Tuesday, 27 July 2010

Wages, Prices And Profit - Part 2

“The history of these Unions is a long series of defeats of the working-men, interrupted by a few isolated victories. All these efforts naturally cannot alter the economic law according to which wages are determined by the relation between supply and demand in the labour market. Hence the Unions remain powerless against all great forces which influence this relation. In a commercial crisis the Union itself must reduce wages or dissolve wholly; and in a time of considerable increase in the demand for labour, it cannot fix the rate of wages higher than would be reached spontaneously by the competition of the capitalists among themselves.”

“I think I have shown that their struggles for the standard of wages are incidents inseparable from the whole wages system, that in 99 cases out of 100 their efforts at raising wages are only efforts at maintaining the given value of labour, and that the necessity of debating their price with the capitalist is inherent to their condition of having to sell themselves as commodities. ... the working class ought not to exaggerate to themselves the ultimate working of these everyday struggles. They ought not to forget that they are fighting with effects, but not with the causes of those effects; that they are retarding the downward movement, but not changing its direction; that they are applying palliatives, not curing the malady. They ought, therefore, not to be exclusively absorbed in these unavoidable guerilla fights incessantly springing up from the never ceasing encroachments of capital or changes of the market.”

Perhaps the most obvious empirical evidence against the idea that workers living standards rise as a result of distributional struggle is the fact that the majority of workers do not belong to trade unions. On average, the percentage of unionised workers, in Britain, is around 25%. At best, such an explanation could only account for rising living standards for unionised workers. But, even there, a look at the statistics shows that, in most years, only a small minority, even of these unionised workers, are involved in anything that might be described as “class struggle” (a misnomer because, as Lenin says, arguing against the Economists, any such struggles, are only sectional not class wide). Most of the time, wages rise as a result of straightforward collective bargaining, without workers resorting to strikes, or any other form of industrial action. That is employers concede the agreed pay rise rather than having to be forced to do so. In many cases, especially with larger employers, collective bargaining is itself seen as merely a more rational means of arriving at such agreements than having to negotiate with workers on an individual basis. But, it is clearly the case that elsewhere, workers receive pay rises even where they are not in unions, and where no such collective bargaining agreements exist.

That does not appear the case since 2008, because of the imposition of austerity, and an active attempt to hold back economic growth, and the demand for labour-power, which would have caused interest rates to rise, and again caused asset prices to crash.  But, prior to 2008, wages were rising sharply.  It may well be the case that workers in unions enjoy higher wages than non-unionised workers, but, in large part, that appears to be more due to the fact that the highest instances of unionisation are in large, as opposed to small, enterprises, which in themselves are able to pass on some of the advantages of their own size to the workers. That is clearly not always the case, as Wal-Mart demonstrates.  But, Lenin's analysis in "The Development of Capitalism In Russia" showed the same profile that the larger the enterprise, the better the wages and conditions for workers.

The other empirical evidence in relation to that is the experience where trades unions themselves have been banned. In Germany under the “Anti-Socialist Laws” of the 19th century. Yet, again workers living standards in Germany rose quite strongly during the latter part of that period as German capital experienced rapid growth. A more recent example would be China, where although “trades unions” are not banned, independent trades unions are. The state run unions have acted to control any industrial action by workers, and yet workers living standards again have risen sharply. At the beginning of the 19th century, as Marx shows in Capital, the consequence of the General Enclosure Act of 1801, was to drive millions of peasants off their land and into the towns, creating, for the first time, a mass, available working class, for capital to exploit. Living standards fell dramatically. Yet, by the middle of the 19th century, workers living standards had risen considerably. That process was by no means a continual one, as the “Hungry Forties” demonstrated when thousands of workers starved in the northern towns, as a consequence of unemployment. Yet, living standards did rise, and that rise cannot be explained by the action of trades unions, for the majority of workers, because during that period it was only the skilled workers who were unionised. Unskilled workers were only unionised as a result of the “New Unionism towards the end of the century. I would suggest that the explanation here is that it was the mass influx of peasants into the towns, which created a large supply of labour-power, which pushed down wages, and it was the reaching of a state of equilibrium in the labour market, which explains the fact that wages gradually rose. Similarly, we see in China today, workers not only demanding 30-50% pay rises, but winning such rises with the backing of the State Chinese Workers and the State, a situation, which is again due to the fact that the available supply of Chinese workers has begun to dry up.

I am not suggesting that trades unions, or industrial struggle, have no part to play in this process, I am merely reinforcing Marx's analysis that its role is marginal, and conditional upon other factors. I now want to turn to the basic mechanism by which the rise in workers living standards is effected, and then to deal with how that itself is conditional upon other factors.

