BASIC ANALYSIS OF CAPITALISM

LABOUR AND LAW

COMMODITY FETISHISM
SURPLUS VALUE

An Assignment

Submitted to Faculty of Social Sciences,

Punjabi University, Patiala

In partial fulfillment for the award of the degree of

M.A. (HONORS) ECONOMICS

Semester - III

Submitted by Submitted To

Simranpreet Kaur Balveer Singh Sidhu

23101019

DEPARTMENT OF ECONOMICS
PUNJABI UNIVERSITY, PATIALA
2024
Introduction

The political and economic philosophy of Karl Marx in which the concept of class struggle
plays a central role in understanding society’s allegedly inevitable development from bourgeois oppression
under capitalism to socialist and ultimately classless society.

The analysis of class struggle involves the exploitation of labour by capital within the capitalist mode
of production. Marx’s aim is to make the social and political structures of the economy clearer by revealing
“the economic law of motion of modern society”

Basic Analysis of Capitalism

Capitalism is an economic system in which great numbers of workers who own little produce
commodities for the profit of small numbers of capitalists who own all of the following: the commodities, the
means of producing the commodities, and the labor time of the workers, which they purchase through wages.
One of Marx’s central insights is that capitalism is much more than an economic system. It is also a system of
power. The secret of capitalism is that political powers have been transformed into economic relations.
Capitalists seldom need to use brute force.

Capitalists are able to coerce workers through their power to dismiss workers and close plants.
Capitalism, therefore, is not simply an economic system; it is also a political system, a mode of exercising
power, and a process for exploiting workers. In a capitalist system, the economy seems to be a natural force.
People are laid off, wages are reduced, and factories are closed because of “the economy.” We do not see
these events as the outcomes of social or political decisions. Links between human suffering and the economic
structures are deemed irrelevant or trivial.

Capitalism had the following characteristics.

➢ Private property
➢ Capital accumulation
➢ Wage labour
➢ Voluntary exchange
➢ A price system
➢ Competitive markets
Karl Marx’s View of The Capitalist Structure

The major characteristic of capitalism is the separation between owners of the means of production
(capitalists or bourgeoisie) and non – owners of the means of production (workers, labourers or proletariat).
These two classes are in direct competition with one another. Marx does mention the middle class but
ultimately aligns them with one of the other two classes. Capitalism is seen as a machine which is made up of
the components of labour, capital, raw
materials and markets.

Marx claim that due to economic inequality among these two classes, the purchase of labour cannot
occur under “free conditions”. Since capitalists control the means of production, (e.g. factories, businesses,
machineries) and workers control only their labour, the worker is naturally coerced into allowing their labour
to be exploited. He believes that private ownership of the means of production enriches the capitalists (owner
of capital) at the expense of the workers (“the rich get richer and the poor get poorer”). Gradually, the
capitalists accumulate more and more capital and make the workers continually poorer, in the end causing a
revolution. The private ownership of the means of production is therefore seen as a restriction on freedom. To
the contrary, Karl Marx considered capitalism to be a historically specific mode of production and considered
capitalism a phase of economic development that would pass and be replaced by pure communism.

Labor and the law of value

The law of value is closely tied to the Labor Theory of Value, which argues that the value of
commodities is determined by the amount of socially necessary labor time required to produce them. The
law of value, as described in Marxist economics, operates under the capitalist mode of production and
regulates the exchange of goods in the marketplace, but it also highlights deeper issues related to
exploitation, class relations, and the accumulation of capital.

Key Aspects of the Law of Value and Labor in Political Economy:

1. Labor as the Source of Value:

o In classical political economy, and particularly in Karl Marx's analysis, labor is seen as the
primary source of all economic value. Workers, through their labor, produce goods, and it is the
socially necessary labor time (the average amount of labor needed to produce a commodity
under normal conditions) that determines the commodity's value.
 o This differs from neoclassical economics, where value is determined by supply and demand
and the subjective preferences of consumers (the subjective theory of value).

2. The Law of Value:

o The law of value governs how commodities are exchanged based on the labor required to
produce them. It suggests that in competitive markets, goods tend to exchange at prices that
reflect the amount of labor embodied in their production.
o Marx argues that in a capitalist society, this law becomes central to understanding how wealth
is distributed and accumulated. The law of value not only dictates prices but also drives capital
accumulation and the reproduction of capitalist relations of production.

3. Surplus Value and Exploitation:

o Surplus value is a core concept in Marxist political economy, connected to both labor and the
law of value. Surplus value refers to the difference between the value produced by workers and
the wages they receive. In Marx’s view, this surplus is the source of capitalist profit.
o Exploitation occurs because workers are paid for their labor power (wages) but not for the full
value they create. The capitalist class appropriates the surplus value generated by workers,
which leads to the accumulation of capital and the perpetuation of inequality.

