Interest, as we have seen in the two preceding chapters, originally appears, originally is, and remains in reality nothing but a part of the profit, i.e. the surplus-value, which the functioning capitalist, whether industrialist or merchant, must pay to the owner and lender of capital in so far as the capital he uses is not his own but borrowed. If he simply uses his own capital, there is no such division of the profit; it belongs to him completely. In fact, in so far as the owners of capital use it themselves in the reproduction process, they do not compete together to determine the interest rate, and it is clear here already how the category of interest – which is impossible without the establishment of a rate of interest – lies outside the movement of industrial capital itself.
‘The rate of interest may be defined to be that proportional sum which the lender is content to receive, and the borrower to pay, annually, or for any longer or shorter period, for the use of a certain amount of moneyed capital… When the owner of a capital employs it actively in reproduction, he does not come under the head of those capitalists, the proportion of whom, to the number of borrowers, determines the rate of interest’ (Th. Tooke, History of Prices, London, 1838, II, pp. 355–6).
It is in fact only the division of capitalists into money capitalists and industrial capitalists that transforms a part of the profit into interest and creates the category of interest at all; and it is only the competition between these two kinds of capitalist that creates the rate of interest.
As long as a capital is functioning in the reproduction process – even assuming that it belongs to the industrial capitalist himself, so that he does not have to pay it back to a lender – what he has at his disposal as a private person is not this capital itself but simply the profit, which he can spend as revenue. As long as his capital functions as capital, it belongs to the reproduction process and is tied down in it. Certainly he is its owner, but this ownership does not enable him, as long as he uses it as capital for the exploitation of labour, to dispose of it in any other way. It is just the same with the money capitalist. As long as his capital is lent out and operates as money capital, bringing him interest, a part of the profit, he cannot dispose of the principal. This is apparent as soon as he lends it for a year or more, say, and receives interest at certain dates without the repayment of his capital. But even the repayment makes no difference here. If he receives it back, he must always lend it out afresh if it is to operate as capital for him, in this case money capital. As long as it is in his hands, it does not bear any interest and does not operate as capital; and once it does bear interest and operate as capital, it is no longer in his hands. Hence the possibility of lending capital in perpetuity. The following points made by Tooke against Bosanquet are therefore completely false. He quotes Bosanquet (Metallic, Paper, and Credit Currency, London, 1842, p. 73): ‘Were the rate of interest reduced as low as 1 per cent, capital borrowed would be placed nearly on a par with capital possessed.’
Tooke then makes the following comment: ‘That a capital borrowed at that, or even a lower rate, should be considered nearly on a par with capital possessed, is a proposition so strange as hardly to warrant serious notice were it not advanced by a writer so intelligent, and, on some points of the subject, so well informed. Has he overlooked the circumstance, or does he consider it of little consequence, that there must, by the supposition, be a condition of repayment?’ (Th. Tooke, An Inquiry into the Currency Principle, 2nd edn, London, 1844, p. 80).
If interest were zero, the industrial capitalist who had borrowed capital would be in the same position as the one working with his own capital. Both would pocket the same average profit, and their capital, whether it was borrowed or their own, would operate as capital only by producing a profit. The repayment requirement would make no difference here. The closer the rate of interest is to zero, if it falls to 1 per cent, for instance, the more borrowed capital stands on the same level as capital actually owned. If money capital is to continue to exist as money capital, it must always be lent out afresh, and moreover at the prevailing rate of interest, say 1 per cent, and to the same class of industrial and commercial capitalists. As long as these function as capitalists, the distinction between the one who operates with borrowed capital and the one who operates with his own is simply that one has to pay interest and the other does not; one pockets the whole profit p, the other p – i, profit minus interest; the closer i is to zero, the closer p — i is to p, i.e. the more the two capitals stand on the same footing. One has to pay back his capital and borrow anew; but the other, as long as his capital is to function, must similarly advance it afresh each time to the production process, and has no control over it that is independent of this process. The sole distinction that still remains is the obvious distinction that one is the proprietor of his capital and the other is not.
The question that now arises is this. How does this purely quantitative division of profit into net profit and interest turn into a qualitative distinction? In other words, how does it happen that even the capitalist who simply uses his own capital, and no borrowed capital, classes part of his gross profit under the special category of interest and takes particular account of it as such? And how does it subsequently happen that all capital, whether borrowed or not, is distinguished as interest-bearing capital from itself in its function as capital bringing a net profit?
We must realize that not just any chance quantitative division of profit turns into a qualitative one in this way. For example, some industrial capitalists enter into association to pursue a particular business and divide the profit among themselves on the basis of legally established provisions. Others carry on their business without associates, each on his own account. These latter do not reckon their profit under two categories, one part as individual profit, the other as company profit for their nonexistent associates. Here, therefore, the quantitative division does not become a qualitative one. There is a quantitative division when the owner happens to consist of several legal persons; there is no such division when this is not the case.
