Interlude: Marx’s “Wages, Price, and Profit”

At the same time as he was writing Capital volume 1, Marx gave an exposition of his view on workers’ struggles over wages in a report (in effect a lecture) delivered at two successive meetings of the General Council of the First International, on 20 and 27 June 1865.

The exposition was not published at the time. It was found, and published, only in 1898, after Engels’ death, by Eleanor Marx.

Some of the exposition is a summary of the arguments in Capital volume 1 (and useful to study as such, in order to settle the main points in our minds, after reading the first few chapters of Capital volume 1). But, for whatever reasons, the basic argument in the exposition:

  • that a class struggle over wage levels is built in to capitalism;
  • that the outcome of that struggle is not set in advance, but varies according to the balance of forces;
  • that, therefore, there is no “iron law of wages”; the setting of wages is a very elastic process;
  • that, over and above the immediate benefits from wage battles, the organisation of the working class in militant trade unions to improve wages is a central and indispensable stepping stone towards working-class self-assertion

– that basic argument is nowhere sharply spelled out in Capital, where, almost throughout, Marx assumes for the sake of argument that the value of labour-power (the “living wage”) is a given magnitude, and wages correspond to the value of labour-power.

Looking over the whole body of Marx’s writings, there can be no doubt of his strong view that workers would, should, and could fight for higher wages, and that the trade-union organisation built up in such battles was central to socialist strategy.

However, at times when only a limited range of Marx’s writings were available, it was common for socialists to hold to the idea of the “iron law of wages” (wages cannot rise above physical subsistence level) or to argue that almost nothing could be gained by trade-union battles for higher wages.

Less excusably, many orthodox critics of Marx assert that Marx has been “refuted” by capitalist development because Marx asserted that capitalism would push workers down to starvation level, and in fact it has not.

Thus the importance of reading “Wages, Price, and Profit” alongside Capital.

In chapters 1 to 7 of Capital Marx develops the concepts for understanding the basic relations of capitalist society: commodity, use-value, value, price (or exchange-value), abstract and concrete labour, money, capital, labour-power, surplus-value.

The concept of labour is here a starting point, but also a concept reshaped and redefined through the later development of the analysis. Chapters 10 to 15 analyse how the development of capitalist production shapes and reshapes the labour-process.

This happens through class struggle, and from chapter 10 onwards class struggle is integral to the analysis.

In chapter 10 Marx shows that a class struggle over the length of the working day is built in to capitalist relations. No natural or mechanical economic law defines it in advance.

Chapters 13, 14, and 15 are in part about the class struggle for control in the workplace.

Throughout, however, Marx assumes that wages are paid at a rate corresponding to the value of labour-power (a “living wage”). Capital contains a later section about wages (chapters 19 to 22). Those chapters contain some important points, but they are mostly about the forms of payment of wages, and how they tend to conceal the facts of exploitation, rather than about class struggles over wages.

Marx is replying to an old “Owenite” socialist, John Weston, who argues that battles for higher wages are pointless.

First Marx asks: how can there possibly be a fixed limit for wages? The total of output is highly flexible. It increases with every rise in productivity. No iron law says how much of that output will go to the workers, and how much to the capitalists and their hangers-on.

In fact, wages are higher in some countries than in others. (Marx estimates about twice as high in the USA as in Britain. Elsewhere he states that wages are much higher in Britain than in France or Germany). Can there be a different “iron law” for every country?

Second, Marx summarises the argument developed by David Ricardo earlier in the 19th century to show that wage rises, all other things being equal, will not lead to price rises.

On the contrary. Capitalists would wish for higher prices, both before and after a wage rise, but a wage rise gives them no extra ability to raise prices without losing sales.

All other things being equal, wage rises will lead to a fall in profits and greater share of consumer goods being consumed by workers, or some goods previously being consumed only by capitalists and their hangers-on now being consumed by workers. They will lead to no general price rise, but to a fall in the price of commodities which involve much equipment and materials in their production; a rise in the price of commodities which involve a greater proportion of living labour in their production.

