Several of you, most notably David Palmeter, have raised questions to which I need to respond. The questions all concern matters that Marx discusses at length in Capital and which I have discussed in my books and articles, but I am afraid that in an effort to limit the length of this multipart essay I skipped over issues that I mistakenly assumed would be clear to the readers of this blog.
David Palmeter raises two different questions which require different answers. First of all, he asks what Marx has to say about labor that is not manual labor of the hammer – on – nail sort. Second, he asks about the labor of management performed by the owner of the company. Let me discuss each of these in turn.
Of course it is the case, as Marx and every other political economist was aware, that some of the labor required for the production of commodities was labor of design, planning, organization, of record-keeping, and so forth. Marx’s analysis applies exactly as directly to the office of an insurance company managing claims and keeping records, to a high-tech digital firm designing state-of-the-art iPhones, to for-profit hospitals, and to trucking companies as it does to companies that produce commodities on production lines dominated by relentlessly moving conveyor belts (think Lucille Ball making candies). The examples Marx gives in Capital are drawn from the Parliamentary Factory Inspectors Reports, which deal mostly with the factory production that dominated the English economy in the first three or four decades of the 19th century, but everything in what he says can be more broadly applied.
There is one major shortcoming in Marx's discussion of capitalism that is in fact quite important, but I have chosen not to go into it here in the interest of brevity. Writing in 1860s England, Marx was convinced that he was seeing the progressive deskilling of the traditional crafts in the transformation of the working class into a mass of semiskilled factory workers. Marx failed to foresee that capitalism would develop a steeply pyramidal working class structure in which the employees of companies would be making anywhere from starvation wages to salaries that supported a lavish lifestyle. I have talked about this and other problems with Marx’s analysis in my essay “The Future of Socialism,” which you can find that box.net by following the link at the top of this blog.
The second question David asks concerns the compensation to the owners of the companies for the extremely valuable labor of oversight or management that they provide. This too is a question that Marx considers with some deliciously mocking remarks in the early chapters of Capital. This is a much more important issue because it touches on one of the most important ways in which modern capitalism successfully mystifies itself and misrepresents itself to even sophisticated onlookers.
The answer requires distinguishing two cases. The first case is the more traditional case in which an entrepreneur launches a company, hires labor, buys inputs, sets them all to work making commodities, sells the output in the marketplace and pockets a profit. Since the labor of management performed by the entrepreneur is essential to the enterprise, a part of what the entrepreneur takes home at the end of the year must be written up as his managerial salary, and in any well-run enterprise it will appear therefore on the books as one of the costs of production. But a little thought makes it obvious that in any well-run company that managerial salary will not be all that the owner takes home. When I taught a course on Marx at UNC Chapel Hill in the spring of 2020, I tried to illustrate this point by telling a story about the time that I lived in Northampton Massachusetts. Driving west out of Northampton and up into the hill towns of the Berkshires, I drove along the Mill River. At one point I came to an old mill on my left which in the 19th century had been powered by the water rushing down the river but which was now converted to a number of little shops of the countercultural sort. On my right, across the street, were two large homes, virtually identical, each of which featured large garish white pillars. (I even managed to grab a screenshot of them from Google maps which I showed to the students.) The story was that one of the two homes was built by the owner of the mill and the other was built for his daughter when she got married. I made up a story that went something like this: the mill owner married his daughter off to an impecunious but wellborn young Boston man from an old Boston family. When he died, his daughter and her husband inherited the mill but the young man had no intention of actually working as the manager of the mill so he hired a paid manager at what was then the going market rate for middle managers, and then took his new wife off on a European tour. When he returned, he asked how much profit the manager had to turn over to him, and the manager said “why, sir, there is nothing at all.” Outraged, the young man asked how his hired manager had contrived to run the mill so badly and the manager replied, “I ran it exactly as efficiently and profitably as did your late father-in-law, but his profit was his salary which he earned for the labor of management and since you chose not to run the mill yourself you have paid all of that money to me.” Well, we all know, as did Marx, that the manager was just pulling his leg. Of course there is a profit left over after the salary of management has been added to all the other costs of running the mill.
Everyone is mesmerized by the extraordinary wealth of Jeff Bezos, who not only owns Amazon.com but started it and at least until recently ran it, but richer yet than Bezos is the Walton family whose collective wealth outstrips even his. These are the heirs to the fortune of Walmart, created by their father, Sam Walton. Unlike their late father, they provide little or no direction for this great company, but no defender of capitalism would suggest for a moment that therefore they have no right to the shares that they inherited.
In the balance sheet of a corporation, costs appear on the left-hand page and income appears on the right-hand page and when the two columns are added up, profit is what results from the first subtracted from the second.
But the modern corporation is not a business run by its owner. It is a joint stock corporation run by hired managers whose compensation is determined by a Board of Directors. What confuses things is that in a regular, systematic, unquestioned process of theft, a portion of the profits is directed away from the shareholders who are the owners of the corporation and into the pockets of the managers, who are paid vastly more than the going rate for managerial labor. To be sure, through the device of stock options, these managers often become the owners of very large stakes in the corporation, but they are not chosen as managers because they own large numbers of shares of stock – they own large numbers of shares of stock because they are employed as managers. Rex Tillerson is said to own $600 million in Exxon shares but he was not made CEO of Exxon because of that huge ownership share. Rather, his holding was the consequence of his rise to senior executive positions in the corporation.
The simple fact remains that capitalism is a system of economic organization that regularly, quietly, unremarkably transfers a portion of the annual collective social product into the hands of a small segment of the society who have come to own the means of production. As each year goes by, the owners of capital expand their ownership and thereby reinforce their control of the workers whose labor creates what they take as profit.
It is for this reason, Marx teaches us, that the essence of capitalism can be captured in a sentence of just nine words: capitalism rests on the exploitation of the working class.
Now, back to my exposition. Tomorrow things get genuinely complex and difficult.