In fact, the mechanism is the reverse of that which Marx set out as against Weston, in showing that workers could not simply push up wages beyond the value of labour-power. Suppose we take the position for capital as a whole as being:

C 2000 + V 1000 + S 1000 = K 4000.

Let us say that the wage bundle that makes up V consists of a “standard commodity” (X), and this V = 1000 units of it. Let us now assume that capital succeeds in reducing the exchange value of this Standard Commodity by 50%, so that the value of labour power falls accordingly. If workers continue to consumer the same 1000 units of X, then they will only need to be paid V = 500, or if we assess each of these units as 1 hour of labour-time, they will only need to work 500 hours rather than 1000, to reproduce the value of their labour power. Surplus value will rise accordingly.

C 2000 + V 500 + S 1500 = K 4000.

But, what is the consequence of this rise in S? It could be that out of much increased surplus value, Capitalists increase their unproductive consumption. More likely, seeing a higher rate of profit, Capital will accumulate more rapidly as capitalists seek to maximise their profits further. And, more than that, the higher rate of profit is likely to encourage an accumulation of capital from other sources. Petit-bourgeois, and even workers seeing the higher rate of profit, and improved position of Capital v Labour, may seek to mobilise their hoarded cash, or might seek to access credit from banks, who have acquired their own share of that increased surplus value, in order to convert it to capital, and start their own businesses. Not only will this mean that there is an increased supply of capital, but to the extent that these petit-bourgeois (in part), and certainly workers, were suppliers of labour-power, the supply of labour-power is reduced. Overall the consequence is that the Supply of Capital is increased, and the supply of labour-power is reduced, just at the moment when the increased supply and accumulation of capital means that the demand for labour-power is raised.  This is the argument Adam Smith proposed to explain the law of the tendency for the rate of profit to fall.  Its also the process Marx describes in Capital III, Chapter 15, to explain the overproduction of capital.

If we assume that we began with a situation, in which there was full-employment (a constraint I will relax later), then the consequence will be that the price of labour-power (wages) must rise. The rise in price, given full-employment, will mean that its supply will increase via the working of overtime, for example. The consequence is that wages will rise above the value of labour-power, and this will mean that workers can now consume not just 1000 units of X, but 1000 x (1+n) units where n equals the percentage rise in wages. So if wages rise 20%, then the wage bundle will now be 1200X. But, these additional 200 units of X, require production. That production is facilitated by the fact that there has been capital accumulation resulting from the preceding rise in S. The consequence is that the economy sees a shift in its production function towards a greater quantity and variety of wage goods.  That is also what Marx describes in Value, Price and Profit, as resulting from a rise in wages, rather than Weston's claim that it results in a rise in inflation.

"Instead of being limited to some branches of industry, the fall in the rate of profit consequent upon the rise of wages would have become general. According to our supposition, there would have taken place no change in the productive powers of labour, nor in the aggregate amount of production, but that given amount of production would have changed its form. A greater part of the produce would exist in the shape of necessaries, a lesser part in the shape of luxuries, or what comes to the same, a lesser part would be exchanged for foreign luxuries, and be consumed in its original form, or, what again comes to the same, a greater part of the native produce would be exchanged for foreign necessaries instead of for luxuries. The general rise in the rate of wages would, therefore, after a temporary disturbance of market prices, only result in a general fall of the rate of profit without any permanent change in the prices of commodities."

This is still consistent with a rise in the organic composition of capital, and with a growth in the production of means of production, for the simple reason that these additional wage goods, themselves require additional production of means of production for their own production. Once this shift in production is accomplished a new equilibrium is established. If all of the 1500S is accumulated, and then without the rise in wages, we would have,

C 3200 + V 800 + S 2400 = K 6400, allowing for a 20% rise in wages then,

C 3200 + V 960 + S 2240 = K 6400.

Compared to the original situation C/V (the organic composition of capital) has risen from 200% to 333%. S/V (the rate of exploitation) has risen from 100% to 233%, and the S/(C+V) (the rate of profit) has gone from 33.3% to 53.8%. Yet, workers real living standards have risen by 20%, and production of wage goods X now stands at 1920 units as opposed to 1,000 units. The rise in real wages required no element of “class struggle” to effect, but was the result quite simply of the straightforward application of the laws of supply and demand to the price of labour-power in a situation of full-employment, and with a rising demand for Labour-Power arising from increased accumulation. That rise in wages itself creates an increased demand for wage goods, which results in a shift of society's production function, to increased production of wage goods, and the means of production required to produce them.

Back To Part 1

Forward To Part 3

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