In order to answer this question, we must pause a bit longer to consider the real starting-point of interest formation; i.e. we must proceed from the assumption that the money capitalist and productive capitalist actually do come face to face, not just as legally separate persons but as persons who play quite different roles in the reproduction process, or in whose hands the same capital really does go through a double and completely different movement. The one simply lends the capital, the other applies it productively.
For the productive capitalist working with borrowed capital, the gross profit breaks down into two parts, the interest that he has to pay to the lender, and the excess over and above this interest, which forms his own share in the profit. If the general rate of profit is given, this latter part is determined by the rate of interest; if the rate of interest is given, it is determined by the profit rate. Besides, however much the gross profit, the actual value magnitude of the total profit, may diverge from the average profit in any individual case, the part that belongs to the functioning capitalist is determined by the interest, since interest is fixed by the general rate of interest (leaving aside any special legal stipulations), and presupposed in advance before the production process begins – i.e. before its result, the gross profit, is obtained. We have seen how the specific and characteristic product of capital is surplus-value, and at a further remove profit. But for the capitalist working with borrowed capital, the part of the profit that remains for him after interest is paid is not profit, but profit minus interest. It is this part of the profit, therefore, that necessarily appears to him as the product of capital in its actual functioning; and this really is the case for him, since he represents capital only as functioning capital. He is its personification in so far as it functions, and it functions in so far as it is profitably invested in industry or trade and he performs through his use of it the operations prescribed by the line of business in question. In opposition to the interest which he has to pay to the lender out of the gross profit, the remaining part of the profit which accrues to him necessarily assumes the form of industrial or commercial profit, or, to describe it with a German expression which embraces both these things, the form of profit of enterprise [Unternehmergewinn]. If the gross profit is equal to the average profit, the size of this profit of enterprise is determined exclusively by the rate of interest. If the gross profit diverges from the average profit, the difference between it and the average profit (after interest is deducted on both sides) is determined by all the conjunctures that give rise to such a temporary divergence, whether in the profit rate in one particular sphere of production as opposed to the general profit rate, or in the profit made by an individual capitalist in a certain sphere as opposed to the average profit in this sphere. We have seen of course that the profit rate, even within the production process itself, does not depend only on the surplus-value but on many other factors besides: on the purchase prices of the means of production, on methods that are more than averagely productive, on economizing on constant capital, etc. And, leaving aside the price of production, it depends on the state of the trade cycle, and with each individual business deal on the greater or lesser cunning and perseverance of the capitalist, whether and how far he buys or sells below or above the production price and thereby appropriates a greater or lesser share of the total surplus-value in the circulation process. In each case, however, the quantitative division of the gross profit is transformed here into a qualitative one, and this is all the more so in that the quantitative division itself depends on what is to be divided, how the active capitalist looks after his capital and what gross profit it yields him as functioning capital, i.e. as the result of his functioning as an active capitalist. We assume here that the functioning capitalist is not the capital’s owner. Property in capital is represented in relation to him by the lender, the money capitalist. The interest that he pays to the lender appears therefore as a part of the gross profit that accrues to property in capital as such. In contrast to this, the part of the profit that falls to the active capitalist, now as profit of enterprise, appears to derive exclusively from the operations or functions that he performs with the capital in the reproduction process, especially therefore the functions that he performs as an entrepreneur in industry or trade. In relation to him, in other words, interest appears as the mere fruit of property in capital, of capital in itself, abstracted from the reproduction process of capital in so far as it does not ‘work’, i.e. function; whereas profit of enterprise appears to him as the exclusive fruit of the functions he performs with the capital, as the fruit of capital’s movement and process, a process that appears to him now as his own activity, in contrast to the non-activity and non-participation of the money capitalist in the production process. This qualitative separation between the two parts of gross profit, so that interest is the fruit of capital in itself, of property in capital without reference to the production process, while profit of enterprise is the fruit of capital actually in process, operating in the production process, and hence of the active role that the person who uses capital plays in the reproduction process – this qualitative separation is in no way merely the subjective conception of the money capitalist on the one hand and the industrial capitalist on the other. It rests on objective fact, for interest accrues to the money capitalist, the lender, who is simply the owner of the capital and thus does represent mere property in capital before the production process and outside it; while profit of enterprise accrues to the merely functioning capitalist, who is not the owner of capital.
