The Accumulation of Capital: Volume 1 (Routledge Classics)

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The provision of capital, therefore, introduces a necessary division of payments, as it were, which permits producers to be paid within a reasonable period of time after performing their work. And the more capitalistic—the more capital intensive —the economic system, the larger is the proportion of the labor force which can be employed in the production of temporally more remote consumers' goods. Businessmen and capitalists coordinate the division of labor in seeking to avoid losses and to earn higher rates of return on their capital in preference to lower rates of return.

For in so doing, they are led to try to avoid over-expanding any industry relative to other industries and, at the same time, to be sure that any industry that is insufficiently expanded relative to other industries is further expanded. This is a major aspect of the significance of the principle, so well developed by the classical economists, that there is a tendency toward a uniform rate of profit on capital invested in all branches of industry. Finally, businessmen and capitalists continuously improve the efficiency of production as the result both of their competitive quest for exceptional rates of profit and their saving and investment for the purpose of accumulating personal fortunes.

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The only way to earn an exceptional rate of profit where the legal freedom of competition prevails is by being an innovator in the production of better products or equally good but less expensive products. The exceptional profits from any given innovation then disappear as competitors begin to adopt it and make it into the normal standard of an industry.

This requires that one introduce repeated innovations as the condition of continuing to earn an exceptional rate of profit. In this way, the entire benefit of every innovation tends to be passed forward to the consumers in the form of better products and lower prices, with exceptional profits being entirely transitory in the case of each particular innovation and a permanent phenomenon only insofar as improvement is continuous. The saving of businessmen and capitalists to accumulate personal fortunes operates to achieve economic progress by ensuring that a sufficiently high proportion of the economic system's ability to produce is devoted to the production of capital goods, with the result that each year's production can begin with the existence of more capital goods than were available the year before.

Their saving and investment has this effect by virtue of raising the demand for capital goods relative to the demand for consumers' goods, and thus of making profitable the greater relative production of capital goods. A further aspect of this saving and investment is that the demand for labor is raised relative to the demand for consumers' goods. In the light of these facts about the nature of the productive contribution of businessmen and capitalists, it is possible to revise the classical doctrine of the labor theory of value in a way that helps to explain a steady rise in real wages and which nullifies the so-called iron law of wages.

And that is simply this: In steadily raising the productivity of manual labor, the businessmen and capitalists are constantly reducing the quantity of labor required to produce virtually every good. The effect of this is steadily to reduce prices relative to wages, i. It should be realized that the same result follows if we view both wages and prices as being determined by demand and supply in the classical sense— i. Viewed in this light, a rise in the productivity of labor increases the supply of goods relative to the supply of labor and therefore reduces prices relative to wage rates.

It should also be realized that this account of matters incorporates both the wages fund doctrine and Ricardo's doctrine of the distinction between "value and riches"— the former, in its implication of a distinct and given demand for labor; the latter, in its perception of the rise in real wages as proceeding not from a rise in money incomes but from a fall in prices, which is the natural consequence of a greater ability to produce.

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Of course, it must be made crystal clear, which the classical economists never succeeded in doing, that the quantity of labor as a determinant of prices is strictly confined to the category of reproducible products. Major categories of prices are in no way determined by it—above all, wage rates. Such prices are determined by supply and demand—by marginal utility, including the utility of marginal products.

Nor are wages connected even indirectly with the "cost of production of labor. The growth of population in a division-of-labor, free-market society does not require the cultivation of progressively inferior soils under conditions of diminishing returns, until the point is reached where the productivity of labor on the "land last cultivated" yields only subsistence, as Ricardo often, but not always, maintained.

Thus the effect of rising population in such a society is actually to raise the productivity of labor and real wages. This conclusion, I believe, follows from Adam Smith's principle that "the division of labor is limited by the extent of the market. Once it is recognized that money wages are determined strictly by supply and demand, then it becomes clear that the wage earner's presumable willingness to work for a subsistence wage rather than die of starvation, and the capitalist's preference, other things equal, to pay lower wages rather than higher wages, are both irrelevant to the wage the worker must actually be paid.

That wage is determined by the demand for and supply of labor. It can fall no lower than corresponds to the point of full employment. If it drops below that point, a labor shortage is created, which makes it to the self-interest of employers able and willing to pay a higher wage to bid wages up, so that they do not lose employees to other employers not able or willing to pay as much.

