This site is a static archive. Visit the current IWW website at ▸
Skip to main content

Chapter IX. Origin of New Capital

How does new capital come into existence? This is a question of some importance and deserves brief explanation. We have seen that the relationship existing between the wage worker and the employer entitles the employer to the products of the working process. These products contain a surplus of values. It is out of this surplus that new capital originates.

When a capitalist decides upon an industrial undertaking he calls in someone who is familiar with the business in which he wishes to engage, for it is not at all necessary for the capitalist to know anything at all about the business. From manager to floor sweeper all active participants are employes. Under the direction of the man who does know, buildings are erected and equipped with the machinery suited to the carrying on of whatever manufacturing has been decided upon. There is, as well, provision for the maintenance of the machinery—oil, waste, wrenches, screws, bolts, etc. A supply of raw materials is also laid in. The plant now only needs labor power. The man in charge goes into the labor market, usually by hanging out a sign "Help Wanted," for the various kinds of labor needed. He finds it, usually without difficulty, labeled according to its kind and wearing its price tag. He selects the most promising of each kind, and assembles and organizes the working force. This completes his preparation. The plant is now ready to begin operations.

We have already seen how the working process results in the production of surplus value, and how normal profit is realized from this source in the process of exchange. The time factor, we have also learned, is the basis of exchange. But with the capitalist "Time is money." So before going into the market the capitalist figures the money cost of his commodity. Says Marx: "The very conditions of bourgeois existence compel it to keep careful accounts."

So we find the boss has very carefully figured out the average deterioration of machinery, per each individual commodity; the fuel or power cost; the oil cost, waste material, etc. together with the labor wage cost. He therefore knows to the fraction of a penny what every article cost him to produce. He regards this as his zero. His condition of existence as a boss requires that he sell above this figure.

Let us suppose that the capitalist has figured the cost of an article to be $5, made up as follows:

All overhead $1.50
Raw material 1.50
Wages   2.00


If he sells at $5 he has made no profit. If he sells for less than $5 he sustains a loss, and he is not in business to lose or to just keep even. He is in business to make profit. He will, therefore, withhold his commodity as long as he can afford to before he will sell it for less than it cost, or at its cost price. He does not have to, ordinarily, for it sells at a price approximating its value. He sells it for about $10, and makes $5 above its money cost of production. The overhead allowance has been carefully calculated and the cost of the raw material is fixed by the cost of the amount used. These together total $3, and that is all of the $10 they can be made to account for. Then a profit of $5 has been made off the labor of the workers. There is no other place from which it could come. And this, indeed, is the only source of profit. But, as the plant turns out very many commodities every day, $5 multiplied by the number turned out gives the amount of the profit for each day. After the capitalist has provided for himself and his family, as becomes a man of his station, there is still a surplus left. This surplus is transformed into new capital, where it becomes instrumental in adding to the capitalist's volume of surplus value, to be again and again transformed into more new capital. As Marx makes apt comment: "With a given degree of exploitation of labor power, the mass of the surplus value produced is determined by the number of workers simultaneously exploited; and this corresponds, although in varying proportions, with the magnitude of the capital. The more, therefore, capital increases by means of successive accumulations, the more does the sum of the surplus value increase."

Accumulation of Capital

The different aspects of the laborer's wages have a bearing upon the accumulation of new capital. If there is a rise simultaneously of the nominal, real and relative wages there will necessarily be a fall in the general rate of profit, and, to the extent that this is so, will there be a curtailment of the volume of surplus value available for new capital.

But it can happen that the nominal (money) wage would rise, and that the real (commodity) wage would also rise, while the relative wage would, at the same time, decline. "If," as Marx puts it, "when trade is good, wages rise five per cent, and profits on the other hand rise thirty per cent, then the proportional or relative wage has not increased but declined."

For instance, if the commodity, which has been selling for $10, sells at an increase of thirty per cent on the profit, which was $5, it would sell for $11.50. The wages which were $2 with a five per cent raise would be $2.10, The cost would be $5.10 and the profit $6.40. The relative wage would have declined from 2:5 to 1:3, and would now only be 516 of what it was.

Says Marx: "An important factor in the accumulation of capital is the degree of the productivity of social labor.

"With the productive power of labor increases the mass of the products, in which a certain value, and, therefore, a surplus value of a given magnitude is embodied. The rate of the surplus value remaining the same or even falling, so long as it only falls more slowly, than the productive power of labor rises, the mass of the surplus-product increases. . . But hand in hand with the increasing productivity of labor goes the cheapening of the laborer, therefore, a higher rate of surplus value, even when real wages are rising. The latter never rises proportionately to the productive power of the laborer." The evident truth of this statement by Marx is brought home to us by the fact that notwithstanding the great increase in the productivity of the individual workman, and, therefore, of the entire working class, due to the greater employment of machines in production and their ever-increasing efficiency their lot is relatively worse, in the social sense, than when their labor was far less productive. As labor productivity increases labor security diminishes.

