Your Boss is Ripping You Off
Where Profits Really Come From
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Why are capitalists rich and workers poor? Workers do all the work, but capitalists make all the money; this doesn’t make sense. To figure it out, we need to understand profits — what profits are and how they are made.
If a capitalist starts out with one hundred dollars, and ends up with one hundred and five dollars, the additional five dollars is referred to as a profit. The entire objective of the capitalist is not just to make a profit, but to continuously make larger and larger amounts of profit, so that they can’t get squeezed out by bigger competitors. But how are profits made?
Generally, a business makes products (commodities) which are then sold for money. But products also cost money to make. In order for a capitalist to succeed, they must sell their products for more money than it cost to have them made; in other words, they must turn a profit. In doing this, the capitalist appears to be a magician. They start with money, exchange that money for a finished product, and then turn around and exchange the product for a larger sum of money than they started with. Through some unseen magic, they turn money into more money.
To find out what’s behind the curtain, we have to look at how exactly the capitalist spends that money. The costs of production can be broken down into two categories. The first category is the resources used for production (the means of production). These are all the materials needed to make a product, (coal, oil, wood, steel, etc.) as well as the machinery needed to combine those materials (e.g. factories, conveyor belts, food processors) into a finished product. The capitalist may also have to pay rent for the location where they operate their business (assuming they are not also a landlord).
Profit can't be made in the process of buying production resources. Natural resources take a tremendous amount of effort to be pulled from the earth. That effort will cost money. A capitalist that produces commodities is either in the business of resource extraction — like a lithium mine — or must purchase resources from a capitalist who is — like a manufacturer of lithium car batteries. But the owner of the mine is no fool, they will not sell their lithium to the battery manufacturer for below cost. If they did, they would go out of business. When capitalists buy and sell to and from each other, they make good deals or bad deals, but the economy as a whole can't grow by one group of manufacturers cheating the other.
The second category of production costs is the money spent on workers — labor costs. Production resources alone have no use. Steel, oil, machinery — all these things would lie on the factory floor making no money for the capitalist without someone to use them and combine them and make from them something new. The worker needs to use their mind, their body, and their energy to turn production resources into a finished product that can actually be sold.
We see then that production resources have a value (which can be measured in dollars) and that the worker also adds value to those production resources. The value of the resources combined with the value added by the worker is what gives the finished product its value, which usually closely matches its cost on the market.
But we still have not revealed the capitalist’s trick and discovered the source of their profits. Many, including the economists who are put on television by the capitalist press, argue that profit is made by selling products for more than they are worth. But if that were the case, the capitalist economy would be like a snake eating its own tail. As pointed out above, capitalists are not just sellers, they are buyers as well. For example; imagine a lithium mine, a battery manufacturer, and an electric car maker. The auto maker needs to buy batteries from the battery manufacturer, and to make the batteries, the manufacturer needs to buy lithium from the lithium mine. Which of the three capitalists in our example gets to play the fool? Who is stuck losing money so that their colleagues can turn a profit, and how long will they stay in business? A battery manufacturer can't make their profits by cheating the lithium mine or ripping off the auto plant. That can happen in isolated incidents, but it can't happen across all industries in the entire economy — one sector would simply collapse.
No, products are sold for their value — although the price will fluctuate somewhat based on supply and demand. Yet, if a capitalist must buy production resources and labor at cost, then they will make no profit and go out of business. But here is where the capitalist’s sleight of hand comes in. The capitalist pays for the production resources, but they do not pay for the value added by labor. Workers in an auto plant are not paid by how many cars they make an hour, nor are workers at a coffee shop paid for every cup they brew. Workers are instead paid for our time, we are paid by the hour. And it is the hourly wage that misdirects our attention as workers, making us ignorant of the theft taking place.
Imagine a worker who makes coffee at a coffee shop and gets paid $17 an hour — about $500 a week after taxes. How many hours would it take for the worker to make and sell $500 worth of coffee? Subtracting production resources is simple. When a capitalist rents a storefront, buys the equipment, and orders the unprepared ingredients, they can predict how long it will take for them to use up those resources before they have to buy more. Therefore, we can come up with an average amount that the capitalist is spending per hour, per worker, on production resources and see where the rest of the money goes.
If this coffee shop spends, hypothetically, 217 dollars an hour on production resources and sells 250 dollars worth of coffee per hour, we know that the worker is adding a value of 33 dollars to the coffee sold every hour. That means that after 15 hours and 9 minutes, less than two shifts, the barista will have made enough money for the company to cover their entire week’s paycheck. So, after working for 15 hours and 9 minutes and adding $500 worth of value, does the worker get to take off their apron and go home? No. The worker will continue to work, and every additional dollar they make for every additional hour they work will go directly to the capitalist. That’s 24 hours, 51 minutes at a value of 797 dollars! But once their check is covered, the worker is now working for free. This unpaid labor time is the actual source of the capitalist’s “profits”.
We see now that capitalists are not industrious hard workers, brilliant innovators, or job creators — they are thieves, pure and simple. The capitalist regime derives its incredible, awe-inspiring wealth by stealing from you. This is why the capitalist regime is constantly spreading disinformation about the way our economy works. They can't have an honest conversation about our economy — or our politics — without exposing their guilt.
With the smoke and mirrors cleared away, we can see that a worker is adding much more than 10, 15, or 20 dollars to their products during an hour of work. So where do those numbers come from? How do capitalists come up with our wages?
The wages paid to the working class are the absolute minimum amount of money that our class needs to keep on living — and working. That’s it. If you can pay rent, buy food, and raise your children — no matter how difficult it is to afford it, the capitalist has paid you enough. And it doesn’t matter if you as an individual make enough to survive. If you lose your home, are disabled by illness, or even drop dead from starvation — the capitalist is unbothered so long as there is another worker to replace you. The capitalists only need a class of people that has nothing to sell but their ability to work. It is only important that the working class as a whole must survive and reproduce. This is why the US capitalist regime was able to shrug off the deaths of 1 million human beings from the covid pandemic. They knew that there were enough unemployed and underemployed workers to take the place of the friends and family that we lost.
We can take this even further. For the capitalist regime, it is better that you survive than that you thrive. Because if you’re barely getting by, you and the other members of your class will accept the lowest wage possible which still makes ends meet. Even unemployment is a benefit to the capitalists, because it increases the demand for work and drags wages down even further.
If the source of profits is the value that you as a worker created, then the capitalists must do everything they can to keep your wages down. The more you make, the lower their profits will be and the higher their profits, the less you make. This is the struggle between the working class and the capitalist regime — the class struggle. The class struggle is nothing more and nothing less than the fight between capitalists and workers over their respective share of the wealth that workers created — the fight between the leech and the host over the share of the host's blood.