4. Capitalism and the Law of Value:

o Marx viewed the law of value as central to understanding the contradictions of capitalism.
Under capitalism, the pursuit of profit leads to constant increases in productivity, but this
creates a tendency for the rate of profit to fall over time. This occurs because capitalists aim to
reduce labor costs by automating production or making labor more efficient. However, since
labor is the source of all value, reducing its role in production leads to lower overall profits.
o The law of value reveals the dynamics of competition, technological innovation, and crisis
tendencies inherent in capitalist systems. For instance, competition forces capitalists to invest in
labor-saving technologies, which in turn reduces the amount of labor needed in production,
eventually leading to overproduction crises and economic downturns.

5. The Role of Labor Markets:

o In political economy, labor markets operate under the law of value, meaning that the value of
labor power (wages) is determined by the amount of labor necessary to sustain the worker’s life
and maintain a stable working class (this includes food, shelter, education, etc.).
o Marx argued that labor itself is a unique commodity because it produces more value than it
costs. The worker sells their labor power to the capitalist, but the capitalist extracts more value
from that labor than the worker is paid in wages, resulting in surplus value.
 6. Contradictions of the Law of Value:
o Marxists argue that the law of value creates contradictions in capitalist society. While the
market appears to reward individuals and businesses based on their productivity, it hides the
exploitation of labor that occurs in the production process. Capitalists are driven to constantly
increase surplus value, leading to growing inequality and periodic economic crises.
o The law of value also leads to contradictions in the accumulation of capital. For instance, as
technological innovation reduces the amount of labor necessary in production, the overall value
created by labor diminishes, leading to declining profit rates and economic instability.

Commodity Fetishism

Commodity fetishism is a concept introduced by Karl Marx in his critique of political economy,
particularly in his work Capital: Volume I. It refers to the distorted perception of social relations in a capitalist
system, where relationships between people are masked by the relationships between commodities (goods and
services). In essence, commodity fetishism describes how commodities appear to have intrinsic value and
agency, while the social and labor relations that actually produce them become invisible or obscured.

In fully developed capitalism, this belief becomes reality aws the objects and their markets actually
become real, independent phenomena. The commodity takes on an independent, almost mystrical external
reality. Marx called this process the fetishism of commodities. Marx called this process the fetishism of
commodities.

In capitalism, the products that we make, their values, and the economy that consists of our exchanges
all seem to take on lives of their own, separate from any human needs or decisions. Even our own labor – the
thing that, according to Marx, makes us truly human-becomes a commodity that is bought and sold. Our labor
acquires an exchange value that is separate from us. It is turned into an abstract thing and used by the capitalist
to make the objects that come to dominate us. Even the labor of self-employed commodity producers is
alienated, because they must produce for the market instead of to achieve their own purposes and satisfy their
own needs.

Key Elements of Commodity Fetishism in Political Economy:

1. Mystification of Social Relations:

o In a capitalist society, commodities (the products of labor) are exchanged in the market. The
value of these commodities seems to arise from their material qualities or their capacity to be
traded, but in reality, their value comes from the human labor that created them.
 o However, because commodities are bought and sold in a market without direct reference to the
labor that produced them, the social relationship between workers (who create value through
labor) and capitalists (who profit from that labor) becomes hidden. This process is what Marx
calls fetishism — people see the relationships between commodities, but not the social
relationships behind them.

2. Commodities Seem to Have Power:

o In Marx’s analysis, under capitalism, commodities appear to take on a life of their own. They
seem to have independent value and to exert power over people, even though they are merely
the products of human labor. For example, money, a form of commodity, appears to have an
intrinsic ability to generate more wealth (through investment or interest), but in reality, it’s a
representation of social labor.
o This leads to the reification (thing-ification) of social relations, where people relate to
commodities as though they were independent, powerful entities rather than understanding
them as products of collective human labor.

3. Value in Capitalism:
o Marx argued that in capitalist societies, value is primarily understood through exchange value
(how much a commodity can be sold for), rather than its use value (its practical utility). This
creates an abstract relationship between commodities, where their value seems to be based on
market dynamics, disconnected from the labor that went into producing them.
o In this sense, commodity fetishism is about the way capitalist markets obscure the true source
of value — labor — and make commodities appear to have value in and of themselves.

4. Alienation and Commodification:

o Alienation is another concept central to Marx’s critique of capitalism. Workers become
alienated from the products of their labor because they do not own what they produce, and the
commodities they produce are sold in a market beyond their control.
o Commodification refers to the process by which more and more aspects of life are turned into
commodities for exchange. In a capitalist system, everything from nature to human
relationships and even personal identity can be commodified. This deepens the effects of
commodity fetishism because it extends the mystification of social relations into all aspects of
life.

5. Example of Commodity Fetishism:

o Take a simple product like a smartphone. To the consumer, the smartphone appears as a
commodity with a price tag that reflects its market value. However, the labor of the workers
 who assembled the phone (potentially under poor working conditions), the extraction of raw
materials (often involving exploitative labor), and the capitalist processes that determine its
price are invisible to the consumer. The smartphone appears to have value simply because it is
a useful product, but the complex social relations that produced it are hidden.