Marx himself gives the example of agricultural wages increasing in England in the 1850s, but food prices not rising.

Bear in mind that Marx is writing at a time when British money was linked to the gold standard (£1 = 0.235420 troy ounces of gold). Once the effect of the new gold discoveries of the 1850s (Australia and California) was absorbed, and while the technology of gold production was fairly stable (i.e. an ounce of gold represented a fairly stable quantum of labour-time), prices were on the whole more likely to fall than to rise.

In 1865, the relative worth of £1 from 1860 was 19s 8d using the retail price index. In 1890, the retail-price equivalent of that same £1 was 17s 1d.

Between 1860 and 1890, average earnings increased while retail prices decreased (on average), yielding a 72% increase in “real” earnings.

These things work a bit differently in the post-1971 era of “fiat money”, money which represents a quota of future labour-time by virtue of being given legal status by the state and people having confidence that less-than-uncontrollable future amounts of currency notes will be issued. In this era states regularly and explicitly plan the expansion of the money supply so as to generate price inflation (at a moderate or more-or-less stable level: for example, the Bank of England aims to generate 2% inflation per year, and the European Central Bank the same).

In periods of militant wage battles, like the 1970s, states can adjust by gearing monetary policy to higher inflation and thus allowing bosses scope for bigger price rises. “Wage-price spirals” can develop, but they depend on state policy as well as the wage rises.

Under either a gold-linked currency or a fiat currency, all other things being equal price rises will tend to generate wage rises, as workers insist on their wage being enough to buy the socially-established necessities. But the converse does not hold.

Third, Marx summarises his theory of value, price, and surplus-value. Price is determined by value, which is the average socially-necessary labour-time embodied in commodities. Wages are determined by the value of labour-power, which the labour-time embodied in “wage goods”, or the commodities comprising a “living wage”. Those two quantities – price of output, and wages paid to the workers producing the output – are distinct, and can vary in different ways. The difference between them is surplus-value, expressed in rent, interest, and profit.

If wages are determined by the value of labour-power, then class struggle over wage levels is built in to the system for several reasons.

  • Fundamentally: there is no mechanical balance in capitalist society constantly equating price to value. In fact, values are not known, day to day. Wages are adjusted to “living wage” levels only by struggle.
  • The cost of “wage goods” may rise, just in money terms, or in money terms reflecting an increased labour-time necessary to produce them. Struggle by workers for higher (money) wages is then necessary just to restore the long-term relation.
  • The intensity of labour may be increased, thus increasing the “using-up” of labour-power by the capitalists; or capitalists may try to lengthen working hours. Wage battles may erupt as, so to speak, “displaced” forms of struggle over work intensity or working hours. Workers will and must fight for higher wages, both to deter the capitalists from imposing longer hours, and to gain the means to restore themselves.
  • In the business cycle, wages tend to get pushed down below long-term value in depressions. If only to restore the long-term relation, workers must fight to limit that pushing-down, and to push up wages above long-term value in boom times.

Also, and in some ways more fundamentally, what about the general capitalist tendency to increase the productivity of labour?

“By virtue of the increased productivity of labour… only four hours of the working day, instead of six, [might] be wanted to reproduce an equivalent for the value of the daily necessaries… [Thus the worker might receive the same “real wage”, and yet her or his relative position compared to the capitalist would be worse]. If the working man should resist that reduction of relative wages [relative to capitalist income], he would only try to get some share in the increased productive powers of his own labour”.

And there is built-in scope for that sort of attempt, because the “value of labour-power”, as Marx points out, has a “moral and historical element”. What wage-goods comprise a “living wage” is something relative and fluid, not fixed for all time.

There is inbuilt space for workers to expand that relative and fluid definition.

