Starting at the left, the capitalist uses money ( M ) to purchase the commodities ( C ) needed in the production process- that is, labor power ( L ) and the means of production ( M P ). These purchases occur in the circulation sphere, where equal values are exchanged, in this case money capital for two "inputs" in the production process. Thus, Marx termed this part of the circulation sphere (where commodities are bought with money and sold for money) the "money-capital period." The result of the production process ( ... P ... ) is the creation of a final commodity ( C' ), the value of which exceeds that of ( C ) by the amount of surplus value incorporated in it. This commodity is then sold for money ( C '---- M' ), a transaction carried out in the other part of the circulation sphere, where once, again equal values are exchanged-initiated this time by commodity capital, the money used to buy commodities and thus to complete the circuit. C' minus C represents surplus value, as does M' minus M. The former, however, reflects the production of surplus value; the latter, the realization of surplus value. After realizing surplus value, the capitalist repeats the process on an enlarged scale with the larger sum of money capital. This means, for instance, that he enlarges the size of his plant and produces a larger volume of commodities.

Surplus value includes not only the profits of the industrial capitalists whom we have just considered, but also the profits of commercial capitalists, interest of money lenders or finance capitalists, and ground rent of landowning capitalists. Marx also noted that directors of business firms and others took shares of the surplus, too. We should further note that the state maintains its bureaucracy and protects the social relations of production with some of the surplus, in the form of taxes.

The rate of surplus value ( s' ), as we have seen, is equal to ( s / v ). To measure the rate of profit (p'), Marx used ( p' = s / ( c + v )) on the assumptions (1) that all machinery and raw materials were used up entirely, and labor power paid for, in the one production period, (2) that capitalists advanced wages to laborers, and (3) that all surplus value was retained by industrial capitalists. Thus, C' = c + v is the total capital advanced, and the rate of profit is the percentage that the retained surplus value bears to it. Since the rate of profit ( s / ( c + v )) is computed on a wider base than that used for the rate of surplus value ( s / v ), the rate of surplus value will be greater than the rate of profit if ( c ) is positive- that is, if machinery and raw materials are utilized in production.

A third ratio defined by Marx was that of the organic composition of capital ( g ). This rate shows the extent to which a capitalist uses constant capital ( c ) relative to total capital ( c + v). The organic composition of capital tends to be high when the value of machinery and raw materials is large relative to that of direct labor. This is the case, for example, in highly automated enterprises.

The three ratios-showing the rate of exploitation or surplus value ( s ), the rate of profit ( p' ), and the organic composition of capital ( g ) - can be combined in one equation: ( p' = s' ( 1 - g ). This indicates that if g were zero- that is, if only direct labor were used by the capitalist- then the rate of profit would be equal to the rate of exploitation. As the capitalist uses more and more machinery and raw materials relative to direct labor, ( g ) rises and the rate of profit falls relative to the rate of exploitation. That is, the rate of profit then tends to understate the extent to which capitalists are exploiting labor. Thus, even though the rate of exploitation were 40 percent, the rate of profit might be only 10 percent, if the capitalist used a lot of machinery and raw materials relative to labor (enough to make g = 3 / 4).

By focusing on the rate of profit, businessmen and their supporters not only understate the rate of exploitation but in fact hide its true source. While surplus value results from the exploitation of direct labor, it appears as though this surplus value comes from total capital ( c + v ), from machinery and raw materials as well as from direct labor.

Furthermore, industrial capitalists do not retain all of the surplus value. Some of it is channeled to commercial capitalists (merchants), who, using commercial or money capital, buy and sell commodities within the circulation sphere. The activities of these commercial capitalists do not directly produce surplus value- it is produced entirely in the production sphere- but indirectly they contribute to its generation by shortening the time of circulation and by expanding markets. These contributions enable industrial capitalists to produce more surplus value with the employment of less capital. Since all capital, industrial and commercial, in perfectly competitive markets earns the same rate of profit, the industrial capitalists must transfer sufficient surplus value to the commercial capitalists to permit this equality to be achieved. This transfer takes place when the industrial capitalists sell their commodities to merchants at prices below their values, while the merchants resell the commodities to consumers at their values (plus the constant and variable capital employed by the merchants, which they must recover).

