Money Week and the Minimum Wage - Part 1

Money Week Editor, Merryn Somerset Webb, recently wrote this article arguing for a big increase in the Minimum Wage. She had raised the question back in 2010, and came back to it, following the idea being taken up in the Sunday Times. Money Week is certainly not some kind of lefty journal. It can't even be classed alongside some of the more Keynesian sentiments of people like Martin Wolf of the Financial Times. It is part of the Agora Publishing Group owned by Bill Bonner, and whose publications are set well in the mould of Libertarianism, and the economics of the Neo-Austrian School of Mises and Hayek. That these sections are looking at such solutions, demonstrates that the ideologues of Capital are being led to seriously question their faith, as their off the peg solutions continue to fail.

The argument put forward by MW is quite straightforward, and echoes many of the points I have set out myself based on Marx's analysis, over recent months. Marx pointed out, by reference to a number of examples, that although at the level of many capitals i.e. looking at the way each individual capital operates, there is always a tendency to reduce wages to a minimum, for Capital in General i.e. looking at Capital from the perspective of the whole economy, such measures not only offer no long term solution for Capital, but can be contradictory to its interests. For example, at the level of “many capitals”, each individual firm will seek to minimise the wages of their workers, but that means that these workers then have less money to spend on buying the commodities produced by other capitalists. Given, as Marx describes, that the expansion of capital is the expansion of wage labour, that workers continually make up a larger and larger proportion of consumers, such a limitation on workers spending capacity is contrary to the interests of Capital in General.

At the end of the 19^th Century, when as Engels points out, this kind of small-scale competitive stage of Capitalism had ended, and been replaced by the dominance of huge, collectively owned, capitalist concerns, that operated on the basis of planning, a partial solution to this problem was found. Fordism was based on a steady annual rise in workers wages, thereby underpinning rising consumption, but an even larger annual rise in productivity, so that although workers real wages rose, profits rose even more.

But, even before that, Capitalism imposes its own limits on the extent to which individual capitalists can reduce wages. Although, wages appear as being the price of labour, they are, in reality a transformed manifestation – the phenomenal form - of the Value of Labour-Power. The value of Labour-power, like that of any other commodity is determined by the labour-time required for its production i.e. the labour-time required – or for short the money equivalent of that time – for its production. Moreover, the labour-power that is provided is concrete labour, it is the labour of the joiner, the engineer, the book-keeper, and so on, and all of these different types of labour have different costs of production. Capital can reduce wages below these levels for a time, just as for a time, depending on supply and demand, the prices of other commodities will vary from their Exchange Value (or under Capitalism, Price of Production), but, ultimately that price will have to correct, and average itself out.

But, as Marx points out, the Value of this labour is also affected by other factors. A worker who works producing widgets by hand, for example, will have a low level of productivity, whereas a worker who produces them with an advanced machine will have a high level of productivity. Worker A may produce 100 widgets in a 10 hour day, whereas B will produce 10,000 in a day. In reality, Marx points out, it will be as though worker B's Labour is 100 times more valuable than that of A. So, although they both produce exactly the same product, and worker B might even work less arduously than A, B's wages could be higher. That is exactly why, in the 19^th century, Britain was able to pay much higher wages to its workers than those of India, and yet still produce textiles more cheaply. It is why wages in Britain were about 50% higher than in Europe, and yet Britain was still more competitive than France, Belgium, Germany etc.

That was seen in Britain with the example of the hand-loom workers. To begin with the hand-loom workers did extremely well from the Industrial Revolution. As new spinning machines were introduced, the price of cotton and wool dropped sharply. That meant weavers could produce much more cloth, demand for their now cheaper cloth soared, and so did the weavers wages. But, then Capital responded as it always does. It brought in new machines, this time the power-loom. A power-loom could weave as much cloth as dozens of hand-loom weavers. They could only compete by slashing their wages. Weavers wages fell to miserable levels totally incapable of sustaining them. But, although many weavers starved to death, they were enabled to continue in this state of misery for many years, because their wages were made up out of Poor Relief. The Poor Relief offered them still nothing approaching a minimum standard of living, but it meant that they did not do what, perhaps was in their long-term interest, which was to abandon their attempts to compete with the power-looms. At the same time, the Poor Relief was made possible, because of contributions of other workers living in the parish. They were hardly affluent themselves, and the more Poor Relief needed to make up the wages of the weavers, the more these other workers had to contribute, thereby draining their own resources.

