Sunday, 15 February 2015

Capital II, Chapter 20 - Part 54

The secret of the surplus value, as we have seen, is not that the capitalist makes a deduction from wages, or pays workers less than the value of their labour-power, which would lead to the destruction of the workers, and consequently to the destruction of capital itself. It is that the workers are paid the value of their labour-power but create, for capital, in return a greater value. But, for capital to be able to realise this surplus value, the capitalists, as a class, must possess, physically, the surplus product within which this surplus value is embodied.

“The capitalist gets richer by appropriating, besides the surplus-value — that portion of the product in which surplus-value is represented — 25 per cent of that portion of the product which the labourer should receive in the form of wages.” (p 489)

Marx is both correct and incorrect in his further comment here. He says,

“The capitalist class would not gain anything by the silly method Destutt conceived. It pays £100 in wages and gives back to the labourer for these £100 £80 worth of his own product. But in the next transaction it must again advance £100 for the same procedure. It would thus be indulging in the useless sport of advancing £100 in money and giving in exchange £80 in commodities, instead of advancing £80 in money and supplying in exchange for it £80 in commodities. That is to say, it would be continually advancing to no purpose a money-capital which is 25 per cent in excess of that required for the circulation of its variable capital, which is a very peculiar method of getting rich.” (p 488)

Marx is absolutely correct that there is no difference between paying the workers £100 in wages, and then selling them commodities, worth £80, for £100, than paying wages of £80, and selling workers commodities valued at £80, for £80. Provided the value of labour-power is £80, and the workers produce commodities with a value of £100, a surplus value of £20 is produced either way. There seems no logical reason to choose the former method over the latter, given that it is more convoluted.

But, of course, in the last century, we have seen precisely why capital has chosen this more convoluted option. It is this. In analysing piece wages, Marx highlighted a problem for capital. If the value of labour-power is £50 per day, then if piece workers produce 50 pieces per day, they are paid £1 per piece. With a 100% rate of surplus value, the capitalist also makes a surplus value of £50 per day, £1 per piece. But, if productivity rises, perhaps because of a new machine, then workers might produce 100 pieces per day. If they continue to be paid £1 per piece, their wages will rise to £100 per day, whilst the surplus value will disappear. Capital needs to reduce the payment per piece to £0.50. But, there is no reason workers would voluntarily agree to such a reduction. Marx points out that this led to continual conflicts between workers and employers.

But, what applies to piece rates applies also to day rates. If increases in productivity mean that whereas previously 6 hours per day were required to reproduce the value of labour-power, only 3 are now required, then nominal wages should also fall by 50%, in line with the fall in the value of labour-power.

As capital moved away from the extraction of absolute surplus value, and towards relative surplus value, it was precisely this kind of continual increase in productivity that made it possible. But, the same problem, identified by Marx, in relation to piece wages, is noted by Keynes in relation to wages in general, i.e. they are “sticky downwards”. Productivity rises, the value of commodities falls, and so the value of labour-power falls, but workers resist any reduction in their nominal wages.

The simple answer then is to utilise precisely the kind of “money illusion” involved in Destutt's argument. Rather than nominal wages falling, as productivity rises, they stay the same, or increase slightly, but money prices for the commodities the workers buy for their subsistence also rise, whereas their value falls! The whole secret of Fordism was that if productivity rises by more than the rise in workers real wages, profits can also continue to rise, whilst workers become incorporated, because they feel they are sharing in the benefits of the system. For example,

C 1000 + V 1000 + S 1000 = E 3000 = 3000 units.

The price per unit is then £1. Wages buy 1000 units. If productivity doubles, the value of labour-power falls by 50%, meaning surplus value rises.

C 1000 + V 500 + S 1500 = 3000 = 6000 units.

Price per unit = £0.50. Wages still buy 1000 units, so real wages are constant. Workers still produce the same amount of new value, equal to 2000, but now, surplus value accounts for 75% of it. In fact, as Marx pointed out in Volume I, capital benefits further here, because this surplus value of 1500 now buys 3000 units of output, whereas previously it would only have bought 1500.

However, if nominal prices also double.

C 2000 + V 1000 + S 3000 = 6000 = 6000 units.

Here nominal wages have remained constant, and the nominal price per unit of output has also remained constant, although its value has been halved.. But, workers can still only buy 1000 units of output so, their real wage is unchanged.

Finally, if real wages also rise by 10%,

C 2000 + V 1100 + S 2900 = 6000 = 6000 units

The new value created by workers remains 2000, but at the new inflated prices appears as 4000. With a 10% rise in real wages, the workers now have nominal wages of 1100, which buys 1100 units rather than 1000 units. But, even with this rise in real wages, surplus value has risen compared to the original situation, because of the increase in productivity, which generates a rise in relative surplus value. Originally, the surplus value of 1000 would have bought 1000 units. Now the surplus value at nominal prices of 2900, buys 2900 units.

Originally, the rate of profit was s/c+v = 1000/1000 + 1000 = 50%. Now the Rate of Profit is 2900/3100 = 93.5%!

The establishment of the Federal Reserve in 1913, and the role of other central banks, in printing money to ensure that nominal price levels do not fall, has been vital to this process of 'money illusion' to ensure that relative surplus value could continue to be pumped out of workers, as rapidly rising productivity brought about continual reductions in the value of commodities. That has been marked over the last period. Huge advances in technology, as well as the bringing into the realm of exchange value of massive swathes of the globe in Asia and elsewhere, led to a significant fall in the value of commodities, and of labour-power. To avoid large falls in nominal wages – and nominal prices which are damaging for oligopolies – central banks printed huge amounts of money to create this kind of money illusion. The side effect was to blow up massive asset price bubbles in stocks, bonds and property, and to encourage workers to borrow against it.

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