Theories of Surplus Value, Part II, Chapter 10 - Part 34

[2. Adam Smith’s Theory of the “Natural Rate” of Wages, Profit and Rent]

Its when Adam Smith comes to analyse these different factors of production that the contradictions in his theory become apparent, as a result of adopting this cost of production theory of value. So, he correctly begins again by identifying the nature of surplus value as the difference between the value of labour-power and the value created by that labour-power. He correctly identifies that it is the same whether this surplus value appears as rent or profit. But, he must then ask what the value of the labour-power, or, in his terminology, labour, is.

Again, correctly, he identifies that it is what is required to ensure the reproduction of the labourer, and future generations of labourer.

““A man must always live by his work, and his wages must at least be sufficient to maintain him, They must even upon most occasions be somewhat more, otherwise it would he impossible for him to bring up a family, and the race of such workmen could not last beyond the first generation” ([O.U.P., Vol. I, p. 75; Garnier,] l.c., p. 136).” (p 222) 

But, what then is the value of these means of subsistence? He arrives at a circular argument. The value of commodities is determined by their cost of production, or the value of the factors of their production. What is the value of Labour? It is the value of the commodities required to reproduce the labourer!

“The price of wages is determined by the price of the means of subsistence and the price of the means of subsistence is determined by the price of wages.” (p 222)

In Chapter VIII, of Book I, of The Wealth of Nations, Marx says, Smith provides nothing to explain the actual rate of wages. Having found himself in this vicious circle, he specifies the basis of a minimum wage, but argues that wages in different areas vary far more than the variation in the prices of necessities. He spends most of the chapter discussing rises in wages above their natural rate, “demonstrating that the rise of wages is proportionate to the rapidity with which capital accumulates, that is, to the progressive accumulation of capital.” (p 223) 

In the process, he states that the determination of commodity values by wages, and of wages by commodity values does not appear to apply to England. And, of course, this is the case, because in England, increasing levels of productivity meant that the values of commodities continually fell. But, not only did commodity values fall, wages rose! There was no contradiction here, because the increasing productivity meant that wages could rise in absolute terms, whilst comprising a smaller part of the total value produced, so that surplus value also increased.

Smith also sets forward a population theory, in relation to wages. Essentially, it depends upon supply and demand. If the demand for labour is high, wages will rise, and workers will have more children. If wages are low, it does not mean that workers are deterred from having children, but that they are more likely to perish.

Smith also describes why slaves are more expensive, and less profitable than free wage workers. The wear and tear of the slave is the responsibility of a master or overseer, who will be likely to be more negligent in that task. The free worker, however, is responsible for their own maintenance, and is likely to be more careful in undertaking it at the least cost to themselves.

“It is characteristic in the determination of the minimum wage or the natural price of labour, that it is lower for the free wage-labourer than for the slave.” (p 225)

Smith also sets out the argument for higher wages.

“It not only “encourages the propagation”, but also “increases the industry of the common people. The wages of labour are the encouragement of industry, which, like every other human quality, improves in proportion to the encouragement it receives. A plentiful subsistence increases the bodily strength of the labourer, and the comfortable hope of bettering his condition… animates him to exert that strength to the utmost. Where wages are high, accordingly, we shall always find the workmen more active, diligent, and expeditious than where they are low” ([O.U.P., Vol. I, pp. 90-91; Garnier,] l.c., p. 166).” (p 225) 

But, he also argues against the encouragement to overwork that stems from piece-work.

Smith then sets out an argument as to why wages are more stable than commodity prices. In a year of plenty, he says, the demand for labour is high, and this pushes wages higher. But, because it is a year of plenty, commodity prices are low, and so wages are determined by these commodity prices, and this tends to push wages lower. In a year of scarcity, the demand for labour is lower, pushing wages down, but commodity prices are higher, pushing wages higher.

“As against the concept of wages as the source of the value of commodities, he finally, after all this zigzagging, again advances his original, more profound view, that the value of commodities is determined by the quantity of labour; and if in good years, or with the growth of capital, the worker receives more commodities, then he also produces far more commodities, that is to say the individual commodity contains a smaller quantity of labour. He can therefore receive a greater quantity of commodities of less value and thus—this is the implied conclusion— profit can grow, despite rising absolute wages.” (p 226)

In other words, Marx says, the labour is better paid, but less of it is contained in the value of each commodity, because each unit of labour produces many more commodities. 

“ He thus allows his false theory, according to which the value of the commodity is determined by the wage as a constituent element of the value, to be annulled, or rather paralysed, counterbalanced by his correct theory, according to which the value [of the commodity] is determined by the quantity of labour it contains.” (p 226-7)

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