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Moreover, a fall in wages toward the full employment point does not represent the possibility of subsistence wages being achieved through the back door, as it were, because it is accompanied by a fall both in product prices and in the burden of supporting the unemployed. The fall in wages implies a fall in prices both on the principle of cost of production and on the principle of supply and demand, for the lower wages mean not only lower costs but also more employment, therefore, more production, and, therefore, a larger supply of goods coming to market. The fall in prices together with a reduction in the burden of supporting the unemployed almost certainly means a rise in real "take-home" wages.

The rising productivity of labor and correspondingly falling product prices that the businessmen and capitalists achieve take place in this context of wage rates that are determined by the independent supply of and demand for labor. Thus, as product prices fall, wage rates do not fall, and, therefore, real wages rise. If, the quantity of money and volume of spending in the economic system remaining the same, there is a growing supply of labor while the productivity of labor rises, money wage rates fall, but prices fall by more.

Of course, to the extent that the quantity of money increases while the productivity of labor rises, the demand for labor and products both increase. As a result, the rise in real wages may be accompanied by rising money wage rates and by constant or even rising product prices. But the relationship between wages and prices will reflect the change in the productivity of labor, for that reduces product prices relative to wages, while the increase in the quantity of money operates to affect both of them more or less equally. Under a gold standard, there would be a modest rate of increase in the quantity of money, which would probably be accompanied by falling prices and rising money wages.

Of course, even within the domain of reproducible products, quantity of labor is by no means the only determinant of price. As Ricardo himself explained in Sections IV-VI of his chapter on value, the period of time for which profits must compound on wages before the ultimate, final product is sold to consumers is a second major determinant of prices.

In addition, wage rates themselves and prices of various materials determined by supply and demand are further factors entering into the determination of prices even in the domain where quantity of labor is relevant. The fact that profits are an income attributable to the labor of businessmen and capitalists, and the further fact that their labor represents the provision of guiding and directing intelligence at the highest level in the productive process, suggests a radical reinterpretation of the doctrine of labor's right to the whole produce.

Namely, that that right is satisfied when first the full product and then the full value of that product comes into the possession of businessmen and capitalists which is exactly what occurs, of course, in the everyday operations of a market economy. For they, not the wage earners are the fundamental producers of products. By the standard of attributing results to those who conceive and execute their achievement at the highest level, one must attribute to businessmen and capitalists the entire gross product of their firms and the entire sales receipts for which that product is exchanged.

Such, indeed, is the accepted standard in every field outside of economic activity. For example, one attributes the discovery of America to Columbus, the victory at Austerlitz to Napoleon, the foreign policy of the United States to its President or at most a comparative handful of officials. These attributions are made despite the fact that Columbus could not have made his discovery without the aid of his crewmen, nor Napoleon have won his victory without the help of his soldiers, nor the foreign policy of the United States be carried out without the aid of the employees of the State Department.

The help these people provide is perceived as the means by which those who supply the guiding and directing intelligence at the highest level accomplish their objectives. The intelligence, purpose, direction, and integration flow down from the top, and the imputation of the result flows up from the bottom. In many cases, of course, the product must be attributed to a group of businessmen and capitalists, not just to a single outstanding figure.

In any event, labor's right to the full value of its produce is fully satisfied precisely when a Rockefeller or Ford, or their less known counterparts, are paid by their customers for their products. The product is theirs, not the employees'. The help the employees provide is fully remunerated when the producers pay them wages. This view of the nature of labor's right to the full produce leads to a very different view of the payment of incomes to capitalists whose role in production might be judged to be passive, such as, perhaps, most minor stockholders and the recipients of interest, land rent, and resource royalties.

If the payment of such incomes did represent an exploitation of labor, it would not be an exploitation of the labor of wage earners. Such incomes are paid by businessmen—by the active capitalists; they are not a deduction from wages but from profits. If any exploitation were present here, it would be this group, not the wage earners, who were the exploited parties. What this would mean in practice is that individuals like Rockefeller and Ford were exploited by widows and orphans, for it is such individuals who make up a large part of the category of passive capitalists.

In fact, however, the payment of such incomes is never an exploitation, because their payment is a source of gain to those who pay them. They are paid in order to acquire assets whose use is a source of profits over and above the payments which must be made. Furthermore, the recipients of such incomes need not be at all passive; they may very well earn their incomes by the performance of a considerable amount of intellectual labor. Anyone who has attempted to manage a portfolio of stocks and bonds or real estate should know that there is no limit to the amount of time and effort which such management can absorb in the form of searching out and evaluating investment possibilities, and that the job will be better done the more such time and effort one can give it.

