Capitalism comes into the world “dripping from head to foot, from every pore, with blood and dirt”. So concludes Marx after a lengthy account of the transition from feudalism to capitalism near the end of Capital, Volume I.

Marx explained in the preface to the first edition that its object was “to reveal the economic law of motion of modern society”. Full of literary references, witticisms and a burning hatred of capitalism, it is not the dull treatise that description might imply. His empathy for workers who are exploited by the capitalist class leaps off the pages.

The three volumes are an exposition of Marx’s method of “rising from the abstract to the concrete”. Volume I opens with an analysis of the commodity.

This is not an arbitrary abstraction. It grasps the specific, defining and unique feature of capitalism: the mass production of commodities for exchange on the market.

From this starting point, Marx elaborates the labour theory of value, which solves a question at the heart of capitalism. What quality do commodities as different as clothes, machinery, tables and books have in common that enables their comparison on the market?

This can’t be their use value because they have radically different uses. The only aspect common to everything produced by humans is the labour expended on them.

But how can the very different kinds of concrete labour employed to produce commodities be compared? 

Marx argued that what is being compared is abstract labour, measured by “socially necessary labour time”, or the amount of time it takes a worker of average skill and productivity to produce a commodity. 

“A use-value, or useful article, therefore has [exchange] value only because abstract human labour is objectified and materialised in it.”

Marx assumes at this stage that commodities exchange for their value determined by this abstract labour.

However, market competition forces capitalists continually to attempt to produce commodities cheaper than their competitors by introducing ever newer machinery. They continually “revolutionise the means of production” as Marx puts it in The Communist Manifesto.

One capitalist may produce only three cars a day compared with six in a factory employing new machinery or methods of production, thereby halving their value and reducing their price. The first capitalist may be able to sell his cars only for the new, unprofitable price, or not at all.

Capitalism is, by its very nature, unplanned, chaotic and wasteful. Whether commodities will sell for a profit on the market, or even be sold and used at all, is pure speculation.

Exploitation and profits

To further develop an understanding of the dynamics of the system, Marx turns his attention to labour power, or workers’ ability to work.

He outlines the “reckless terrorism” by which early capitalism drove peasants off their land, creating masses of people with no option but to submit to “the dull compulsion of economic relations” and work as wage labourers.

Labour power had become a commodity on a mass scale.

A theme running through the three volumes is that the market, and the fact that labour power is a commodity like any other, obscure the way the system works. We don’t know who produces the things we buy—and the workers don’t know who will end up using the commodities they create, or even if they will be sold or go to waste. 

As Marx says, so long as we stay in the “realm of circulation” (the market), everyone seems to be equals, just acting to realise their own self-interest. The fiction of equality of all before the law became a pillar of capitalist ideology—workers and capitalists alike appear as sellers and buyers of commodities on the market.

This is also true of the market for labour power itself. Bosses offer a wage to workers which is judged as a more or less fair price for their labour.

But workers are paid for only part of the value they produce in a day, the other hours producing “surplus value” from which profits are derived. As Marx points out, without this fraud, there would be no profit. This is exploitation, which exists whatever wages are paid.

Marx breaks down the means of production (inputs that are used to produce commodities) into two categories: “constant capital”, the tools, buildings, raw materials and technology, which merely pass their existing value to new products, and “variable capital”, or labour power, because it is the only means of creating new value—workers can produce value above what they require to live and are paid in wages.

However, capitalists work out their return on investment by looking at their total outlay. This creates the false appearance that both constant and variable capital contribute to the surplus value from which profits come.

To capture the dynamic of the relationship of capital to workers, Marx summons up one of the great analogies of European literature: “Capital is dead labour which, vampire-like, lives only by sucking living labour, and lives the more, the more labour it sucks”.

You may recognise this image in the first Matrix film with its human carcasses feeding the central machine.

The rate of profit and economic crises

For Marx, the abstractions he begins with are a starting point to understand and explain how capitalism works. They allow us to isolate the basic features, but then we must explain how they are related to what can be observed empirically.

In Volume III Marx explains how capital flows in and out of different sectors, searching out the highest rate of profit. This constant redistribution of capital from industry to industry “creates such a ratio of supply and demand that the average profit in the spheres of production becomes the same”. In this way, a general rate of profit is established across the economy.

This general rate of profit reflects the total surplus value created compared with the total capital invested across the whole economy. So capitalists get not their share of the total pool of surplus commensurate with their organic composition of capital (ratio between constant capital and variable capital, in value terms), but in proportion to the total capital they outlay.