In addition to this drain from industrial capitalists' surplus value, the money lending capitalists also get a slice. These capitalists give up the use value of money, which is its ability to produce surplus value, in return for a portion of that surplus value. The money lending capitalists loan money to industrial capitalists (and others) at certain interest rates, which are the market prices that serve to redistribute surplus value to them. The portion of the surplus value going to money lending capitalists is interest, while the portion remaining with industrial capitalists Marx called "profits of enterprise." Clearly, the higher the rates of interest, the higher is financial capital's share of surplus value relative to that of industrial capital. Interest rates are established by competition in the loanable funds markets, and their levels may be high or low depending on the market forces of demand and supply. As Marx saw it, there is room for much conflict between financial and industrial capitalists over relative shares of surplus value.

Finally, the agricultural capitalists, in the same way as the industrial ones, exploit labor and so obtain surplus value. In this respect, there is no distinction between these two productive sectors of the economy. This surplus value is shared with the landowning capitalists, the latter receiving it in ground rent. The total income of this landowning class includes absolute rent, which reflects monopoly gains from the private ownership of a nonreproducible resource; differential rent, which is based on two equal quantities of capital and labor employed on equal areas of land with unequal results; and an element of interest, which comprises charges for land improvements.

Consequently, productive (industrial and agricultural) capitalists do not retain all of the surplus value generated within their spheres. Some of it goes to commercial capitalists, some to financial capitalists, and some to landowning capitalists. Additionally, Marx claimed, other shares are plundered by private bureaucrats, hangers-on, and just plain swindlers. In any event, the industrial capitalists' profits (after taxes) are only a modest fraction of the total fruits of exploitation. Thus, when these profits are paraded as total income of the capitalist class, they divert attention from the other shares. Further, when these profits are related to total capital ( c + v ) to obtain a profit rate, both the rate of exploitation (surplus value) and its source are hidden. Finally, when these industrial profits are displayed after taxes have been taken out, the role of the state in supporting the capitalist class is concealed. That is, surplus value includes much of the state's receipts and expenditures, the latter intended to strengthen the class structure and its property relations.

Marxists maintain that the rate of industrial profits after taxes, therefore, is a gross understatement of the extent to which capital exploits labor. In 1974 in the United States, for example, industrial corporate profits after taxes were about $50 billion, but total surplus value (all corporate profits, interest, and rent before taxes) approached $200 billion, or about a quarter of employee compensation (wages and salaries) before taxes. Thus, the rate of exploitation, as Marx would figure it (if prices are used instead of values), was around 25 percent, while the rate of industrial profits on stockholders' equity was only a little over 10 percent.

The value of a commodity, we have seen, is the socially necessary labor time required to produce it. The price of a commodity, on the other hand, is this labor time valued in terms of money- say, for example, that 100 hours of labor equal $250. This $250 is divided among constant capital ( c ), variable capital ( v ), and surplus value ( s ). If c = $150, and the rate of exploitation is 100 percent, then( v ) = $50 and s = $50 ( s / v = 100 percent). In this case, the rate of profit is 25 percent s ( c + v ) = 50 / 200. If workers are free to move from one job to another to find their best advantage, wage rates for equal work will tend to be the same in each industry. Similarly, if capital is free to move, competition will tend to equalize the profit rates. Thus, following our numerical example, each sphere of production, when competition prevails, should have a profit rate of 25 percent. This would make prices proportional to values when commodities are traded one for another, provided that the organic composition of capital, c ( c + v), is the same in each sphere of production- equal to 150/200, as in our numerical example.

Now, competition will tend to equalize rates of profit, but there is no reason to expect organic compositions of capital (the degrees of capital intensity) to be the same from one industry to the next. Suppose that our commodity has a higher organic composition than others on the average. In that event, the profit rate for our commodity would initially be lower than the average, because, while the exploitation rates, ( s / v ), might be the same, the profit rate, s ( c + v ), is lower as c rises relative to ( v ). The price of our commodity, therefore, would have to rise above $250 in order to equalize profit rates. This is accomplished by some capital moving out of this sphere, thereby reducing the supply of the commodity and raising its price. At the other end of the scale, if some commodities are produced with especially low organic compositions of capital, their profit rates will be above average. Consequently, their prices will fall below levels suggested by their values as capital moves into these spheres to take advantage of initially higher profit rates.

Thus, when the organic composition of capital differs among industries, prices will not be proportional to values, though the two will be systematically related to each other in accordance with the structure of the organic compositions of capital. The function of prices, in this case, is to redistribute surplus value among industrial capitalists so as to equalize rates of profit. Those capitalists with low organic compositions of capital, and hence initially with excess amounts of surplus value, lose portions of their surplus to other capitalists who are in the opposite position.