In “Wages, Price, and Profit”, Marx seems to conclude with a pessimistic estimate. “The general tendency of capitalist production is to sink the average standard of wages”, because wage advances will be met by mechanisation which increases the capitalists’ control and enables them to keep a more-or-less permanent pool of unemployed.

However, I think Marx is here talking of a lower level of wages in terms of equivalent hours of labour-time, which in those days of gold-based currency was roughly equivalent to a lower level of wages in terms of cash. Prices would be more likely to fall than to rise, so a sinking “average standard of wages” might well mean an increasing volume of wage-goods, or “real wage”.

And the “general tendency” is only a “general tendency”. Capitalist production also has a “general tendency” to extend the working day. That calls forth, as we have seen in chapter 10, a counter-tendency of workers’ struggle, which eventually establishes (though never perfectly) a more or less normal working-day.

The “general tendency” to sink wages also calls forth a counter-tendency of workers’ struggle to raise wages. The increased productivity generated by capitalist development means that capital can in fact simultaneously concede increased “real wages” and increase the rate of exploitation.

On the statistical evidence, exactly that has happened over the long term. Fred Moseley has estimated that the rate of exploitation in the USA is now about 300%. Other estimates agree that the rate of exploitation has risen: see for example Michel Husson. In his numerical examples in Capital, Marx takes 100% as the rate of exploitation, and it seems that he did that on the basis of such data as he could get from Engels. The rate of exploitation has risen considerably; but evidently workers can buy much more stuff with their wages in 2012 than they did in 1865 (or even than they did in 1972).

In other writings, Marx points out that capital itself, in a back-handed way, constantly tends to stir up new needs and wants in the working class, and thus (despite itself) to increase the amount of stuff embodied in the “living wage”.

In chapter 22 of Capital, Marx observes that in general wages are higher (will buy more stuff) in more-capitalistically-developed countries (his example: Britain) than in less (his example: Germany), but the wage-cost (“unit labour cost”) of commodities in the more-developed countries tends to be lower because higher productivity outweighs the higher wages.

“Each capitalist does demand that his workers should save, but only his own, because they stand towards him as workers; but by no means the remaining world of workers, for these stand towards him as consumers. In spite of all ‘pious’ speeches he therefore searches for means to spur them on to consumption, to give his wares new charms, to inspire them with new needs by constant chatter etc. It is precisely this side of the relation of capital and labour which is an essential civilizing moment, and on which the historic justification, but also the contemporary power of capital rests”. (Marx, Grundrisse)

“Production of surplus value based on the increase and development of the productive forces requires the production of new consumption; requires that the consuming circle within circulation expands as did the productive circle previously. Firstly quantitative expansion of existing consumption; secondly: creation of new needs by propagating existing ones in a wide circle; thirdly: production of new needs and discovery and creation of new use values”. (Marx, Grundrisse)

“Capital… impels… a greater diversity of production, an extension of the sphere of social needs and the means for their satisfaction, and therefore also impels the development of human productive capacity and thereby the activation of human dispositions in fresh directions. But just as surplus labour time is a condition for free time, this extension of the sphere of needs and the means for their satisfaction is conditioned by the worker’s being chained to the necessary requirements of his life”. (Marx, 1861-3 manuscripts)

“The workers themselves, although they cannot prevent reductions in (real) wages, will not permit them to be reduced to the absolute minimum; on the contrary, they achieve a certain quantitative participation in the general growth of wealth”. (Marx, Theories of Surplus Value part III ch.21. I think “real” wages here means wages as measured in labour-time.)

A few years after Marx’s death, Karl Kautsky summarised this dialectic well:

“The elevation of the working class which the class struggle brings about is less an economic than a moral one. The economic conditions of the proletarians… improve slightly and slowly… But the self-respect of the proletarians increases and also the respect that other classes of society give them… they are beginning to expect more from themselves… becoming more sensitive towards every slight and every oppression… All the improvements, which some hope and others fear will make the workers contented, must always be less than the demands of the latter, which are the natural result of their moral elevation”.

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