## Conversion of Surplus-Value into Capital

### 1) CAPITALIST PRODUCTION ON A PROGRESSIVELY INCREASING SCALE. TRANSITION OF THE LAWS OF PROPERTY THAT CHARACTERISE PRODUCTION OF COMMODITIES INTO LAWS OF CAPITALIST APPROPRIATION

Suppose we have a capitalist cotton spinner. They employ a capital of £10,000. Of this, £8,000 is invested in machinery and cotton, and £2,000 in labour-power. The rate of surplus value is 100%. This gives:

C 8000 + V 2000 + S 2000 = E 12,000.

This £12,000 is the Exchange Value of 240,000 kilos of spun cotton. That means the surplus value is equal to 40,000 kilos. Let us assume that the capitalist does not use any of this £2,000 for their own consumption, but re-invests it all. Then, if no change in technology has occurred, this £2,000 will be invested in the same proportion as the original capital i.e. 80% to constant capital, and 20% to labour-power (variable capital), or £1600 C, and £400 V. This means that the capitalist has converted the surplus value into new capital, making expanded production possible.

We now have:

C 9600 + V 2400 + S 2400 = E 14,400.

 Every society, including that of Robinson Crusoe, where it produces a physical surplus over what it needs to replace the means of production and consumption used up, thereby creates the conditions to expand its production.  This physical surplus product is what Surplus Value in a Capitalist economy purchases.  At the same time, the Surplus Value is the  monetary equivalent of that surplus product.
But, where does the additional constant capital, the machines and cotton, and the additional labour-power come from? In other words, its one thing to see how a surplus value, as a monetary sum arises, but, for the actual capital itself to expand, this monetary value must also be able to meet, in the market, additional supplies of cotton, machines and labour-power.

The answer, Marx explains is quite simple. If we move now from looking at the situation facing the individual spinner to that of society as a whole, we see that the spinner's output is merely an aliquot part of the whole social product. But, the whole social product, like that of the spinner, can also be broken down into C+V+S. In other words, the total social product contains within it this social surplus product, which is the physical equivalent of the surplus value.

So, society in its continual process of production, does not just produce the cotton that the spinner requires to meet their current needs, but produces an additional amount to that. This surplus amount of cotton then forms an aliquot part of the society's total surplus product.

The spinner, having realised the surplus value, by selling their spun cotton is able to use this surplus value to buy the additional cotton that exists as part of the social surplus. In the same way, the machine maker does not make only enough machines to meet the existing demand, but an additional number, which are bought by the spinner with his surplus value. Similarly, the value of labour-power is represented in wages that are intended not just to ensure the reproduction of existing labour-power, but also its increase. So, capital can always meet its needs for expansion, either from the normal increase in population, or by working labour more extensively or intensively.

From a concrete point of view, accumulation resolves itself into the reproduction of capital on a progressively increasing scale. The circle in which simple reproduction moves, alters its form, and, to use Sismondi's expression, changes into a spiral.” (p 545)

We began with a capital of £10,000, which expanded to £12,000. But, the £2,000 then also expands. It comprised £400 (variable capital) that produces £400 surplus value. That surplus value in turn, when invested produces a further £80 of surplus value and so on. But, all the time, the original £10,000 of capital itself continues to expand, as does every other addition to it. Nor does it matter whether the additional capital created out of the surplus value is appended to the original capital, or is separated off. The £2,000 of surplus value could be used by the spinner to buy more cotton etc, but alternatively, he might have used it to set up another business, for example weaving the yarn into cloth. It would still operate as new capital.

Nor indeed does the spinner have to use the surplus value to create their own new capital. The spinner could lend it to some other capitalist who then uses it to set up a new business, and thereby create new capital.

The original capital was formed by the advance of £10,000. How did the owner become possessed of it? “By his own labour and that of his forefathers,” answer unanimously the spokesmen of Political Economy. And, in fact, their supposition appears the only one consonant with the laws of the production of commodities.