The connection between this, and the current situation is fairly obvious, because we have an identical situation today. Welfarism in the form of Benefits such as Housing Benefit, Child Tax Credits etc. fulfil exactly the same function that Poor Relief did. The hand-loom weavers were self employed artisans, and the Poor Relief enabled them to continue operating, despite the fact that the wages they paid themselves were insufficient to cover the Value of their Labour-power. Benefits today, to workers, similarly are subsidies not to those workers but to their employers, who do not even pay them wages sufficient to cover the Value of their Labour-power, insufficient to cover the costs of reproducing these workers. What is more, just like the Poor Relief, those benefits are made possible only because other workers are taxed to raise the money to transfer to them. We know after all that for Capital, tax is a voluntary affair. If better paid workers did not pay tax to make these benefits possible, then either these low paying employers would have to pay higher wages, or they would go bust.

But, in reality, things are not that simple. If the workers that receive these in work benefits suddenly found they stopped, that would have a dramatic immediate effect upon them, before it had an effect on the bosses that employ them. The obvious thing for them to do would be to abandon their job, if the boss would not raise wages, and go on the dole, where they might be as well off. But, JSA regulations prevent that. If we had a worker owned and controlled Social Insurance Scheme, whose aim was partly based on the need to unite the employed and the unemployed, we could avoid that situation, but we don't. We have allowed ourselves to be held hostage to the State Capitalist National Insurance Scheme designed to meet the needs of bosses. A worker owned and controlled Social Insurance Scheme would allow workers to refuse to sell their labour-power to bosses unless they paid a living wage.

In the absence of that, workers finding their Housing Benefit, Tax Credit etc. had been cut, would continue in their jobs, and make up even more of the deficit from borrowing, increasingly borrowing from the modern day usurers in the Pay Day Loan companies, and worse. Moreover, as Marx points out, and in the process destroys the argument of those who say lower wages result in more jobs, workers finding that their incomes have fallen would have another response – work more hours to earn more! That is why contrary to the arguments of the Neo-Austrians, and orthodox economists that lower wages would mean more jobs, the opposite is frequently the case. Lower wages, mean that workers agree to work longer hours – or more intensively on piece work – so as to bring their wages up to a more reasonable level. Because, bosses squeeze more work out of the same number of workers, their demand for workers actually falls! That is why periods of persistent long-term unemployment are frequently accompanied by what seems a paradox – over work.

A simple look at workers in different jobs demonstrates it. Workers at McDonalds on low wages make up for them by working longer hours, and working more intensively. A consultant surgeon paid high wages, is able to decide not to work on a Friday when they are out on the golf course, because their income is high enough without having to work hours that are inconvenient to them. So, the first response of workers given current conditions might well be to put themselves in a worse position, by going deeper into debt, and working longer and harder. Neither are very long term solutions. You can only go deeper into debt up to a point. Eventually, you can't pay back, and you get knee capped by the loan shark. Its only possible to work longer and harder up to a point too. At some point that causes workers to simply wear out, to become too ill to work etc.

Money Week understands the other problems that would result from simply withdrawing these benefits to workers too. Somerset-Webb writes, in a further article,

“We can force companies to raise wages by cutting all benefits to workers right away. That would make it pretty hard for them to get any workers (unemployment benefits would be better), but even if they could get them, I think it would force up wages pretty quickly: would you shop in Tesco if it was clear that every shelf-stacker was slowly starving to death or spending every night sleeping in a tent in the carpark? Me neither.

Still, as short and sharp a solution as abolishing welfare in work in one go might be, I can’t see it happening (nor would I wish the social consequences on anyone).”

The social consequences of course, would likely be a big increase in crime, as well as rioting on the streets! That is why they have come down on the side of increasing the Minimum Wage. Despite, what some of the Neo-Austrians claim, in fact, such a demand is not at all, anti-capitalist, or anti-liberal even. Hayek, in “The Road To Serfdom”, for example, argued that providing a decent minimum guaranteed standard of living did not infringe liberal principles, and was quite possible in a country like Britain. What infringed liberal principles he argued, was only regulations that were arbitrary, and did not affect everyone equally. A Minimum Wage set at a determined figure sufficient to ensure the reproduction of labour-power, is not arbitrary, and because all employers would have to comply with it, it treats none any different from another, any more than laws over pollution etc. That is why the Liberal Winston Churchill was able to introduce the first Minimum Wage in 1909, saying,

“It is a national evil that any class of Her Majesty’s subjects should receive less than a living wage in return for their utmost exertions… where you have what we call sweated trades, you have no organisation, no parity of bargaining, the good employer is undercut by the bad and the bad by the worst; the worker, whose whole livelihood depends upon the industry, is undersold by the worker who only takes up the trade as a second string… where these conditions prevail you have not a condition of progress, but a condition of progressive degeneration.”
Trade Boards Act 1909

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