Surplus value is generated in the sphere of production, but it is generated differentially, in excess here and in deficiency there, depending on the organic composition of capital. To redistribute the surplus value so as to equalize profit rates requires that prices differ from values. Marx saw this process not as a weakness but as a decided strength of his analysis: the value-analysis revealed exploitation and its manifestation in surplus value; the price-analysis revealed how the total surplus value was shared within the class of industrial capitalists, in accordance with the laws of competition. At the same time, the price system also redistributed the surplus value among the various classes of capitalists- industrial, commercial, financial, and landed- as we have already seen.

It was Marx's contention that the production of surplus value is "the absolute law" of the capitalist mode of production, that most of this surplus value is continually reconverted into capital- called capital accumulation- and that the system reproduces the capitalist relation: "on the one side the capitalist, on the other the wage-laborer." Capitalism is inherently an expanding system, for capitalists must constantly accumulate and extend their capital in order to preserve it; they must continually expand in order to remain capitalists, for if they did not they would be destroyed by competitors; they would be consumers and not capitalists. This expansion eventually occurs on a worldwide basis, for capitalists must push their mode of production into every nook and cranny of the globe. Nevertheless, capitalists also have an urge to enjoy the consumption of their capital. The overcoming of this urge is supposed to be "abstinence," which is a bourgeois justification, according to Marx, for the private appropriation of surplus value.

Marx asserted that the general law of capitalist accumulation is that it creates both wealth and poverty. That is to say, capitalist accumulation has an antagonistic character in that it produces and contains a unity of opposites. "The same causes which develop the expansive power of capital," Marx wrote, "develop also the labor power at its disposal," including the reserve army of labor (a relative surplus population), whose misery and pauperism grow in step with wealth at the other pole. Furthermore, Marx continued, capital accumulation transforms the workplace into a despotic, degrading, alienating environment, one which mutilates the laborer "into a fragment of a man" and destroys "every remnant of charm in his work". Capital accumulation produces an accumulation of wealth at one pole and an "accumulation of misery, agony of toil, slavery, ignorance, brutality, mental degradation, at the opposite pole". Poverty and misery are not capitalism's negligence but its imperative, its inevitable progenies. This is Marx's principal message about the process of capitalist accumulation.

That message today may sound "wild, " and indeed in some respects Marx can now be seen as having incorrectly extrapolated conditions prevalent in his time. However, before the reader plunges in to judge the message too harshly, he should be aware of its depth. For Marx, wealth could not exist by itself, just as a capitalist class could not exist in isolation. Wealth in capitalism has no other meaning than a concentration of much of society's production (its means and its products) in relatively few hands, and there is no way for that to occur without the simultaneous creation of its opposite- poverty, the material deprivation of the many, at least in relative terms. But poverty and misery, Marx contended, must be understood not only as exploitation but as alienation as well-not only materially but also "spiritually".

The Marxian theory of alienation seeks to explain how individuals in capitalist society have lost their understanding and control of the world around them and have, in the process, been stunted and perverted into something less than full human beings. For Marx, the source of all alienation lies in the work process. Alienation means that individuals no longer have an immediate and intimate relationship to the environment; they have been specialized and sorted, made into "the most wretched of commodities," divorced from the products they produce, split into mental workers and manual workers, into town people and rural people, divided into dominant and subordinate classes, thrown into selfish competition with one another. The result of alienation is the loss of personal identity- a transference of an individual's essential powers to others and to "things". even to commodities. Alienation is the negation of productivity, the diminution of one's powers.

Marx saw human beings in capitalistic society as alienated not only from the products they create and from their own labor, but also from others and from themselves. That is, workers under capitalism lose control of their products, produce as cogs in a process they do not understand, are separated from and pitted against their fellow workers, and are deprived of their essential powers. They believe that power resides outside of themselves, in the products they have actually fashioned, and they humble, demean, and almost destroy themselves before the commodity world. In the same way, a religious person might fashion a wooden idol with his own hands, kneel before it, transfer his own powers to it, and thus reduce himself to something less than a full human being. In their manifold alienated states, people lose their inner selves and become passive; they allow themselves to be directed by outside powers that they do not control and do not want to control; they subject themselves willingly to manipulation; they have a sense of powerlessness; they cannot act effectively. Marx did not believe that capitalism was the original cause of alienation- for it existed before that- but under capitalism alienation in all of its forms is maximized.

