Economy Class

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Where does profit come from?

The first in a regular series of columns explaining key concepts in Marxist economics

The secret of the source of profit is the crutch upon which capitalism depends. It is also what the system must conceal from every worker.

For Karl Marx the starting point of human life and history was an analysis of how we produce things. Before humans can do anything they need to eat, find shelter and clothe themselves. This comes about through humans acting on the world around them. So Marx defines the starting point of history as "the real individuals, their activity and the material conditions of life".

However, at an early stage in the development of capitalism, people were driven off the land and a minority gained control of the tools that people used to produce what they needed to survive. Those who did not own the land or wealth were forced to sell their ability to work in return for a wage.

Marx was not the first to identify the fact that human labour power was the starting point of history and the source of all value. Before him, the classical political economists had pointed this out. But this left a problem they were unable to explain: if labour is the source of value, where does profit come from?

The dictionary definition of profit is "a sum gained from an original investment after all charges have been paid". These deductible costs include the purchase of machinery, rent of the building or land and wages paid to the workers and employees. As the capitalist would have it, profit is rightfully theirs because it was they who "sacrificed" the initial sum of money in order to set up the factory or business. Furthermore, the capitalist bought the machinery, technology or computers that also went towards creating the profits. Accordingly, they believe that what they pay the worker is a "fair day's wage for a fair day's work".

The capitalist has the power to purchase both the means of production (the tools and machinery) and human labour power. They are able to bring together the necessary elements to produce the things that humans need - and of course things they don't need.

However, machines and tools cannot create any value over and above what they are worth already. As Marx showed, profit is produced by what he called "living labour" (the labour added by humans) rather than "dead labour" (the past labour already embodied in the machines and the tools that we work with). The production of profit relies on submitting "living labour" to the mind-numbing tasks set by the instruments of "dead labour".

Profit arises because the "exchange value" of labour power is less than the labour actually expended by workers. The wage that a worker receives is not equivalent to the amount of value that a worker's labour produces in a given working day.

For example, if a worker employed in a sausage factory is paid £50 a day, they might produce sausages that are equivalent to the value of £50 in four hours, but are forced by their contract to work for eight hours a day. The capitalist therefore makes a profit. Marx calls this four hours "surplus value" - value over and above that which the worker receives as wages. This relation of exploitation is disguised by the length of the working day and as a worker it is difficult to know which part of the day is for "yourself" and which is for the capitalist.

The wage that the worker receives is enough to ensure that they can replenish (or "reproduce" as Marx puts it) their labour power: not so little that they starve, but enough so that their wage can buy enough things to keep them healthy enough to go back to work or send their children to school the next day, so ensuring the next generation of workers is readied. Marx argued that, so far, neither party feels an injustice has been done because the wage appears fair.

But in reality the worker does not receive a fair wage and never will under capitalism because labour power is treated as a commodity and the capitalist will always pay a wage that is less than the value that human beings create as workers under capitalism.

Throughout the history of capitalism workers have refused to labour for long hours or the barest minimum and have won wage increases and better conditions. These gains are won at the expense of profits and represent a small victory in winning back some of the value that workers have produced. But these are only changes in what Marx called the "rate of surplus value".

Crucially, Marx's analysis of profit shows us that only by overcoming the exploitation and the commodification of human labour power can we truly put the needs of human beings at the centre of how and what society produces.