Both for the industrial capitalist in so far as he works with borrowed capital, and for the money capitalist in so far as he does not apply his capital himself, the merely quantitative division of gross profit between two different persons, with different legal titles to the same capital and hence to the profit it produces, turns into a qualitative distinction. One part of the profit now appears in and of itself as the fruit that accrues to capital in one capacity, as interest; the other part appears as a specific fruit of capital in an opposite capacity, and hence as profit of enterprise: one as the simple fruit of property in capital, the other as the fruit of merely functioning with capital, as the fruit of capital as capital in process, or of the functions that the active capitalist exercises. And this mutual ossification and autonomization of the two parts of the gross profit, as if they derived from two essentially separate sources, must now be fixed for the entire capitalist class and the total capital. Furthermore, this is true irrespective of whether the capital applied by the active capitalist is borrowed or not, or whether or not the money capitalist who owns the capital uses it himself. The profit on any capital, and thus also the average profit based on the equalization of capitals among themselves, breaks down or is divided into two qualitatively different, mutually autonomous and independent parts, interest and profit of enterprise, which are both determined by particular laws. The capitalist who works with his own capital, as well as the one working with borrowed capital, divides his gross profit into interest that accrues to him as owner, as lender of his own capital to himself, and profit of enterprise, which accrues to him as an active, functioning capitalist. It becomes a matter of indifference, as far as this division is concerned, whether the capitalist really does have to share with another or not. The person who applies the capital, even if he works with his own capital, breaks down into two persons, the mere owner of capital and its user; his capital itself, with respect to the categories of profit that it yields, breaks down into owned capital, capital outside the production process, which yields an interest, and capital in the production process, which yields profit of enterprise as capital in process.
Interest is now established in such a way that it does not appear as a division of the gross profit that is irrespective of production, taking place only incidentally when the industrialist operates with the capital of others. Even when he operates with his own capital, his profit is divided into interest and profit of enterprise. In this way the merely quantitative division becomes a qualitative one; it takes place independently of the accidental circumstance whether the industrialist is the owner of his capital or not. It is not simply various quotas of the profit distributed to different persons, but two different categories of profit, which stand in different relationships to capital, i.e. in a relationship to different capacities of capital.
It is now very easy to see why this division of the gross profit into interest and profit of enterprise, once it becomes a qualitative one, receives this character of a qualitative division for the total capital and the capitalist class as a whole.
Firstly, this results from the simple empirical circumstance that the majority of industrial capitalists operate both with their own and with borrowed capital, even if in different ratios, and that the ratio between their own and the borrowed capital changes from one period to another.
Secondly, the transformation of a part of the gross profit into the form of interest transforms its other part into profit of enterprise. This latter is in point of fact only the antithetical form that the excess of gross profit over interest assumes as soon as the latter exists as a category of its own. The general question of how gross profit is differentiated into interest and profit of enterprise comes down simply to the question of how a part of the gross profit is invariably ossified and autonomized as interest. Historically, however, interest-bearing capital exists as a ready-made form handed down, and hence interest as a ready-made subordinate form of the surplus-value produced by capital, long before the capitalist mode of production and the conceptions of capital and profit corresponding to it come into existence. In the popular mind, therefore, money capital or interest-bearing capital is still seen as capital as such, capital par excellence. Hence we have on the other hand, and prevailing down to Massie’s time, the notion that it is money as such that is paid interest. The circumstance that loan capital yields interest whether it is actually applied as capital or not – even if borrowed only for consumption – confirms the conception that this kind of capital is quite independent. The best proof of the independent form that interest assumes as against profit, and interest-bearing capital against industrial capital, in the earliest periods of the capitalist mode of production, is that it was discovered only in the middle of the eighteenth century (by Massie* and subsequently by Hume†) that interest is just one part of the gross profit, and that it actually needed any such discovery.
Thirdly, whether the industrial capitalist operates with his own capital or with borrowed capital in no way alters the fact that the class of money capitalists confronts him as a special kind of capitalist, money capital as an autonomous kind of capital, and interest as the separate form of surplus-value that corresponds to this specific capital.
From the qualitative point of view, interest is the surplus-value supplied by capital as simple ownership, which capital yields in itself, even if its owner remains outside the reproduction process; surplus-value therefore yielded in separation from its process.
† David Hume (1711–76), the empiricist philosopher, doubled as economist, as indeed his friend and fellow-Scot Adam Smith did as philosopher. Here Marx refers to Hume’s essay ‘On Interest’, published in 1764. (See also Theories of Surplus-Value, Part I, Addendum 7, ‘Hume and Massie’.)
From the quantitative point of view, the part of the profit that forms interest seems to be related not to industrial and commercial capital as such but rather to money capital, and the rate of this part of the surplus-value, the interest rate, confirms this relationship. This is firstly because the rate of interest – despite its dependence on the general rate of profit – is separately determined, and secondly because it appears, just like the market price of commodities, as something hard and fast, for all its changes: a palpable and always given relationship as opposed to the intangible rate of profit. If all capital were to be found in the hands of industrial capitalists, there would be no interest and no rate of interest. The independent form that the quantitative division of the gross profit assumes produces this qualitative distinction. If we compare the industrial capitalist with the money capitalist, he is distinguished simply by profit of enterprise, that is, the surplus of gross profit over average interest, which the rate of interest causes to appear as an empirically given quantity. If we compare him on the other hand with the industrial capitalist who operates with his own instead of borrowed capital, the latter is distinguished from him as a money capitalist simply in so far as he pockets the interest himself instead of paying it out. From both sides, the part of the gross profit which is distinct from interest appears to him as profit of enterprise, and interest itself appears as a surplus-value that capital yields in and of itself and which it would therefore yield even without productive application.