The proletariat shares with the bourgeoisie every aspect of this commodity dominated world. But, Marx stated, the latter experiences it as "a sign of its own power", while the former "feels destroyed in this alienation". The bourgeoisie, for Marx, sees no need for piercing the surface of phenomena; indeed it has a special interest in not revealing what is below, and even in deceiving itself on this score. On the other hand, the proletariat, while equally baffled, has a special interest in discovering the true relations and thus in developing a revolutionary consciousness. Productive activity is the catalyst of this transformation.

The capitalist mode of production extracts surplus value from wage-labor for the class of capitalists. The surplus value is used to expand capital, a process which is inherent to this social formation, and which is reinforced by competition. The accumulation process tends to generate increasing demands for labor to work cooperatively with the expanding means of production. However, accumulation leads to concentration of capital, which places greater magnitudes of capital in fewer hands and at the same time raises the organic composition of capital- the capital intensity of production- thereby moderating the growing demand for labor. Accumulation is also accompanied by the centralization of capital, by the larger capitalists gaining what smaller capitalists lose, by the expropriation of capitalist by capitalist.

The centralization of capital is the dynamic element in the accumulation process. It is furthered by the development of the credit system, which draws together scattered money resources for the use of larger capitalists; by competition, which destroys the weak and bolsters the strong; and by economies of scale (falling average costs), which give increasing cost advantages to the already- large capitals over the smaller ones, enabling the larger capitals to beat the smaller.

If capitalist accumulation is to persist, it requires above all else an ample supply of wage-labor that is continually replenished and available for work at wage levels that ensure the further production of surplus value for the class of capitalists. It is for this reason that Marx considered the reserve army of labor to be an essential ingredient of capitalism, a relatively redundant population of laborers that would expand and contract according to the requirements of the system. As soon as the accumulation process diminishes this surplus population to the point of endangering the further production of adequate amounts of surplus value (by raising wages and other advantages of labor), a reaction sets in: accumulation lags, the introduction of labor-saving machinery is quickened, the reserve army is replenished, and the rise in wages is halted. In these ways, Marx maintained, the foundations of the capitalist system are protected from the dangers of lessened exploitation. "The law of capitalist accumulation . . . excludes every diminution in the degree of exploitation of labor, and every rise in the price of labor, which could seriously imperil the continual reproduction, on an ever enlarging scale, of the capitalistic relation". According to Marx, the laborer exists to satisfy the needs of capital; material wealth does not exist to satisfy the need of the laborer to develop into a complete human being.

Consequently, capitalist accumulation demands the replenishment of poverty and misery, through the reserve army, to serve its requirements. But, Marx continued, there are other ways that degradation is created by the process of accumulation. First, accumulation and capitalists' pursuit of ever-larger surplus value add to the geographical concentration of the means of production in industrial urban centers. As Marx and Engels observed, this causes a "heaping together of the laborers, within a given space . . . therefore the swifter capitalistic accumulation, the more miserable are the dwellings of the working-people". Second, accumulation of capital tears apart the fabric protecting individual proprietors, craftsmen, and self-sufficient producers, transforming them into a surplus of dependent wage-laborers. Third, it draws wealth and talent from outlying areas into industrial and urban centers, converting the former into backward, stagnant subeconomies; or it reduces these outlying areas to specialized suppliers of raw materials for industrial capital, thereby increasing their vulnerability to adverse developments; and it transfers wealth from these areas via the price-market mechanism. Fourth, on an international scale, the capitalist mode has augmented its capital through forceful, market control of weaker areas and has drained surpluses from them into the industrial regions. By these means, wealth and poverty are created together, a unity of conflicting opposites.

Marx alleged that capitalism presents itself on the surface of life in distorted forms-that what it is really like, within its deep recesses, is- quite different from what its facial expressions suggest. These surface distortions, Marx contended, lead to illusions about the capitalist mode of production, and the illusions in turn are used by bourgeois ideologists to mystify the workings of the system. Thus, a web of mystification is spun around this mode of production, hindering a clear understanding of its true nature. We are all fooled, Marx said, by capitalism's distortions.

The capitalist mode of production turns labor power into a commodity, in a world of commodities, to be purchased and exploited by a capital-owning class that appropriates surplus value and is compelled to extend its capital and its mode of production to all corners of the globe. Capitalist relations comprise these two classes existing as a unity of opposites: the capitalist class, owning the means of production, buying the labor power of a dispossessed proletariat, controlling the work process, possessing the products of labor; and the proletariat, selling its labor power as wage-labor, working in an environment of alienation, receiving only part of its product, existing to facilitate capital's self-expansion. This, Marx affirmed, is the true substratum of capitalism, its bedrock.