Marx concludes that “the sum of prices ... of all commodities produced in society ... is equal to the sum of their values”. But the price of individual commodities diverges from their value—so the law of value has to be modified as we rise from the abstract to the concrete.

Competition creates a dynamic towards an ever-greater organic composition of capital across the economy as a whole. This in turn results in a tendency for the rate of profit to fall (as more is invested in capital which does not create new value), causing capitalists to use profits to gamble on the stock market, save it, or buy luxuries rather than invest in production.

Marx acknowledged it was not an iron law of inevitability. Indeed, he devoted a whole section to the factors which countervail this tendency.

A common response is to increase the intensity of exploitation by speeding up machinery, longer hours and/or cutting wages. But there are limits to these unless you are prepared to debilitate, injure or kill your workers, or accept shoddy work. They also risk provoking destabilising strikes and protests because workers aren’t automatons.

The most important way the system is regenerated and profits are lifted out of the doldrums is crises themselves. Marx argues, when things are going well, the equalisation of the rate of profit ensures that “each shares in the common loot in proportion to the size of his respective investment”.

But once it’s a question of sharing in losses, “everyone tries to reduce his own share to a minimum and shove it off upon another. The [capitalist] class, as such, must inevitably lose. How much the individual capitalist must bear of the losses, i.e. to what extent he must share in it at all, is decided by strength and cunning, and competition then becomes a fight among hostile brothers”.

Companies go broke, allowing others to buy up their properties and means of production at cheaper prices. Unemployment helps capitalists cut wages and conditions. The crisis lays the basis to restore the rate of profit and get investment going again. The destruction caused by war can have a similar consequence.

Since Marx described the ups and downs of the market, the exact way this has played out has changed over time. The process of companies going broke (not just in crises) and being bought up by competitors results in ever larger corporations. Marx called this the concentration and centralisation of capital. This, plus the internationalisation of capital, has enormous consequences for the resolution of crises.

Letting multinationals go broke raises the spectre of them dragging many other companies into a chasm of unimaginable proportions. Hence the government bailouts of banks and the like that we’ve seen since the global financial crisis of 2008.

Stocks and shares

The media reports on the stock market as if it has a life of its own. And in a sense, it does. It also mystifies the source of profits and how the system works. Marx writes of stocks and shares:

“They do not place the capital at one’s disposal. It is not subject to withdrawal. They merely convey legal claims to a portion of the surplus value to be produced by it.”

They become “paper duplicates of the real capital”, but they are also the subject of speculation, trading as though they have a value of their own. It’s as though they acquire value separate from the original capital: “they come to nominally represent non-existent capital”.

Sometimes their changes in value parallel those of the companies, but not necessarily. Speculation is just that, so they can have their prices bid up on the stock exchange, making their value illusory. Marx could be writing in this century:

“Gain and loss through fluctuations in the price of these titles of ownership ... become, by their very nature, more and more a matter of gamble, which appears to take the place of labour as the original method of acquiring capital wealth.”

And as Marx puts it, this whole process creates ever more opportunities for “swindlers”, creating a “paper world [in which] the real price [of commodities] and its real basis appear nowhere. The entire process becomes incomprehensible”.

Conclusion 

Marx’s Capital lays bare the madness of capitalism.

It explains a system which has unleashed astonishing ingenuity and created untold wealth while it systematically denies billions food and shelter, let alone health care or education.

Driven by market competition and with production only motivated by the search for profits, crises are inevitable.

Reading Capital will not reveal the immediate causes of any particular one. It could be any one or more of many things: perhaps profits are too low to keep investment flowing; trade disrupted by pandemic or war; inflation. Perhaps a stock market crash brought on by vultures who gamble with wealth which could be used for human needs. 

As Marx says in Volume II:

“If we were to consider a communist society in place of a capitalist one, then money capital would immediately be done away with, and so too the disguises that transactions acquire through it. The matter would be simply reduced to the fact that the society must reckon in advance how much labour, means of production and means of subsistence it can spend, without dislocation, on branches of industry which, like the building of railways, for instance, supply neither means of production nor means of subsistence ...

“In capitalist society, on the other hand, where any kind of social rationality asserts itself only post festum [after the feast], major disturbances can and must occur.” 

Marx’s monumental work shows that capitalism cannot guarantee a decent life for the vast majority, that every boom ends in crisis and the destruction of lives. Indeed, it depends on this misery for capitalists to thrive.