 Wedgwood like many of the first industrial capitalists began as workers themselves who accumulated capital from savings.  But, their capital  expands from the unpaid labour of their workers,  not from abstinence!
But it is quite otherwise with regard to the additional capital of £2,000. How that originated we know perfectly well. There is not one single atom of its value that does not owe its existence to unpaid labour. The means of production, with which the additional labour-power is incorporated, as well as the necessaries with which the labourers are sustained, are nothing but component parts of the surplus-product, of the tribute annually exacted from the working class by the capitalist class. Though the latter with a portion of that tribute purchases the additional labour-power even at its full price, so that equivalent is exchanged for equivalent, yet the transaction is for all that only the old dodge of every conqueror who buys commodities from the conquered with the money he has robbed them of.” (p 546)

Suppose a worker is employed by a capitalist to produce a commodity. Suppose further that the worker produces the constant capital they use too. They spend 8 hours producing this constant capital and 4 hours transforming it into the end product. This commodity has a value equal to 12 hours. However, the capitalist pays the worker the equivalent of 10 hours as wages, which is equal to the value of their labour-power. The capitalist appropriates the product of the other 2 hours as surplus value.

The product has, in fact, only cost the capitalist 10 hours to produce, but if the worker who produced it, wants to buy it, they will have to pay the equivalent of 12 hours!

So, although the surplus value, produced by workers may be used to employ more workers, or to employ existing workers for longer, and for more wages, it is only workers themselves making available the resources for that to happen. It is not some gratuitous act by capital.

 Workers produce the surplus value that their employer uses to buy new machines.  Workers also produce the  machines that the capitalist buys.  The machines can then take  the place of the workers without whom the capitalist could not have acquired them.
If the additional capital employs the person who produced it, this producer must not only continue to augment the value of the original capital, but must buy back the fruits of his previous labour with more labour than they cost. When viewed as a transaction between the capitalist class and the working class, it makes no difference that additional labourers are employed by means of the unpaid labour of the previously employed labourers. The capitalist may even convert the additional capital into a machine that throws the producers of that capital out of work, and that replaces them by a few children. In every case the working class creates by the surplus-labour of one year the capital destined to employ additional labour in the following year. And this is what is called: creating capital out of capital.” (p 546)

The first accumulation of capital out of surplus value of £2,000, depended on the prior existence of the £10,000 of capital saved by the capitalist. But, the accumulation of the second accumulation of £80, only depends on the £2,000 robbed from the workers as surplus value. As capitalist accumulation proceeds, the law of compound interest quickly ensures that the vast bulk of capital is nothing more than the accumulated surplus value robbed from workers as unpaid labour.

The ownership of past unpaid labour is thenceforth the sole condition for the appropriation of living unpaid labour on a constantly increasing scale. The more the capitalist has accumulated, the more is he able to accumulate.” (p 546)

What first appeared as an exchange of equivalents, a given amount of labour-power sold at its value, by the worker, a given amount of money of equal value paid by the capitalist, has now turned into its opposite. The capitalist now buys labour-power not from their own resources, but from the surplus value produced by the worker. The workers' labour power is bought by the capitalist using money that the worker themselves created and handed over!

The exchange of equivalents, the original operation with which we started, has now become turned round in such a way that there is only an apparent exchange. This is owing to the fact, first, that the capital which is exchanged for labour-power is itself but a portion of the product of others’ labour appropriated without an equivalent; and, secondly, that this capital must not only be replaced by its producer, but replaced together with an added surplus. The relation of exchange subsisting between capitalist and labourer becomes a mere semblance appertaining to the process of circulation, a mere form, foreign to the real nature of the transaction, and only mystifying it. The ever repeated purchase and sale of labour-power is now the mere form; what really takes place is this — the capitalist again and again appropriates, without equivalent, a portion of the previously materialised labour of others, and exchanges it for a greater quantity of living labour.” (p 546-7)

This also brings about a change in the nature and understanding of property and its laws.