The surface phenomena of capitalism, on the other hand, appear in forms that often distort and falsify the true relationships of this mode of production. Indeed, it was Marx's contention that capitalism, because of its perverted forms, maximizes illusion and mystification, that its essence is more heavily covered by layers of misleading superficial phenomena than that of any previous mode of production, including slavery and feudalism. The outward appearances of capitalism diverge fantastically from its inner laws, which are thereby largely hidden from view. Direct experience, within the capitalist mode, therefore, leads to illusions in the minds of those captivated by its surface data. These illusions can be dispelled only by scientific analysis of the capitalist mode, an analysis that is made possible by the rise of the industrial proletariat (and so of its ideologists) and serves the interest of that class. Thus, both the need for and the possibility of scientific analysis arise together as capitalism develops. Such insights into the workings of the system, however, are strongly resisted by the bourgeoisie and its apologists; furthermore, capitalism makes these insights extremely difficult to comprehend. This explains the continuing coexistence of illusions and their explanation.

In a precapitalist, rural patriarchal mode of production, social labor is revealed directly in the social products produced for the family. The work is divided according to age, sex, abilities, and other natural conditions. The different kinds of labor are direct social functions because they are functions of the family spinning, weaving, growing food, gathering wood, and so forth. The articles produced are family products, not commodities seeking markets, and so they are directly social products. The social relations among the family members appear to them as mutual personal relations, because the labor of each is consciously applied as part of the combined labor of the family. The total products of these labors are social products to be used by the family in ways decided by the members.

Now consider a mode of production that breaks up such families into individual producers, each producing independently of the others, and each producing, not products for the family, but commodities for exchange- a mode that Marx termed "the most embryonic form of bourgeois production". This mode turns social relations between persons into material relations and material relations between things into social relations. In this mode, the social character of private labor, which was obvious and direct in the family situation, is now revealed only indirectly when private products are exchanged- that is, when equal values or labor times are exchanged. Individual producers now appear to have no relations with one another, but only with their material commodities: "Individuals exist for one another only insofar as their commodities exist". Marx means that individuals, in this mode, make contact with one another only through the exchange of their commodities. For this reason, exchange value appears to be a relation between commodities- this commodity is worth so much of that commodity- but in fact it is a relation between people, between labor times of workers. As Marx explained: "A social relation of production appears as something existing apart from individual human beings, and the distinctive relations into which they enter in the course of production in society appear as the specific properties of a thing it is this perverted appearance, this prosaically real, and by no means imaginary, mystification that is characteristic of all social forms of labor positing exchange value". Thus, the social relations of individuals appear in the inverted form of a social relation between things. This is an actual representation of this mode of production, albeit a representation which distorts the true relation between human beings.

This distorted form is carried over to the fully developed capitalist mode of production. In addition to it, however, the capitalist mode widens the gap further between its phenomenal appearances and its essence. Labor and the means of production, for example, are forces (factors) of production. But, in the capitalist mode, labor becomes wage-labor, a commodity, a material thing; means of production become capital, incarnated in die capitalist. Thus, living labor becomes a thing, and capital, which is dead (embodied) labor, becomes alive in the capitalist; an inversion of subject and object is accomplished.

The capitalist mode especially presents itself in ways that hide the fact that surplus value comes from the exploitation of labor within the sphere of production. Surplus value, in capitalism's fantastic forms, appears to arise in the circulation sphere or from inherent powers of capital in its various forms; its very existence is shielded by market expressions of the capitalist mode that misrepresent the real relations of production.

If these distortions of fundamental bourgeois relations are not recognized as such, but are instead believed to be the true manifestations of capitalism's inner laws, then illusions are created in the minds of those deceived. Marx believed that the surface distortions of the bourgeois mode are so forceful that most people are unable to discover capitalism's underlying mechanism and so remain confused. In fact, the capitalist mode, in its inverted phenomenal forms, generates false consciousness in both capitalists and workers. It produces both the actual surface distortions and the mental illusions about what lies beneath the surface. It is on the basis of these illusions that the mystification of capitalism arises.