6. Role in Capitalist Ideology:

o Commodity fetishism plays a key role in perpetuating capitalist ideology. By obscuring the real
social relations behind production, it makes exploitation and inequality seem natural and
normal. Workers do not see the exploitation behind the commodities they produce and
consume, and this mystification prevents them from recognizing their collective power to
challenge the system.

o In Marx’s view, this mystification is essential for the continuation of capitalist relations
because it hides the fundamental exploitation at the heart of the system: the extraction of
surplus value from workers’ labor.

Surplus Value

Surplus value is a core concept in Karl Marx's critique of capitalism and is central to his political
economy. It explains how capitalists generate profit through the exploitation of labor. Marx developed this
concept to describe the difference between the value that workers produce and the wages they are paid. In
essence, surplus value is the unpaid labor of workers, appropriated by capitalists in the form of profit. In the
theory of surplus value the central problem is to explain the mechanism of capitalist exploitation and that
prevail in bourgeois society.

This surplus value is not created in the process of exchange; it is indeed the worth of products
produced within the labour time by labour power. However, surplus value is that part of the social value
product appropriated by the capitalists. The surplus value is the difference between the value produced by the
workers and value of labour power. There is exploitation if part of the social product is appropriated by a class
of non-producers by custom or law, or under the threat or use of force, or because refusal to comply might
disorganize the social reproduction.

Surplus value explain the instability of the capitalist system. Adhering to David Ricardo’s labour
theory value, Karl Marx held that human labour was the source of economic value.
The precondition for the production of surpolus value is the transformation of labour power into a commodity.
Key Elements of Surplus Value in Capitalism:

1. Labor Power as a Commodity:

o In capitalism, workers do not sell the products of their labor; instead, they sell their labor
power — their capacity to work. Labor power is treated as a commodity in the market, which
capitalists purchase by paying workers a wage.
o The value of labor power is determined by the amount of socially necessary labor time required
to produce the goods and services needed for the worker’s survival and reproduction (e.g.,
food, housing, education, etc.)

2. Production of Value:
o When a capitalist hires a worker, they pay a wage that reflects the value of the worker’s labor
power. However, during the workday, the worker produces more value than what they are paid
in wages. This excess value is what Marx calls surplus value.
o For example, if a worker is paid enough to cover their living costs in 6 hours, but works an 8-
hour day, the value produced in those extra 2 hours is surplus value, which the capitalist
appropriates as profit.

3. Forms of Surplus Value:

o Absolute Surplus Value: This is generated by extending the length of the working day beyond
what is necessary for workers to reproduce the value of their labor power. The longer workers
work beyond the necessary labor time, the more surplus value they produce for the capitalist.
o Relative Surplus Value: This is generated by increasing the productivity of labor, often
through technological innovations or more efficient work processes. If productivity increases,
the amount of time required to produce the value of the worker’s wage decreases, and the
portion of the workday that produces surplus value increases.

4. Exploitation:
o Marx defines exploitation as the process by which capitalists extract surplus value from
workers. Workers are not paid the full value of what they produce; instead, they are paid only
for their labor power, while the extra value they create (surplus value) is taken by the capitalist.
o This exploitation is inherent in the wage-labor relationship in capitalism. Unlike a feudal
system, where exploitation was more overt (through taxes or forced labor), capitalism hides
exploitation behind the wage system, giving the illusion of a fair exchange.
 5. Capital Accumulation:
o Surplus value is the source of capital accumulation in a capitalist economy. Capitalists
reinvest surplus value (or profits) into expanding their businesses, acquiring new machinery, or
employing more workers to generate even more surplus value. This process is the engine of
growth in capitalist economies.
o However, according to Marx, this accumulation is based on a fundamental contradiction: while
the extraction of surplus value drives profits, the competition among capitalists to maximize
surplus value leads to crises, such as falling profit rates and economic instability.

6. The Role of Machinery and Technology:

o Capitalists often invest surplus value into technology and machinery to increase productivity
and extract more relative surplus value. By making workers more efficient, capitalists can
reduce the amount of time needed for necessary labor (the time workers spend producing value
equivalent to their wages), thereby increasing surplus value.
o However, Marx also noted that this process has limits. While productivity can increase,
machines cannot create new value themselves. Only human labor can generate surplus value.
Thus, the more capitalists rely on technology, the less value is produced relative to the capital
invested, leading to a tendency for the rate of profit to fall.

Conclusion

Marx believed that capitalism would eventually reach a point where its contradictions (such as the
disparity between labor and capital) would lead to a proletarian revolution. The working class would
overthrow the capitalist system, leading to socialism and eventually communism, a classless society where the
means of production are collectively owned.

The conclusion of capitalism in political economy, while varying by perspective, generally centers on
its inherent contradictions and potential outcomes. Capitalism has been highly successful in generating wealth,
innovation, and productivity, but it also creates significant inequalities, environmental degradation, and
periodic economic crises
Reference

Marx, Karl, Capital. A Critique of Political Economy, Volumesn I-III, MECW 35, 36, 37 ;
Lawrence & Wishart, Digital production by Electric Book, 2010.

Ritzer, George and Stepnisky, J. (2018) Modern Sociological Theory. 8th Edition, Sage, Los
Angeles, California.