How to Make Your Money Work for You, According to Karl Marx (Part 1: Purchasing Labour)

Part 2: Exploiting Labour

Asking “why read Karl Marx” is a legitimate question. It seems strange to believe that Marx, who wrote 150 years ago, could address current economic and political challenges. Certainly, things have changed in the last 150 years. Marx’s Capital, however, remains relevant in part because it’s an attempt to analyze the experience of capital, an experience that shows no signs of abating. Further, in examining capital, Marx inevitably touches on other integral parts of contemporary life such as money, labour, commodities, markets, value, technology, class relations, etc. Capital is connected to all of these things and in reading Marx we come to understand the consequences of our participation in the economic system. He reminds us that using a cell phone or tapping a credit card aren’t inconsequential actions. The rhythm of daily life has a storied history. Our participation in “the way things are,” has consequences for our lives and the lives of those around us. Even if you ultimately disagree with Marx, grappling with his arguments is an illuminating journey.

This summer was my first substantial introduction to Marx, and I wanted to use a series of posts to highlight a few aspects of his thought that have helped me evaluate my participation in the market. The first two posts are guided by one seemingly simple notion: that money can produce more money. How, for example, does an index fund grow in a capitalist economy. In this first post I explore Marx’s basic definition of capital, while the second one looks at capitalism as a social relation between labour and capital — better known as surplus labour. In the third and final part, I aim to evaluate Hannah Arendt’s critique of Marx found in her book, The Human Condition.

Before discussing Marx’s basic definition of capital, it’s worth considering two characteristics of his method. First, Marx’s primary aim in Capital is to reveal capitalism’s internal contradictions. For the sake of argument, he agrees with Adam Smith and proponents of free market capitalism. As a friend pointed out, to understand Marx you don’t need to learn a completely alien economic system, you just have to think along with him about our own. A second characteristic worth noting is that Marx’s analysis assumes, at least for the most part, that the market is operating exactly the way it should; that, for example, there is no potential influx of foreign workers, or that one can’t remove capital by investing in foreign markets. To this end, Marx does his best at limiting discussion in Volume One to a utopian version of capitalism. These assumptions help Marx ask how capitalism would work and who it would benefit in a closed system.

Distorting matters a bit, let’s say Marx begins Capital by inquiring into the cliché that “we should aim to have our money earn for us.” Such a mantra is a pillar of financial independence, many retirement plans, and different investment strategies. At first glance, capital seems to have this ability. According to Adam Smith, capital is the part of an individual’s stock which is expected to create revenue. So, the more capital you accumulate, the more you should expect your money (or your capital assets) to earn for you. But how does this process actually happen? How can money transform itself into more money?

kapital-stamp

We find money in the market because it aids in the exchange of commodities. At market, individuals bring together their commodities with the intention of exchanging them. In a very basic market, the owner of a commodity has spent time making or attaining more of her commodity than she has an immediate use for and is looking to trade the excess for some other commodity she desires or needs. Money develops in this context to help lubricate the process as a universal equivalent —  meaning, no matter the commodity, money serves to represent its value. With the introduction of money, the exchange of commodities can be expressed in the general formula, C-M-C: a merchant arrives at the market with a Commodity, exchanges it for Money, which is used to buy a different Commodity.

In contrast to the general market formula, Marx argues that capital occurs when someone arrives at market intent on using their money to buy a commodity for the purpose of generating more money. It’s only when money is used in this way that Marx identifies it as capital. A capitalist, therefore, is one who intends to use his money to purchase a commodity that will generate more money than it originally cost. Capitalism changes the general formula C-M-C, into the capitalist formula, M-C-M+.

The capitalist market formula basically repeats Smith’s definition of capital. However, this analysis reveals at least one key characteristic of commodities that needs to be explained before we can understand how to turn money into more money: namely that labour is involved in commodity production. But more importantly, in the sense that they are useful and can be exchanged, commodities are valuable due to the labour involved in acquiring them. labour’s ability to create value seems obvious, but it’s a crucial point in understanding the nature of capitalism. In fact, Marx argues that the value of a commodity is strictly a product of the labour process.

To understand this far-reaching claim, consider the life-cycle of a tree. Beginning as a humble sapling, a tree grows into a massively complex organism before it returns to the earth. The significance of this is that the dead tree is consumed by insects and microbes, etc. and becomes nutrient-rich soil in which new organisms can thrive. From the viewpoint of nature, the tree is part of a continuous repetition: no distinction is made between the tree as dead, as young, as full-grown. Who is to say, from nature’s point of view, which is the most valuable? Within the cyclical process of nature, growth and decay are effectively the same — the growth of a sapling is as much the process of nature as its decay. The value latent in nature appears only when we see nature as a resource for exploitation. Labour is used to extract resources, shaping nature into things that can be used in daily life or exchange for other things at market. A tree must be harvested and planned at the mill before it can be sold at market, for example. Nature can only be converted into value by means of labour.

Not all labour generates value, but labour is always necessary to make the commodity in the first place. Further, it’s important to distinguish between a commodity’s price and its value: the price of the chair may fluctuate, but, the point is, that for the chair to have any value at all one must first apply labour.

As an interesting and important aside, the universal equivalent commodity — money — represents not only different commodities but also the labour involved in a commodity’s creation. Marx explains that once extracted and shaped, commodities become bearers of human labour. When we observe a commodity we do not see the labour process that is incorporated in it; rather, we see a thing with value. When money is used to represent a commodity, money becomes the physical representation of labour (or more accurately, what Marx identifies as the average labour time it takes to manufacture a particular commodity). When we hold a dollar bill in the palm of our hand, we hold labour in the abstract: an observation often concealed by the fact that money is very much removed from the labour process.

Beyond revealing a characteristic of money, the fact that only labour produces value has massive consequences for the capitalist. When approaching the market with the intent of transforming money into more money, capitalists are faced with the dilemma of finding a commodity that can achieve this task. Almost every commodity on the market will require the input of labour before it can increase in value. My antique chair, for example, only becomes more valuable (all things remaining the same) if I refinish it. Once the capitalist realizes that only labour creates value, then labour becomes the commodity of choice. In a very basic market, capitalists realize that labourers are the only asset that will put their money to work. Therefore, it is the capitalist’s hope that through purchasing labour-power, capital will multiply on its own.  

That human labour and resource extraction from nature are the original sources of value is the first basic ingredient of capital and must be understood before money can be said to appreciate on its own. To fully appreciate the magic of capitalism, we’ll have to turn our attention from the public market to the workings of a private business. The next post explores the second basic ingredient of capital as it is found in Marx’s theory of surplus labour.

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One thought on “How to Make Your Money Work for You, According to Karl Marx (Part 1: Purchasing Labour)

  1. Pingback: How to Make Your Money Work for You, According to Karl Marx (Part 2: The Need to Exploit Labour) – (un)conditional

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