The acceptance, as the real thing, of the distortion that transfers social relations from people to their products, leads to a series of illusions and fantasies. Commodities become fetishes in the same way that gods, the creation of humans, take on lives of their own, fashioning social relations among themselves and with the human world. In the "religion of everyday life," objects are endowed with life, taking on the powers relinquished by their producers, who, as a consequence, diminish and deceive themselves; the objects come to rule over man. Since "the god among commodities" is gold-money, the possession of money becomes an insatiable desire, the greed of all. This social form of wealth is transformed, under capitalism, into the private power of private persons, who are able, through the power of money, to transform their own personal incapacities into their opposites. According to Marx, "Money is the supreme good, therefore its possessor is good. . . . I am stupid, but money is the real mind of all things and how then should its possessor be stupid? Besides, he can buy talented people for himself, and is he who has power over the talented not more talented than the talented?" Money, Marx claimed, "is the common whore, the common pimp of people and nations".

If the faces of capitalism are distorted, they are powerful and convincing ones which give rise to numerous illusions about this mode of production. The perverted forms of the actual world produce conceptions in the minds of people that diverge drastically from the underlying realities.

The most important of these illusions concerns surplus value- its production, its transformation as profits among industrial capitalists via the price mechanism, its realization in the circulation sphere, and its distribution among industrial, commercial, financial, and landed capitalists.

The origin of surplus value is concealed in many ways. The wage-form, especially when workers are paid by the number of the item produced, extinguishes every trace of the division of the working day into necessary labor and surplus labor, and it therefore creates the illusion that all labor is paid labor. To add to this, wage-labor appears to be "free" labor, even though actually bound to the class of capitalists. This freedom to choose to work for any capitalist reinforces the illusion that labor is not being exploited, that the production sphere cannot be the source of surplus value. Further, industrial profits of enterprise appear to be wages of management, so that both workers and industrial capitalists appear to be rewarded for different kinds of labor, some menial and some managerial. Marx commented that this makes "the labor of exploiting and the exploited labor both appear identical as labor." He added: "Now, the wage laborer, like the slave, must have a master who puts him to work and rules over him. And assuming the existence of this relationship of lordship and servitude, it is quite proper to compel the wage-laborer to produce his own wages and also the wages of supervision, as compensation for the labor of ruling and supervising him". The greater the antagonism between the producers and the owners, the greater the role of supervision. This reaches its peak in the slave system. This tenuous claim by "rulers and supervisors" to part of the surplus value is therefore a claim that arises from the antithesis between the laborers and the capitalists, one producing and the other owning the means of production; its antagonistic nature would vanish with the disappearance of classes. Therefore, while in one sense wages of managers are part of variable capital, not surplus value, Marx saw them as largely the latter because they reflected a class relation that would disappear in a "cooperative society of associated labor", Marx's phrase for a classless society.

The source of surplus value is further concealed when values are transformed into prices, thereby redistributing surplus value among the industrial capitalists, some of whom lose a portion of the surplus generated in their production sphere and others of whom gain some- in amounts which in competition equalize rates of profit on total capital. Thus, the average profit of any capital differs from the surplus value which that capital extracted from the laborers employed by it. This transformation process, Marx wrote, "completely conceals the true nature and origin of profit not only from the capitalist, who has a special interest in deceiving himself on this score, but also from the laborer. . . [it] serves to obscure the basis for determining value itself". Each capitalist is therefore under the illusion that his profit comes as much from prices and markets as from his own process of production, and the fact is obscured that all profits are due to the aggregate exploitation of labor by total social capital within the production sphere.

The realization of surplus value in the sphere of circulation creates the illusion that this is its source. Commodities, pregnant with surplus value, are exchanged for more money than the capitalist paid for the constant and variable capital to produce them, the difference being the surplus value itself. Such transactions produce the illusion that the mode of exchange is the dominant sphere and so the basis of the mode of production. The process of production, Marx stated, "appears merely as an unavoidable intermediate link, as a necessary evil for the sake of money-making". Money seems to be made in circulation, in buying commodities below their values and selling them above their values. Surplus value appears to originate from the acumen of capitalists, from their sharp business wits, from their abilities to cut costs, to outguess the market and beat the competition, and from their shrewdness in dealing with money, stocks and bonds, bills of exchange, and the other financial accouterments of capitalism. Marx believed that the entire process by which surplus value is produced is made especially incomprehensible in financial centers, such as London, where "the paper world" distorted everything.