For the individual capitalist, this is in practice correct. He has the choice between lending his capital out as interest-bearing capital or valorizing it himself as productive capital, no matter whether it exists as money capital right at the start or has first to be transformed into money capital. Taken generally, i.e. when we apply it to the whole social capital, as is done by some vulgar economists and even given out as the basis of profit, this is of course quite absurd. It is utter nonsense to suggest that all capital could be transformed into money capital without the presence of people to buy and valorize the means of production, i.e. the form in which the entire capital exists, apart from the relatively small part existing in money. Concealed in this idea, moreover, is the still greater nonsense that capital could yield interest on the basis of the capitalist mode of production without functioning as productive capital, i.e. without creating surplus-value, of which interest is simply one part; that the capitalist mode of production could proceed on its course without capitalist production. If an inappropriately large number of capitalists sought to transform their capital into money capital, the result would be a tremendous devaluation of money capital and a tremendous fall in the rate of interest; many people would immediately find themselves in the position of being unable to live on their interest and thus compelled to turn themselves back into industrial capitalists. But, as we have said above, for the individual capitalist this is in fact how it is. Even if he operates with his own capital, therefore, he necessarily considers the part of his average profit which is equal to the average interest as the fruit of his capital as such, leaving aside the production process; and in contrast to this part that is given a separate existence as interest, he considers the excess of the gross profit over and above this as simply profit of enterprise.
Fourthly (a gap in the manuscript).
We have seen, therefore, that the part of the profit which the functioning capitalist has to pay to the mere owner of the capital borrowed is transformed into the separate form for a part of the profit that all capital yields as such, whether borrowed or not, under the name of interest. How large this part is depends on the average rate of interest. Its origin is evident only in the way that the functioning capitalist, in so far as he is the owner of his own capital, does not compete – at least not actively – in determining the rate of interest. The purely quantitative division of profit between two persons with different legal titles to it has been transformed into a qualitative distinction that seems to arise from the very nature of capital and profit. For, as we have seen, as soon as a part of the profit generally assumes the form of interest, the difference between the average profit and the interest, or the part of profit over and above the interest, is transformed into a form antithetical to interest, that of profit of enterprise. These two forms, interest and profit of enterprise, exist only in their antithesis. Thus they are neither of them related to the surplus-value, of which they are simply parts, under different categories, titles or names, but rather related to each other. It is because one part of profit has been turned into interest that the other part accordingly appears as profit of enterprise.
By profit here we always mean the average profit, since the divergences therefrom of either individual profit or profit in different spheres of production – i.e. the variations in the division of the average profit or surplus-value that swing back and forth with the competitive struggle – are quite immaterial to us here. This applies throughout the present investigation.
Interest, then, is the net profit, as Ramsay describes it, yielded by property in capital as such, whether to the mere lender who remains outside the reproduction process or to the owner who employs his capital productively himself. Yet it does not yield him this net profit in so far as he is a functioning capitalist but rather as a money capitalist, the lender of his own capital as interest-bearing capital to himself as functioning capitalist. Just as the transformation of money and. value in general into capital is the constant result of the capitalist production process, so its existence as capital is in the same way the constant presupposition of this process. Through its capacity to be transformed into means of production, it always commands unpaid labour and hence transforms the production and circulation process of commodities into the production of surplus-value for its possessor. Interest therefore simply expresses the fact that value in general – objectified labour in its general social form – value that assumes the form of means of production in the actual production process, confronts living labour-power as an autonomous power and is the means of appropriating unpaid labour; and that it is this power in so far as it confronts the worker as the property of another. On the other hand, however, this antithesis to wage-labour is obliterated in the form of interest; for interest-bearing capital as such does not have wage-labour as its opposite but rather functioning capital; it is the capitalist actually functioning in the reproduction process whom the lending capitalist directly confronts, and not the wage-labourer who is expropriated from the means of production precisely on the basis of capitalist production. Interest-bearing capital is capital as property as against capital as function. But if capital does not function, it does not exploit workers and does not come into opposition with labour.
On the other hand, profit of enterprise does not form an antithesis with wage-labour but rather with interest.
