Where Profits Come From, According to Marx

Scenario 1:

A factory owner hires a worker to process cotton slivers (the raw material of cotton cloth) into cotton cloth.  

1. Cost of Production = cost of the materials (the slivers plus the wear on the equipment & plant) + the cost of labor.

2. The daily wage, or cost of labor per day, will be proportionate to the socially necessary labor to produce a worker for one day.   Let us say that in a given historical context, this takes six hours of such socially necessary labor and that the going rate for each hour of socially necessary labor is $10 per hour.  The cost of labor per day is thus $60.

3.  For this wage, corresponding to six hours of socially necessary labor, the worker is hired for (and provides) six hours of (socially necessary) labor in return.  And during this time, she can process 10 lbs of cotton slivers into, with a small amount lost to waste, 10 lbs of cotton cloth, also using up a small amount of wear on the equipment and plant.  All of those materials cost, say, $90, corresponding to the nine hours of socially necessary labor in them.

4.  The cloth thus has nine hours of socially necessary labor in the materials plus six more hours of socially necessary labor in the process of converting them into cloth, for a total of fifteen hours.  The price of the finished good will thus be $150.

5.  But how much has the capitalist paid to obtain the finished goods?  She paid $90 for the materials and $60 for the labor.  So there is no profit!  And there is one unhappy capitalist.

She tries again.

Scenario 2:

A factory owner hires a worker to process cotton slivers (the raw material of cotton cloth) into cotton cloth.  

1. Cost of Production = cost of the materials (the slivers plus the wear on the equipment & plant) + the cost of labor.

2. The daily wage, or cost of labor per day, will be proportionate to the socially necessary labor to produce a worker for one day.   Let us say that in a given historical context, this takes six hours of such socially necessary labor and that the going rate for each hour of socially necessary labor is $10 per hour.  The cost of labor per day is thus $60.

3.  For this wage, corresponding to six hours of socially necessary labor, the worker is hired for (and provides) twelve hours of (socially necessary) labor in return.  And during this time, she can process 20 lbs of cotton slivers into, with a small amount lost to waste, 20 lbs of cotton cloth, also using up a small amount of wear on the equipment and plant.  All of those materials cost, say, $180, corresponding to the eighteen hours of socially necessary labor in them.

4.  The cloth thus has eighteen hours of socially necessary labor in the materials plus twelve more hours of socially necessary labor in the process of converting them into cloth, for a total of thirty hours.  The price of the finished good will thus be $300.

5.  But how much has the capitalist paid to obtain the finished goods?  She paid $180 for the materials and $60 for the labor, for a total of $240.  So there is a profit of $60.  And a happy capitalist.