At first the rights of property seemed to us to be based on a man’s own labour. At least, some such assumption was necessary since only commodity-owners with equal rights confronted each other, and the sole means by which a man could become possessed of the commodities of others, was by alienating his own commodities; and these could be replaced by labour alone. Now, however, property turns out to be the right, on the part of the capitalist, to appropriate the unpaid labour of others or its product, and to be the impossibility, on the part of the labourer, of appropriating his own product. The separation of property from labour has become the necessary consequence of a law that apparently originated in their identity.” (p 547)

Consequently, Marx says that although capitalist accumulation may seem to contradict the laws of commodity production, in fact, it is merely an application of those laws.

Thus the original conversion of money into capital is achieved in the most exact accordance with the economic laws of commodity production and with the right of property derived from them.

Nevertheless, its result is:

(1) that the product belongs to the capitalist and not to the worker;
(2) that the value of this product includes, besides the value of the capital advanced, a surplus-value which costs the worker labour but the capitalist nothing, and which none the less becomes the legitimate property of the capitalist;
(3) that the worker has retained his labour-power and can sell it anew if he can find a buyer.

Simple reproduction is only the periodical repetition of this first operation; each time money is converted afresh into capital. Thus the law is not broken; on the contrary, it is merely enabled to operate continuously.” (p 549)

But, the same is true on this basis where accumulation occurs.

The surplus-value is his property; it, has never belonged to anyone else. If he advances it for the purposes of production, the advances made come from his own funds, exactly as on the day when he first entered the market. The fact that on this occasion the funds are derived from the unpaid labour of his workers makes absolutely no difference. If worker B is paid out of the surplus-value which worker A produced, then, in the first place, A furnished that surplus-value without having the just price of his commodity cut by a half-penny, and, in the second place, the transaction is no concern of B’s whatever.” (p 549)

Provided worker B is paid the full value of his labour-power, then he has no grounds to complain that the funds for this come from the surplus value produced by A. And, as we have seen, capitalist production proceeds precisely on that basis of commodity exchange, so that B is indeed paid the full value for his labour-power.

That is not the case if instead of viewing things from the perspective of the individual contracts between each worker and capitalist, we view things in terms of the continuous process of capitalist production, or from the perspective of the relations between workers as a whole and capitalists as a whole. But, that would not be to analyse things in terms of commodity production and exchange.

In commodity production, we have just one buyer and one seller. Each contract is a single event. The sale of labour-power for a single given period of time. It has no relation to anything that has gone before, or that happens after.

However long a series of periodical reproductions and preceding accumulations the capital functioning today may have passed through, it always preserves its original virginity. So long as the laws of exchange are observed in every single act of exchange the mode of appropriation can be completely revolutionised without in any way affecting the property rights which correspond to commodity production. These same rights remain in force both at the outset, when the product belongs to its producer, who, exchanging equivalent for equivalent, can enrich himself only by his own labour, and also in the period of capitalism, when social wealth becomes to an ever-increasing degree the property of those who are in a position to appropriate continually and ever afresh the unpaid labour of others.

This result becomes inevitable from the moment there is a free sale, by the labourer himself, of labour-power as a commodity. But it is also only from then onwards that commodity production is generalised and becomes the typical form of production; it is only from then onwards that, from the first, every product is produced for sale and all wealth produced goes through the sphere of circulation. Only when and where wage labour is its basis does commodity production impose itself upon society as a whole; but only then and there also does it unfold all its hidden potentialities.” (p 550-1)

The laws of commodity production make capitalist production and accumulation inevitable. That is why, as Marx says, the ideas of Proudhon, who believed that the evils of capitalism could be abolished by applying the laws of commodity production, were nonsense.

We may well, therefore, feel astonished at the cleverness of Proudhon, who would abolish capitalistic property by enforcing the eternal laws of property that are based on commodity production!” (Note 1, p 551)

The same is true of some of the ideas of the anarcho-capitalists and libertarians, who see in the development of monopolies and state capitalism something alien to their 18th century views of commodity production and exchange, rather than what they are, the inevitable consequence of the laws of commodity production and exchange.

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