Firstly, taking the average profit as given, the rate of profit of enterprise is determined not by wages but rather by the rate of interest. It is either high or low in inverse proportion to the latter.72
Secondly, the functioning capitalist derives his claim to profit of enterprise, and thus profit of enterprise itself, not from his ownership of capital but rather from the function of capital as opposed to the capacity in which it exists only as inert property. This antithesis directly emerges as soon as he operates with borrowed capital, where interest and profit of enterprise accrue to two different persons. Profit of enterprise arises from the function of capital in the reproduction process, i.e. as a result of the operations and activity by which the functioning capitalist mediates these functions of industrial and commercial capital. But it is no sinecure to be a representative of functioning capital, unlike the case with interest-bearing capital. On the basis of capitalist production, the capitalist directs both the production process and the circulation process. The exploitation of productive labour takes effort, whether he does this himself or has it done in his name by others. In opposition to interest, therefore, his profit on enterprise presents itself to him as independent of his property in capital and rather as the result of his functions as non-owner, as a worker.
He inevitably gets the idea into his head, therefore, that his profit of enterprise – very far from forming any antithesis with wage-labour and being only the unpaid labour of others – is rather itself a wage, ‘wages of superintendence of labour’, a higher wage than that of the ordinary wage-labourer, (1) because it is complex labour, and (2) because he himself pays the wages. That his function as a capitalist consists in producing surplus-value, i.e. unpaid labour, and in the most economical conditions at that, is completely forgotten in the face of the antithesis that interest accrues to the capitalist even if he does not perform any function as capitalist, but is simply the owner of capital; while profit of enterprise, on the other hand, accrues to the functioning capitalist even if he is not the owner of the capital with which he functions. In the face of the antithetical form of the two parts into which profit and thus surplus-value divides, it is forgotten that both are simply parts of surplus-value and that such a division can in no way change its nature, its origin and its conditions of existence.
In the reproduction process, the functioning capitalist represents capital against the wage-labourers as the property of others, and the money capitalist participates in the exploitation of labour as represented by the functioning capitalist. If it is only as representative of the means of production vis-à-vis the workers that the active capitalist can exercise his function, have the workers work for him or have the means of production function as capital, this is forgotten in the face of the opposition between the function of capital in the reproduction process and mere ownership of capital outside the reproduction process.
In point of fact, the form that the two parts of profit or surplus-value assume as interest and profit of enterprise does not express any relationship with labour, because this relationship exists only between labour and profit, or rather surplus-value, as the sum of these two parts, their whole and their unity. The ratio in which profit is divided, and the different legal titles by which this division takes place, already assume that profit is ready-made and presuppose its existence. If the capitalist is the actual owner of the capital with which he functions, he pockets the entire profit or surplus-value; it is all the same for the worker whether this is what he does or whether he has to pay one part to a third party as the legal proprietor. The basis for the division of the profit between two kinds of capitalist is thus transformed imperceptibly into the basis of existence of the profit or surplus-value to be divided, which capital derives as such from the reproduction process quite apart from any later division. From the fact that interest confronts profit of enterprise, and vice versa, but neither confronts labour, it seems to follow that profit of enterprise plus interest, i.e. profit and consequently surplus-value, is derived – from what? From the antithetical form of its two parts! But profit is produced before this division takes place, and before there can be any talk of it.
Interest-bearing capital proves itself as such only in so far as the money lent really is transformed into capital and produces a surplus, of which interest is one part. This does not by itself rule out that interest-bearing might be its inherent property, independent of the production process. Labour-power, for instance, proves its value-creating property only if it is activated and realized in the labour process; but this does not exclude it being potentially in itself already value-creating activity as a capacity, and as such it does not just arise from the process but is rather presupposed by it. It is bought as the ability to create value. It can be bought by someone without their having it work productively; i.e. for purely personal purposes, services, etc. The same with capital. It is the thing of its borrower, whether or not he uses it as capital, and thus really does set in motion its inherent property of producing surplus-value. What he pays for in both cases is the surplus-value inherently contained in the commodity of capital as a potentiality.
*
Let us now take a closer look at profit of enterprise.
Since the aspect of capital’s specific social determination in the capitalist mode of production – capital ownership which possesses the capacity of command over the labour of others – becomes fixed, with interest appearing as the part of surplus-value that capital produces in this connection, so the other part of surplus-value, profit of enterprise, necessarily appears as if it does not derive from capital as capital, but rather from the production process independently of its specific social determination, which indeed has already obtained its particular mode of existence in the form of interest on capital. However, the production process, when separated from capital, is simply the labour process in general. The industrial capitalist, as distinct from the owner of capital, appears therefore not as functioning capital but rather as a functionary independent of capital, as a simple bearer of the labour process in general; as a worker, and a wage-worker at that.
Interest in itself expresses precisely the existence of the conditions of labour as capital, in their social antithesis to labour and their transformation into personal powers vis-à-vis labour and over labour. Interest represents mere ownership of capital as a means of appropriating the product of other people’s labour. But it represents this character of capital as something that falls to it outside the production process and is in no way the result of the specifically capitalist character of this production process itself. It presents it not in direct antithesis to labour, but, on the contrary, with no relationship to labour at all, merely as a relationship between one capitalist and another. Thus as a capacity that is external and indifferent to the actual relationship between capital and labour. In interest, therefore, the particular form of profit in which the antithetical character of capital acquires an autonomous expression, it does so in such a way that this antithesis is completely obliterated in this expression and completely abstracted from it. Interest is a relationship between two capitalists, not between capitalist and worker.