Finally, the origin of surplus value is obscured by the glitter of illusions which emanate from each of its several elements. Interest, a part of surplus value, appears to arise from the inherent powers of money to increase itself, powers that are completely divorced from the production process. The illusion that money capital has automatic self-expansion powers, occult properties, money generating money, Marx called "the mystification of capital in its most flagrant form". Interest is part of surplus value- unpaid, exploited labor- but it pretends to disavow this source in favor of the innate powers of a thing, of a thing come alive. Similarly, commercial profits appear clearly to come from clever buying and selling within the circulation sphere, and thus to be severed altogether from the productive activities of industrial capitalists. Also, rent seems to arise from the powers of the earth itself, not from social relations of production; from the land or from the presence of that personification of the land, the landlord, The landlord demands his share of the total product that land helped to create. "Just as products confront the producer as an independent force in capital and capitalists who actually are but the personification of capital- so land becomes personified in the landlord and likewise gets on its hind legs to demand, as an independent force, its share of the product created with its help."

Land is productive but, while it adds to output, it does not "naturally" produce the social form called rent. Similarly, capital is productive but it does not "naturally" produce profit or interest. By the same reasoning, labor is productive but it does not "naturally" produce wages. Interest (profit), rent, and wages are all social forms of the class structure of society that have deep historical roots. They are all components of a total product created by work, and yet each seems to arise from a separate "thing": profit from capital goods, rent from land, and wages from labor. This illusion is played out fully when the capitalist, the owner of capital goods, claims the profit; the landlord, the owner of land, claims the rent; and the worker, the owner of labor power, claims the wages. Each appears to receive what each is entitled to. Marx called this "the trinity formula, " which is "the complete mystification of the capitalist mode of production. . . . It is an enchanted, perverted, topsy-turvy world, in which Monsieur le Capital and Madame la Terre do their ghost-walking as social characters and at the same time directly as mere things."

Marx's analysis that labor is exploited to provided surplus value to a class of capitalists bent on expanding capital was a danger to the ruling classes, especially after the industrial proletariat, responding to the development of capitalism's productive forces, began to gain consciousness of itself as a class This growing challenge, consciously perceived, stimulated bourgeois theorists to fashion especially analyses of capitalism that would absolve it of sin. These analyses, Marx stated, were mystifications to the extent that they were based on the perverted surface forms thrown up by capitalism's underlying movements, with the effect of making it doubly difficult for others to understand what was actually going on within the bourgeois mode of production.

The task of the bourgeois theorists was to raise profits to the same moral plane as wages. This could be done if it could be shown that these returns were explainable by some type of real cost or sacrifice incurred by the capitalists or by some special productivity of the capital that they owned. Marx had little respect for these efforts which comprised what he called "vulgar economy". He wrote that vulgar economy "is no more than a didactic, more or less dogmatic, translation of everyday conceptions of the actual agents of production . . . which arranges them in a certain rational order. . . [to] correspond to the interests of the ruling classes." In another place, Marx pointed out that "the vulgar economist does practically no more than translate the singular concepts of the capitalists, who are in the thrall of competition, into a seemingly more theoretical and generalized language, and attempt to substantiate the justice of those conceptions". The bourgeois economists who are engaged in this "dirty work for the knights of the moneybag" Marx called "pettifogging ideologists" and other names as well.

One theory in defense of profits is that they are the reward for abstinencenaturally- abstention of the capitalist from present consumption in order to save. This sacrifice- this special pain of the capitalist- it is argued, must be rewarded if it is to be borne. Marx countered that there is no way to relate the abstinence and wages capitalist to his profit. But, if there were such a relation, it would probably be an inverse one. As Maurice Dobb has explained: "He [Marx] had only to coh seems to the profit and the 'abstinence' of a Rothschild to feel that the so-called 'explanation' required no further refutation". The ability to save largely determines volume of saving, which is therefore strongly related to relative affluence and only weakly related, if at all, to some "pain." As both Dobb and English economist Joan Robinson have pointed out, the sacrifice associated with current saving by the wealthy is more truly a burden or "pain" of the poor whose very poverty allows such wealth, from which most of the saving comes, to continue to exist. If it is true that saving is increased by such an unequal distribution of income, "then it would seem", Dobb says, "that the final incidence of this cost of saving must lie, not upon the rich, but upon the restricted consumption of the poor, which alone permits those high incomes to be earned from which the bulk of the investment is drawn." It is not the abstinence and waiting of the rich that should be rewarded but rather the general deprivation of the poor. "To assert the contrary", Dobb concludes, "is, surely, to be guilty of the circular reasoning of assuming the income of the capitalist to be in some sense 'natural' or 'inevitable' in order to show that what he invests of this income is the unique product of his individual abstinence in refraining from doing what he likes with his own". Joan Robinson has added that, since what the capitalist likes is often a luxurious standard of living, an unequal income distribution is an unnecessarily wasteful way of accomplishing the saving.