The Migratory Worker

Take the farm laborer, and his case is typical of the working class condition, who, when the tools used in farming were far less productive than those now used, was able to command employment the year round, to marry and to enjoy something approaching a home life. He had more assurance of permanency of location because of steadier employment. Today he is a migratory worker, casually employed in agriculture and other industries, usually unmarried and homeless. Yet he is by far a more productive worker than the farm laborer of the days of the cradle and hand-binding, the flail and the horse-power threshing machine. He has less security when he works with a tractor-drawn plow that turns twenty-five or thirty acres than when he plowed with a "foot-burner" (one mould-board plow). and turned two or two and one-half acres per day: The relative wage of the farm. worker has declined, greatly. The decline in the relative wage of the factory worker is even greater, for the advance m the machinery of manufacturing industry is far and away ahead. of the machinery of agriculture.

To state the nominal wage of today in comparison with the nominal wage of decades back and attempt to prove that the worker is better paid now than he was at that time, is to overlook the social advantages that have resulted from the workers' increased productivity, and from which the workers have not benefitted, at least not proportionately. Even were the real wage of today a gain comparable to the gain in the nominal wage the relative wage would still have declined, for as the volume of capital becomes greater the volume of surplus value must increase, and as the volume of surplus value increases so does the discrepancy between the purchasing power of the workers and the measure of the increased volume of surplus products. The working class is able to buy back less and less of its production.

Capital and Investment

Idle capital lies fallow. It insists upon investment, and its owners will seek the conditions for its employment. This urge of capital is responsible for the imperialistic tendency of modern .capitalist governments. So when we observe a change in the international political conduct of the American government, if we seek out the reason underlying and inspiring this radical departure, we will discover that it is due to the need of our capitalist class to find territory in which to invest their idle capital. This will account for the changed foreign policy of the state department; this is why the government is seeking "a square deal" for China and projecting itself into the affairs of other nations. So great has been the volume of. American surplus value that the United States has become the world's foremost creditor nation. Out of the labor of American working-men and women has her importance grown. To say that our capitalists are smarter than the capitalists of other countries is to give them credit for something that is not true. They are greater exploiters of the American working class than the other capitalists are of their nationals. Remember there is nothing of value. in this country, or in the world, except what labor has produced. That part of the products of American labor for which the American capitalists gave American workers no equivalent is greater than in any other country in the world.

American Labor Poorest Paid

The American workman is relatively the lowest paid workman in the world. This country, with the highest nominal and the highest real wage of any country in the world, pays the lowest relative wage of any country on the globe. The American worker gets less of the values he creates than any other worker in the whole wide world. This is why the American section of the capitalist class is the richest in the world. So rich that it now wants to annex the rest of the world to exploit the workers in the other countries. If a war comes between America and Japan, it will not be over Japanese in California, but over Japanese investments in China, Corea, or Siberia, or wherever else they come into conflict with the investments of American capitalists.

The idea that our capitalists among themselves, or in a contest with foreign capitalists, make profit is a delusion. Only out of wage labor can profit be made.

Suppose that five persons sit into a poker game with $10,000 apiece. At the end of a night's play one man has "cleaned up" the other four. Four men are broke and one has $50,000, but there is not $1 more than there was at the beginning of the game. Now, had these players been a night force at work in some industry, at the end of the shift there would b&: more wealth than at its beginning and consequently more profit. Whether the capitalist dissipates, loses in business deals, or invests his surplus as new capital is not the point—it is that profit has its only source in surplus value wrung from wage labor—surplus value is the modern source of new capital.

When the Amalgamated Copper Co. was promoted there was a story to the effect that $36,000,000 profits were made over night. What happened was that those who financed the deal believed that the holdings offered a good prospect for paying more than the current rate of profit upon their investment—the copper properties would enable them to exploit the wage workers to the amount of that capitalization. That $36,000,000 was not profit; it was part of the price paid for the privilege of exploiting the slaves in the holdings which were purchased. Dan Ryan, Con Kelly and their tribe have since been driving to make good on that judgment and have provoked two costly rebellions in the process.

What Capital Is

Capital is wealth in any form used for the exploitation of wage labor, and, is itself, derived from the exploitation of the labor it employs. Capital—surplus value, more capital, more surplus value and so on. A vicious circle of exploitation that leaves the workers ever weaker and more and more helpless.


  • 1. From what source is new capital derived?
  • 2. What relation has the relative wage to new capital?
  • 3. Explain how the nominal and real wages can rise while the relative wages declines at the same time.
  • 4. What relation has increased productiveness to the situation of the wage workers?
  • 5. Explain question 4 by citing a farm worker, or some other laborer.
  • 6. If the worker received $3 per day in 1914 and is now receiving $4, has his wage risen? Why?
  • 7. What relation does the wage of the American worker bear to that of the workers of other countries. (a) nominal, (b) real, and (c) relative?
  • 8. What has new capital to do with the foreign policy of the government?
  • 9. Do capitalists make profit out of each other? Why not?
  • 10. What would be the result to the workers if the source of new capital—surplus value—was lessened?

Next page: Chapter X. The Market Law