On the other hand, this form of interest gives the other part of profit the qualitative form of profit of enterprise, and subsequently of wages of superintendence. The particular functions which the capitalist has to perform as such, and which fall to his part precisely as distinct from the workers and in opposition to them, are presented as simply functions of labour. He obtains surplus-value not because he works as a capitalist but rather because, leaving aside his capacity as a capitalist, he also works. This part of surplus-value is therefore no longer surplus-value at all, but rather its opposite, the equivalent for labour performed. Since the estranged character of capital, its antithesis to labour, is shifted outside the actual process of exploitation, i.e. into interest-bearing capital, this process of exploitation itself appears as simply a labour process, in which the functioning capitalist simply performs different work from that of the workers. The labour of exploiting and the labour exploited are identical, both being labour. The labour of exploiting is just as much labour as the labour that is exploited. The social form of capital devolves on interest, but expressed in a neutral and indifferent form; the economic function of capital devolves on profit of enterprise, but with the specifically capitalist character of this function removed.
Exactly the same thing takes place here in the consciousness of the capitalist, as with the grounds of compensation discussed in Part Two of this volume with respect to the equalization of the average profit. These grounds of compensation which go to determine the division of surplus-value are turned, in the capitalist’s way of conceiving things, into grounds for the existence and (subjective) justification of profit as such.
The idea of profit of enterprise as a wage for supervising labour, an idea arising from the antithesis between this profit and interest, finds further support in that one part of the profit actually can be separated off as wages, and really does separate off; or rather, a part of wages, conversely, on the basis of the capitalist mode of production, appears as an integral component of profit. As Adam Smith already rightly realized, this part presents itself in its pure form as independent and completely separate both from profit in general (as the sum of interest and profit of enterprise), and also from the part of profit that remains after deduction of interest as the so-called profit of enterprise, in the payment of a manager in those branches of business where the scale, etc. permits sufficient division of labour for a special salary to be paid to such a person.
The work of supervision and management necessarily arises where the direct production process takes the form of a socially combined process, and does not appear simply as the isolated labour of separate producers.73 But it takes two different forms.
On the one hand, in all labour where many individuals cooperate, the interconnection and unity of the process is necessarily represented in a governing will, and in functions that concern not the detailed work but rather the workplace and its activity as a whole, as with the conductor of an orchestra. This is productive labour that has to be performed in any combined mode of production.
On the other hand – and quite apart from the commercial department – this work of supervision necessarily arises in all modes of production that are based on opposition between the worker as direct producer and the proprietor of the means of production. The greater this opposition, the greater the role that this work of supervision plays. It reaches its high point in the slave system.74 But it is also indispensable in the capitalist mode of production, since here too the production process is at the same time a process of consumption of labour-power by the capitalist. In despotic states, too, the work of supervision and all-round intervention of the government involves both aspects: the performance of those common tasks that arise from the nature of all communities, and the specific functions that arise from the opposition between the government and the mass of the people.
With the writers of antiquity, who had the slave system in mind, we find in their theory (and this was also the case in practice) that the two aspects of supervisory work coincide as inseparably as they do with the modern economists who view the capitalist mode of production as the absolute mode. On the other hand, as I shall show right away with an example, the apologists of the modern slave system know just as well how to use supervisory work as a justificatory ground for slavery as other economists do for the wage-labour system.
The villicus of Cato’s time: ‘At the head of the slave-worked estate (familia rustica) stood the manager (villicus, from villa), whose job it was to take and spend, buy and sell; he received his instructions from the master, and gave both orders and punishment in his absence… The manager of course had more freedom than the other slaves. The Magonian books* advise that he should be permitted to marry and raise children, as well as keeping his own money; Cato said he should be married to the female manager. He alone had any prospect of obtaining his freedom, as a reward from the master for good behaviour. The other slaves all formed a common household… Every slave, including the manager himself, received his necessities at the master’s expense at definite intervals and in fixed amounts, and had to make do with this… The quantity depended on the work, so that the manager, for instance, whose work was lighter than the other slaves, received a smaller ration’ (Mommsen, Römische Geschichte, 2nd edn, 1856, I, pp. 809–10).
