so that the poorest of the poor don’t starve to death: food stamps, housing projects, homeless shelters, etc. These things all make it cheaper for you to hire low-wage workers because you don’t have to pay the full cost of reproducing the worker.
The credit system performs a similar function. You don’t have to pay the full cost of reproducing the worker because workers can just borrow money from banks and go into debt. Once in debt they will be even more tightly chained to the institution of wage labor- even more desperate to take any job, work extra jobs, or work long hours, in order to pay off their debts.
Other than the cost of reproducing the worker, the other limit to this “lowering wages” tactic is “class struggle”. As you can imagine, workers don’t like having their wages cut. They often fight against it. Their resistance can take the form of isolated acts of sabotage, slowing down, stealing etc. It can also take the form of organized collective action- strikes, unions, etc. If there is a decent rate of unemployment, your best weapon against this is to just fire the troublesome workers and hire new ones. This is why it’s always good to have a surplus of unemployed people. If there is a weak enough democracy in your country you can use violence or the threat of violence to break a union. For instance, a popular tactic is to find the leaders of the union and have them tortured or killed. This has been quite effective in the past, in fact you can hire people from the US Army School of the Americas to help you do this.
Another way to lower the cost of reproducing the worker is to make the standard of living cheaper. This isn’t something that you as an individual capitalist might have much control over. But if the capitalists that make consumer goods like food, housing, clothes, gas, find ways to reduce the costs of their commodities, this will lower the cost of reproducing the worker, thus making it possible to lower wages.
Let’s say that slashing wages isn’t possible for whatever reason. Maybe the unions are too strong. Maybe the unions have gotten a minimum wage law passed in your country. Maybe unemployment is low. Maybe you require skilled labor and there’s a shortage of it…. but for whatever reason you can’t lower wages. What can you do?
Make them work harder and more efficiently. This raises S relative to V, thus raising the rate of exploitation. There are many ways to do this. The most obvious is to just force your workers to work faster- set production quotas, threaten them, abuse them, limit bathroom breaks, etc.
But these tactics are most effective when combined with more efficient tactics. If you want to increase the output of each worker you are going to need to make the production process more efficient. Organize your shop-floor or office space for maximum efficiency. Break complicated procedures into simple routinized tasks divided between multiple workers (ie. an assembly line.)
How much more surplus can you get from reorganizing production in a more efficient way? Given your current machines and workspace you will eventually hit a limit. That is why it is important to constantly be investing in new machines, new factories- investments in c (the variable that doesn’t produce surplus.) Even though constant capital can’t produce surplus, more efficient technologies can allow workers to produce more surplus. So if you, say, buy faster computers for your office, faster machines for your assembly line or faster sewing machines for your sweatshop, your employees can work faster, producing more surplus.
And indeed, throughout the capitalist world capitalists are always trying to find ways to speed up production. In situations where workers don’t have any power to resist this speed up production can take on a dizzying pace. Imagine speeding up production, paying low wages, and making your workers work more hours. That would be the ultimate in exploitation! If you want to do this, I suggest you move your production to the capitalist wild west (china, chinatown, etc.) I should also mention here that as you introduce these “labor-saving” technologies into your production you won’t need as many workers. This is a great time to fire people (“lay them off”). This has the effect of increasing unemployment which is very good for you. Unemployment drives down wages and makes it easier to replace workers who resist exploitation.
Investing in new machinery is one of the most popular ways of getting more work out of workers. It produces far more surplus than any of the other methods we have discussed. It also seems to have no limit (although it can lead to something called the “falling rate of profit” which I will investigate in my video on crisis.) Of course, once your new innovative machinery allows you to start outselling other capitalists in the marketplace they are going to want one too. You can try to keep your technology secret, patent it, etc. but eventually other capitalists are going to catch up with you. Once this happens the “socially necessary labor time” it takes to make your commodities goes down. This brings the value of your commodities down. This means that you are no longer extracting as much surplus per worker as you were before. Now what are you going to do?
Invest in newer machines! The race goes on. Capitalists are constantly adding new technologies, reorganizing production, cutting wages, using all of the strategies I’ve just discussed in and endless quest to raise the rate of exploitation. But as soon as those new technologies and strategies become standard across an industry they are forced to come up with new strategies. Competition never ceases! Innovation never ceases. Class struggle never ceases.
This constant quest to squeeze more profit from your workforce may be viewed by some as immoral. (I will be posting a video dedicated solely to the topic of exploitation and morality soon.) Yes- as a capitalist you have an extraordinary amount of social power. Your decisions have a direct effect on the lives of many people- sometimes all of society. If you worry about the social consequences of your decisions it will interfere with your ability to maximize profit. Whenever you are being less immoral, some other capitalist is being more immoral. When the two of you meet in the marketplace, you will lose. This is why capitalist culture has generated a world view in which capitalists believe that 1. they are providing a positive social function by “providing quality products to consumers” instead of providing quality lives to workers; and 2. That following the profit motif is morally justifiable because if they don’t do it someone else will. If you can get yourself to believe these 2 things you should do fine as a capitalist.
A final, methodological note: In my video on the labor theory of value I conclude by saying that the labor theory of value is best proven by asking what it explains. Here I have shown all of the methods by which capitalists pursue surplus value. I believe that this explanation is a pretty accurate description of the relation between workers and capitalists in the real world. This then, is evidence that the labor theory of value is a useful theory, one that can help us explain things that bourgeois economic theory can’t.
rate of exploitation DIY surplus value variable capital constant capital labor theory of value ltr exchange supply and demand class struggle value exchange labor labour marx engels capitalism socialism communism economics bourgeois buy sell use value consumer consume production circuit of capital economics politics