Marx's analysis of capitalist production grows out of the broader theory of historical materialism, which explains class society as a system of exploitation based on a minority's control of the surplus product created by producing majority. Capital is value in a process of expansion (valorisation) and circulation. The theories of the commodity, value, money, price, and capital provide the concepts necessary to understand the source of surplus-value in the exploitation of workers by capitalists when labour-power becomes a commodity and the wage falls short of the value labour produces. The labour theory of value distinguishes the means of production bought by capitalists as constant capital from the labour-power they hire as variable capital which produces surplus-value (profit). Abstracting from the capitalist character of production, commodities would normally exchange in proportion to the abstract labour contained in them, but competition among capitals equalizes profit rates on invested capital by redistributing surplus-value in the form of profit at prices of production. Surplus-value can be increased by lengthening the working day (absolute surplus-value) or reducing the cost of labour-power (relative surplus-value). The circulation of capital shows the relation between flows of value in capitalist production and stocks built up in the process, and elucidates the conditions for balanced simple and expanded reproduction. Surplus-value is distributed as profits of commercial and banking capital, the rent of landowners, interest on loans, dividends and profit of enterprise. Capital accumulation leads to the centralisation and concentration of capital, technical change and the expansion and contraction of reserve armies of labour. Technical change motivated by the pursuit of profit can lead to a falling rate of profit with a constant rate of surplus-value. Periodic falls of the profit rate (wage- or interest rate-driven) lead to business cycle and capitalist crisis.

G. Duménil, D. Foley, "Marx's Analysis of Capitalist Production", 2008, in , The New Palgrave Dictionary of Economics, Palgrave Macmillan : London, Basingstoke.
Reproduced with permission of Palgrave Macmillan

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