Where do profits come from?

 Jean Parker continues our series on economics by looking at labour and surplus value

Profit is the motor of capitalist production, the sole reason why any commodity is produced. Without profit a company can’t expand and invest in new technology and will quickly be driven into bankruptcy by competitors.

The money any business makes from selling its products can be divided into a number of components. Profit is the excess or surplus left over once a business has paid all the wages of its workers and the cost of all its inputs in terms of raw materials and machines, and interest, tax and rent.

But where does this crucial surplus—for example the $250 million profit Qantas made this year—actually come from? Sometimes it is assumed that pricing commodities higher than their cost of production is simply something clever that companies do when they sell products on the market.

Alternatively profit is understood as a rightful reward for capitalists in return for supplying the capital—or raw materials, tools, machines, buildings etc—needed for the production process.

Mainstream economists argue that both “factors of production” (labour as well as capital) create a “marginal output” or surplus. Therefore, according to their theories, capitalists deserve profit just as workers deserve wages.

Labour and surplus value
Both explanations are convenient for capitalists and their defenders, but both are myths. In fact it is only labour that can create value.

All the machines and materials capitalists own are products of previous labour by workers. Marx called capital “dead labour” to make the point.

All the hangars and tools that allow Qantas engineers to do their work and planes that allow pilots to fly, were not built by CEO Alan Joyce and the Qantas management, but by manufacturing workers, office workers and miners.

But all the existing Qantas capital would be useless without the 30,000 workers who turn the offices and machines into a new product that Qantas can sell. The value of the dead labour is incorporated into the cost of Qantas flights as an input, but only the living labour of the current workforce can produce new value, and create a surplus for Qantas.

That is because wages bear little relationship to the value workers can produce in a working day. A baggage handler might get $20 an hour for services Qantas charges its customers $200 for. This is what Marx called exploitation. It is the source of profit as the only part of the production process that capitalists consistently get more value from than they pay for.

And the longer and harder we work for our wage, the more surplus the capitalist makes, and the more profit. That’s why Alan Joyce is fighting so hard to hang on to the low wage model of Jetstar.

The situation where cabin crew fall asleep working 15-hour return flights between Sydney and Bali and cleaners were ordered to keep working around a dead body on a plane, is created by the push to extract the maximum surplus value from the workers.

But it’s not just Joyce’s personal greed for a $5 million salary that drives his vicious campaign to increase the exploitation of his workforce.

Joyce knows that all the other airline bosses are doing the same thing to their workers around the world. If one company fails to produce sufficient surplus from their workforce, and cannot afford to plow enough into the latest technology, then other companies will steal the market and the company will fold.

The ruthless logic of capitalist competition forces bosses into a race to find ways to extract more from workers and pay them less. Or as Alan Joyce puts it:

“Retaining outdated maintenance practices, or paying Jetstar pilots at Qantas rates, would exacerbate the cost gap between Qantas and its competitors. The reality is that businesses can and must change. No company can be fenced off from economic realities.”

Unfortunately for Joyce and all other capitalists, the labour that they depend on for every dollar of profit is produced not by commodities, but by conscious human beings who can fight every step of the way to improve the conditions of their work.

This constant class struggle can also lead to strikes where workers begin to feel the power they have as the ones really running the system, and begin to understand that Qantas’s capital is not the plaything of Joyce and shareholders, but wealth created by workers that needs to be used to benefit society as a whole. 


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