Aristotle: ‘O γὰρ δεσπότης οὐκ ἐν τῷ κτᾶδθαι τοὺς δούλονς, ἀλλ᾿ ἑν τῷ χρῆσθαι δούλοις.’ (‘For the master’ – the capitalist – ‘proves himself such not by obtaining slaves’ – ownership of capital, which gives him the power to buy labour – ‘but by employing slaves’ – using labourers, nowadays wage-labourers, in the production process.) ‘’Εστι δ᾽ αὑτη ἡ ἐπιστήμη οὐδὲν μέγν ἔχονσαοὐδὲσεμνόν’ (‘There is nothing great or sublime about this science’) ‘ἃ γὰρ τὸν δοῦλον ἐπίστασθαι δεἷ ποιεἷν, ἐκεῖνον δεῖ ταῦτα ἐπίστασθαι ἐπιτάττιν.’(‘but whatever the slave is to perform, the master must be able to order.’) ‘Διὸ ὄσοις ἐξονσία μὴ αὐτοὺς κακοπαθεἷν, ἐράτροπος λαμβάνει ταύτην τὴν τιμήν, αὐτοὶ δὲ πολιτεύονται ἢøϕιλοσοøἢοῦσιν.’(‘Whenever the masters are not compelled to plague themselves with supervision, the overseer assumes this honour, while the masters pursue public affairs or philosophy’.) (Aristotle, De republica, Bekker edn, Book I, 7).
What Aristotle is saying, in very blunt terms, is that domination, in the economic domain as well as in the political, imposes on those in power the functions of dominating, so that, in the economic domain, they must know how to consume labour-power. And he adds that this supervisory work is not a matter of very great moment, which is why the master leaves the ‘honour’ of this drudgery to an overseer as soon as he is wealthy enough.
This work of management and supervision, in so far as it is not simply a particular function arising from the nature of all combined social labour, but arises rather from the opposition between the owner of the means of production and the owner of mere labour-power – whether labour-power is bought with the worker himself, as in the slave system, or alternatively the worker sells his own labour-power, so that the production process appears at the same time as a process of consumption of labour by capital – this function arising from the servitude of the direct producer is made often enough into a justification of that relationship itself, and the exploitation and appropriation of the unpaid labour of others is just as often presented as the wage due to the owner of capital. This has never been done better than by a defender of slavery in the United States, the lawyer O’Conor, at a meeting in New York on 19 December 1859, under the slogan of ‘Justice for the South’:
‘Now, gentlemen,’ he said amid thunderous applause, ‘to that condition of bondage the Negro is assigned by Nature… He has strength, and has the power to labour; but the Nature which created the power denied to him either the intellect to govern, or willingness to work.’ (Applause.) ‘Both were denied to him. And that Nature which deprived him of the will to labour, gave him a master to coerce that will, and to make him a useful… servant in the clime in which he was capable of living, useful for himself and for the master who governs him… I maintain that it is not injustice to leave the Negro in the condition in which Nature placed him, to give him a master to govern him… nor is it depriving him of any of his rights to compel him to labour in return, and afford to that master just compensation for the labour and talent employed in governing him and rendering him useful to himself and to the society’.*
Now the wage-labourer, just like the slave, must have a master, to make him work and govern him. And once this relationship of domination and servitude is assumed, it is quite in order for the wage-labourer to be compelled to produce, besides his own wages, also the wages of supervision, a compensation for the work of dominating and supervising him, or ‘just compensation for the labour and talent employed in governing him and rendering him useful to himself and to the society’.
The work of supervision and management, in so far as it arises from the antithetical character, the domination of capital over labour, and is therefore common to all modes of production which, like the capitalist one, are based on class opposition, is also directly and inseparably fused, under the capitalist system, with the productive functions that all combined social labour assigns to particular individuals as their special work. The wages of an epitropos, or régisseur as he. was known in feudal France, become completely separated from profit and even take the form of wages for skilled labour, as soon as the business is conducted on a sufficiently large scale for such a manager to be paid, even though our industrial capitalists are still a long way from ‘pursuing public affairs or philosophy’.