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In the absence of government intervention in the form of the existence of national debts, loan guarantees, and deposit insurance, not to mention "transfer payments" , the magnitude of truly unearned income in the economic system would be quite modest, for almost every other form of investment would require the exercise of some significant degree of skill and judgment. Those not able or willing to exercise such skill and judgment would either rapidly lose their funds or would have to be content with very low rates of return in compensation for safety of principal and, possibly, reflecting the deduction of management fees by trustees or other parties.

It should also be realized that in a laissez faire economy, without personal or corporate income taxes a real exploitation of labor and without legal restrictions on such business activities as insider trading and the award of stock options, the businessmen and active capitalists are in a position to own an ever increasing share of the capitals they employ. With their high incomes they can progressively buy out the ownership shares of the passive capitalists. In this way, under capitalism, those workers—the businessmen and active capitalists—who do have a valid claim to the ownership of the industries in fact come to own them.

Again and again, penniless newcomers appear on the scene and by virtue of their success secure a growing influence over the conduct of production and ultimately obtain the ownership of vast personal fortunes. An ironic consequence of Adam Smith's errors in this area, to be counted among all the other absurdities of socialism, is that the socialists want to give the ownership of the industries to the wrong workers! And to do so, they want to destroy the economic system which gives it to the right workers. They want to give it to the manual laborers, while capitalism gives it to those who supply the guiding and directing intelligence in production.

Not surprisingly, the socialists and their fellow travelers, the contemporary "liberals," denounce capitalism's giving ownership to the right workers. They denounce it when they denounce large salaries and stock options for key executives. As a final irony it turns out not only that capitalism is not a system of the exploitation of labor, but that the actual system of the exploitation of labor is socialism.

Socialism establishes the very kind of exploitation for the alleged existence of which people seek to overthrow capitalism. The socialist state holds a universal monopoly on employment and production. Its citizens are economically powerless in their capacity both as workers and as consumers. No economic factor compels the socialist state to take account of their wishes.

From an economic point of view, the rulers of the socialist state need be concerned with the values of the citizens only insofar as it needs them to have the health and strength required to work. Moreover, the leading moral-political principle of the socialist state is that the citizen is not an end in himself, as he is acknowledged to be under capitalism, but is a means to the ends of "society.

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Thus, the principle that the individual is the means to the ends of society necessarily means, in practice, that he is the means to the ends of society as divined, interpreted, and determined by the rulers of the socialist state. And what this means is that he is the means to the ends of the rulers. A more servile arrangement can hardly be imagined. Thus, the position of the individual under socialism is that he must spend his life in toil for the ends of the rulers, who have no reason voluntarily to supply him with anything more than minimum physical subsistence.

They will provide more assuming they have the ability to do so only if it is necessary to prevent riots or revolution or as a means of providing special incentives for the achievement of their own values, such as, above all, the power and prestige of the regime. Thus, they will provide a relatively high standard of living for rocket scientists, secret police agents, and such intellectuals and athletes whose accomplishments help to reflect glory on the regime. The average citizen, however, is fortunate if they provide him with subsistence.

He is fortunate, because, as Mises and Hayek have shown, the economic discoordination and chaos of socialism is so great that in the absence of an outside capitalist world to turn to for aid, socialism would lead to the destruction of the division of labor and hence to a reversion to the primitive economic conditions of feudalism.

Despite the support which it historically gave to the exploitation theory, classical economics provides the basis for turning the exploitation theory upside down. However, once we start reading Adorno more attentively and thoughtfully we realize how prescient and perspicacious Adorno was as a critic of our modern society and culture.

Many of his thoughts articulated in this volume anticipate the thoughts and writings of our leading contemporary thinkers, such as Jean Baudrillard, Frederic Jameson, and even Noam Chomsky although he probably disagrees with Adorno's attitude toward culture, which may be construed as elitist. I highly Only 10 left in stock - order soon. I was privileged to read this just after it was translated and found it to be even more insight-filled than the other Simmel i had found and loved. His style of laying out like rails concept after concept and not needing to tell stories fits my way of thinking Jesus taught the crowds and his antagonists with parables; he taught the Twelve by giving them the abstract principles underlying I would lay this book down next to Adam Smith for a more enlightening experience If you ever have wondered how money is the distillate of all that can be acquired or produced which can truly be called "human", this Only 2 left in stock - order soon.

I read this book at age 27 and understood little of it. I read it again at 35 and began to understand it. I read it again at 41 and breathed it in like fresh air. I have just read it again at 48 and find so much more in it than I found even at the last reading. This is a book to be read and re-read, deeply understood, and mined for it's multitude of ideas and arguments. Only 4 left in stock - order soon. Condition perfect! Routledge's Manual of Etiquette.

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