Marx's main point about this theory, however, was that capitalists are a historically determined class, which stands antagonistically against the proletariat, and which, in order to maintain itself as a class, must accumulate. Thus "abstinence from present consumption as a sacrifice" struck Marx as a most superficial depiction of a historical process that deeply involved class struggles and that largely determined the scope and direction of people's actions. Capitalists accumulated because they had to. Nevertheless, Marx declared, even at the superficial level, vulgar economists never seem to realize that every human action may be viewed as abstinence from its opposite. "Eating is abstinence from fasting, walking, abstinence from standing still, working, abstinence from idling, idling, abstinence from working". It is true that capitalists, despite the compulsion driving them on to further extensions of their capitals, do develop in their breasts "a Faustian conflict between the passion for accumulation and the desire for enjoyment". But this simply means that the abstention from either may be painful. Why not argue that capitalists deserve a reward for luxurious living, since they have such a passion for accumulation?

Marx also noted, in another connection, that original (primitive) accumulation was hardly a sacrifice for some capitalists in that it came from plunder and theft. The story of capital accumulation, said Marx, is written in blood and fire, and the sacrifices it involved were made by millions of poor and oppressed people the world over, assuredly not by the capitalist class. So whether one considers current accumulation or the fiery background of these fortunes, it is vulgar to suppose that the capitalist class should be rewarded for such advantages.

Marx believed that interest payments to financial capitalists were simply a portion of the surplus value, a portion which was set by the market forces determining rates of interest. Since Marx, a theory has been developed purporting to explain interest, not in terms of labor exploitation, but in terms of the notion of "discounting the future"- that consumption now is worth more to people than an equal amount of consumption in the future. Therefore, since people feel this way, they must be rewarded for not consuming now, postponing it to the future. Joan Robinson has argued that such a notion is not based on direct observation, "but arises from the desire to represent owning wealth as a 'sacrifice'". It is true that some people consider it a sacrifice not to consume now, but many others consider it a sacrifice to consume now- because they expect a lower income in the future, or their need for consuming power in the future is expected to be very large (as to finance the education of their children), or because they wish to leave an estate for their heirs. The rate of interest is positive, and thus financial capitalists receive interest returns, not because of a subjective rate of discount of the future, but because capitalists are in a position to exploit labor and thereby obtain surplus value- profit. When the rate of profit is expected to be positive, the rate of interest will be positive, because capitalists are willing to pay something for finance capital. Interest payments are based on exploitation, not on a myopic vision of the future.

Another theory in defense of profits is that labor that is aided by machinery can produce a larger total product than it could working without this aid. The difference in the two outputs should therefore be attributed to the productivity of capital. The owner of the capital, it is said, is rightly the recipient of these returns. This was later formulated more elegantly as the marginal productivity theory of capital. Marx's view was that capital goods make labor more productive, a relation that has nothing to do with the production of surplus value. Capitalists exploit both unproductive and productive labor, Joan Robinson has noted that, while capital goods are certainly productive, there is no justification for assigning their productivity to private owners; the bourgeois argument, as Dobb expressed it, "included the illicit link of imputing to the owner the 'productivity' of the things he owned. 'A social relation between men assumes the fantastic form of a relation between things': and the behaviour of things is not only represented animistically as due to some innate property in them, but imputed to the influence of those individuals who exercise rights of ownership over them". Granted that capital goods are "productive," their private owners are not. It was labor that produced the capital goods, and current labor that uses its own past labor (embodied in the capital goods) to produce more goods. If capitalists actually work, Dobb implied, they can receive a wage like everyone else.

Marx worked out a theory as to how capitalism would be dialectically superseded by socialism. Lenin extended the theory to include the imperialist proclivities of monopoly capitalism and the revolts by colonial peoples against this imperialism.

Marx did not develop anything approaching a complete theory of capitalist crises that would lead eventually to the overthrow of this mode of production. However, figure 2 presents the principal elements of Marx's analysis and of Lenin's extension of it. Figure 2 will serve as a guide to our discussion.