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The drive for profit at capitalism's core

By Paul D'Amato | November 8, 2002 | Page 9

THE LIBERAL economist Paul Samuelson described economics as "the study of how men and society choose…to employ scarce productive resources…to produce various commodities…and distribute them for consumption…among various people and groups."

In this view, the capitalist free market is simply a mechanism whereby goods are delivered to those who need them. When goods are "scarce," the price goes up, prompting more of that commodity to be produced. When goods are plentiful, the price goes down, prompting less production.

Samuelson treats capitalism as a historically eternal system of production. But in doing so, he fails to define the most important thing that distinguishes capitalism from all previous forms of production.

It is certainly true that all human societies have produced useful things in order to survive. In gathering and hunting societies, for example, goods were procured and shared in common, and trade was infrequent and incidental.

Under commodity production, on the other hand, goods are produced not for direct consumption, but for exchange. So usefulness is a condition of sale--but not the purpose of sale. Individual producers don't consume their own commodities, but sell them for other commodities.

Karl Marx describes this contradiction at the beginning of Capital, when he talks about the "twofold" nature of commodities. Commodities must be both "use-values"--that is, useful enough to find a buyer. And they are also "exchange-values"--that is, they can be exchanged for other commodities.

In such a system, it's clear that what makes qualitatively different goods exchangable is the fact that they are all products of human labor. After all price fluctuations are taken into account, this is what determines the quantities by which various commodities exchange.

If we were to stop here, we could rest assured that Samuelson was right: commodity production serves the needs of human consumption. But this type of commodity production is only the embryonic form of capitalist production. In fact, the purpose of selling things is not to end up with other things of equal value (what would be the point?), but to end up with more "exchange value" than when you started.

Capitalism is not a system of individual producers--the cobbler, the tailor, the butcher, the baker--each bringing their wares to the town square for a friendly mutual exchange. The historical evolution of capitalism involves the separation of what Marx calls the "means of production"--the tools, machinery and physical plant necessary for production--from the producers.

There isn't space to describe how this process takes place. The point is that, once this separation takes place, the majority of people are forced to sell their ability to perform labor for wages--to the minority that has concentrated these means into their hands. This minority is then able to sell commodities at a price above what it costs to produce them.

Profit is the difference between what a capitalist shells out in costs, and what they get back in return--and it is this return that drives the system forward. But profits are not the capitalists' just "reward" for owning everything. Rather, they represent the fact that workers are paid for only a part of the value they add to what they produce.

It is this fact of capitalism that explains many things that are otherwise unexplainable. For example, why are there unemployed construction workers and lots of people without a place to live? The simple answer is that housing is an industry that operates on a profit-and-loss basis. Housing the homeless is simply not profitable.

On the other hand, using unemployment to drive down the wages of workers who aren't unemployed is an excellent way to increase profits.

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