Where does the money come from?

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Where does the money come from?

By Allen Myers

When we consider the huge wealth of people like Kerry Packer or Westfield tsar Frank Lowy or corporations like BHP, the question naturally arises: where and how did they get all this money?

The wealthy and their defenders sometimes claim that they "earned" their money. But even aside from the fact that most of the really big capitalists got their start by inheriting money, this is a not very convincing answer.

Of course, what individual capitalists do may influence their success or lack of it. Kerry Packer sold off most of his stock market holdings shortly before October 1987 and so increased his fortune in the crash, while other capitalists who guessed differently lost heavily.

But such good and bad decisions only explain why it's Packer rather than Alan Bond or some other capitalist who has more billions than anyone else in Australia. Packer outsmarted or out-lucked other capitalists, and so ended up with some of their money, but where did these billions come from? The capitalists certainly didn't produce the huge sums that they fight over.

Money is a title of ownership, like a deed to a house. But unlike a deed, which applies only to a specific building, money is a title to any property that is available to be sold (if the buyer has enough of it).

So the capitalists with their billions have a legal title to a very large part of what the economy produces every year. If one of Kerry Packer's companies has profits of $385 million, as Consolidated Press Holdings did last year, from those profits Packer can buy as much of the country's goods and services as can be bought by around 12,000 people on the median wage.

It's obviously absurd to suggest that any capitalist, or all of them together, produces as many goods and services as 12,000 workers. Why, then, do the capitalists have most of the money, the title to that production?

The answer begins to emerge if we consider how workers produce things. Nobody produces only with their bare hands: tools and equipment are required. Nobody produces in pure isolation: production is a cooperative act. This cooperation generally depends on a material infrastructure — factory buildings, transport, power sources and so on.

All these factories and equipment and raw materials are known as "means of production". It is characteristic of a capitalist society that workers don't own sufficient means of production to be able to produce on their own (skilled workers may own their own tools, but not the necessary raw materials or factory buildings).

The means of production belong to capitalists. So in order to produce, even just the things they need for their own survival, workers have to use the capitalists' means of production. The capitalists allow this in only one form: workers have to work for the capitalists, in exchange for a wage.

The size of wages is not something fixed. If a capitalist economy is going to last for any length of time, then wages can't be so low that workers die of starvation. But how much wages are above that level depends on a battle between workers and bosses; wages will be higher or lower depending upon who's winning.

Whatever their level, however, wages never rise so high as to equal the value that workers produce for the capitalist who hires them.

Equally importantly, even when they are high enough to allow better paid workers to buy a range of consumer goods, as they are in Australia, they are not enough to allow any significant number of workers to obtain their own means of production and begin producing for themselves rather than for a capitalist. Workers therefore have to continue working for wages, and the new means of production they create remain the monopoly of the capitalists.

How much wealth do workers produce for the capitalists each year? It's not easy to work this out precisely, because official statistics often obscure nearly as much as they reveal.

Nevertheless, we can get a rough idea for the country as a whole by dividing the gross domestic product (approximately $500 billion a year) by the number of workers who produce it. In 1996-97, that sum was produced by 5.2 million full-time and 2.4 million part-time workers. If we assume that the part-time workers worked half time, then we have the equivalent of 6.4 million full-time workers.

Dividing that figure into $500 billion indicates that each worker created an average value of $78,000. This compares with an official average wage of around just half that amount: $39,000. However, official statistics tend to include in wages what are really part of profits (the "wages" of owners and managers), so the real average wage is probably close to the official median wage, $31,000.

These figures still tell only part of the story. Many workers do not produce new wealth, but perform other functions which capitalists consider essential. The job of supermarket checkout staff, for example, is not to produce new goods but to ensure that capitalists obtain the price of already produced goods.

This is true of nearly all workers in retail trade, who are 13.6% of employed workers in Australia. If we subtract retail workers from the total, the remaining workers then produce a value of $90,000 each for their employers.

There are many other workers who also do not produce new values: police, most public servants, workers in advertising, bank employees. So it is likely that the workers in Australia who do produce values for a capitalist produce five or six times their wages.

These figures are only a rough estimate, but are sufficient to indicate that the source of capitalist wealth is simply exploitation: their monopoly over the means of production allows capitalists to pay workers only a fraction of the value they produce.

This also indicates how a socialist economy can immediately increase social wealth. Because it is not based on exploitation, socialism will be able to transfer workers from areas concerned only with protecting capitalists' profits into production of material goods and desirable public services such as health care and education.

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