Mr Ure has already noted how it is not the industrial capitalists but rather the industrial managers who are ‘the soul of our industrial system’.75 As far as the commercial side of the business goes, all that is necessary has already been said in the previous Part.*
Capitalist production has itself brought it about that the work of supervision is readily available, quite independent of the ownership of capital. It has therefore become superfluous for this work of supervision to be performed by the capitalist. A musical conductor need in no way be the owner of the instruments in his orchestra, nor does it form part of his function as a conductor that he should have any part in paying the ‘wages’ of the other musicians. Cooperative factories provide the proof that the capitalist has become just as superfluous as a functionary in production as he himself, from his superior vantage-point, finds the large landlord. In so far as the work of the capitalist does not arise from the production process simply as a capitalist process, i.e. does not come to an end with capital itself; in so far as it is not confined to the function of exploiting the labour of others; in so far therefore as it arises from the form of labour as social labour, from the combination and cooperation of many to a common result, it is just as independent of capital as is this form itself, once it has burst its capitalist shell. To say that this labour, as capitalist labour, is necessarily the function of the capitalist means nothing more than that the vulgus cannot conceive that forms developed in the womb of the capitalist mode of production may be separated and liberated from their antithetical capitalist character. Vis-à-vis the money capitalist, the industrial capitalist is a worker, but his work is that of a capitalist, i.e. an exploiter of the labour of others. The wage that he claims and draws for this work is precisely the quantity of others’ labour that is appropriated, and depends directly upon the rate of exploitation of this labour, as long as he makes the effort required for this exploitation. It does not depend on the amount of effort this exploitation costs him, which can be devolved on a manager against moderate payment. After every crisis one can see many ex-manufacturers in the English factory districts who are now supervising their own former factories as managers for the new owners, often their creditors, in return for a modest wage.76
The wages of management, both commercial and industrial, appear as completely separate from profit of enterprise both in the workers’ cooperative factories and in capitalist joint-stock companies. The separation of managerial wages from profit of enterprise, which in other cases appears accidental, is here a constant factor. In the case of the cooperative factory, the antithetical character of the supervisory work disappears, since the manager is paid by the workers instead of representing capital in opposition to them. Joint-stock companies in general (developed with the credit system) have the tendency to separate this function of managerial work more and more from the possession of capital, whether one’s own or borrowed; just as with the development of bourgeois society the judicial and administrative functions became separate from landed property, which they were attributes of in the feudal period. But since on the one hand the functioning capitalist confronts the mere owner of capital, the money capitalist, and with the development of credit this money capital itself assumes a social character, being concentrated in banks and loaned out by these, no longer by its direct proprietors; and since on the other hand the mere manager, who does not possess capital under any title, neither by loan nor in any other way, takes care of all real functions that fall to the functioning capitalist as such, there remains only the functionary, and the capitalist vanishes from the production process as someone superfluous.
From the published accounts77 of the cooperative factories in England, we can see that–after deducting the wages of the manager, which form a partof the variable capital laid out, just like the wages of the other workers – their profit was greater than the average, even though they sometimes paid a much higher interest than private factories did. The reason for this higher profit was in all these cases a greater economy in the use of constant capital. What is important for us in this connection is that here the average profit (= interest + profit of enterprise) presents itself palpably and in actual fact as a magnitude completely separate from the wages of management. Since profit here was higher than average, so profit of enterprise was also higher than elsewhere.
The same fact is apparent in certain capitalist joint-stock undertakings, e.g. the joint-stock banks. The London and Westminster Bank paid an annual dividend of 30 per cent in 1863, the Union Bank of London and others paid 15 per cent. In addition to the managers’ salaries, the interest paid on deposits is deducted from gross profit. The high profit is explained here by the small proportion of the paid-up capital in relation to deposits. For example, in the case of the London and Westminster Bank for 1863: paid-up capital £1,000,000; deposits £14,540,275. In that of the Union Bank of London for 1863: paid-up capital £600,000, deposits £12,384,173.
The confusion between profit of enterprise and the wages of supervision or management originally arose from the antithetical form that the surplus of profit over interest assumes in opposition to this interest. It was subsequently developed with the apologetic intention of presenting profit not as surplus-value, i.e. as unpaid labour, but rather as the wage that the capitalist himself receives for the work he performs. The socialists then raised the demand that profit should be reduced in practice to what it claimed to be in theory, i.e. simply to the wages of supervision. And this demand came up against the theoretical embellishment still more uncomfortably, the more the wages of superintendence on the one hand found their particular level and market price, just like every other wage, with the formation of a numerous class of industrial and commercial managers;78 and the more they fell on the other hand, just like wages for skilled labour in general, with the general development that reduces the costs of production of labour-power with special training.79 With the development of cooperatives on the workers’ part, and joint-stock companies on the part of the bourgeoisie, the last pretext for confusing profit of enterprise with the wages of management was removed, and profit came to appear in practice as what it undeniably was in theory, mere surplus-value, value for which no equivalent was paid, realized unpaid labour; so that the functioning capitalist really exploits labour, and the fruits of his exploitation, if he operates with borrowed capital, are divided into interest and profit of enterprise, the surplus of the profit over the interest.
On the basis of capitalist production, a new swindle with the wages of management develops in connection with joint-stock companies, in that, over and above the actual managing director, a number of governing and supervisory boards arise, for which management and supervision are in fact a mere pretext for the robbery of shareholders and their own enrichment. Very nice details of this are to be found in The City or the Physiology of London Business; with Sketches on ’Change, and the Coffee Houses, London, 1845. ‘What bankers and merchants gain by the direction of eight or nine different companies, may be seen from the following illustration: The private balance sheet of Mr Timothy Abraham Curtis, presented to the Court of Bankruptcy when that gentleman failed, exhibited a sample of the income netted from directorship… between £800 and £900 a year. Mr Curtis having been associated with the Courts of the Bank of England, and the East India House, it was considered quite a plum for a public company to acquire his services in the boardroom’ (pp. 81, 82).
The remuneration of these company directors is at least one guinea (21 shillings) for each weekly meeting. Hearings before the bankruptcy court show that the wages of supervision are in inverse proportion, as a rule, to the actual supervision exercised by these nominal directors.