The problem for Mill is also in determining what it is that is demanded and supplied, and by whom? Mill's position is that the capitalist and worker are both commodity owners. The capitalist might then demand the labour of the worker as represented in its product of 2 metres of linen. But, that means the struggle of demand and supply over this 2 metres, occurs even before it has been produced. In that case, we are back to it being the case that what the worker supplies is not the linen but the labour, and the question of what they should be paid for it?
“And when he says that what is happening here is not the exchange of equivalents, or that the value of labour the commodity sold, is not measured by “the labour-time” itself, but by competition, by demand and supply, then he admits that Ricardo’s theory breaks down, that his opponents are right, that the determination of the value of commodities by labour-time is false, because the value of the most important commodity, labour itself, contradicts this law of value of commodities. As we shall see later, Wakefield says this quite explicitly.” (p 95)
Mill wriggles endlessly to try to find a way out of this dilemma. For example, he says, suppose that a situation exists whereby labour and capital have resolved upon a stable proportion in which the product of labour should be divided between them. If the population rises, the additional workers will seek work, and they will do this by offering to work for lower wages, so the fixed proportion of output going to wages will be disturbed. Similarly, if the number of workers remains the same, but more capital is accumulated, wages will rise. But, his attempt to resolve this dilemma, here, by demand and supply only indicates how changes in each will cause wages to rise or fall from the predetermined proportion he began with. The question he had to address was what determined that original equilibrium position. In other words, he seeks a solution in competition, but his starting point is one predetermined prior to any such competition.
“Moreover, in order to demonstrate how competition alters the division of the product which is determined “at some particular point”, he assumes that workers “offer to work for a smaller reward” when their number grows more rapidly than the quantity of capital. Thus he says here outright that what the workers supply consists of “labour” and that they offer this labour for a “reward”, i.e., money, a definite quantity of “hoarded labour”. In order to avoid direct exchange between labour and capital, direct sale of labour, he has recourse to the theory of the “division of the product”.” (p 97)
Mill's efforts to explain these contradictions indicate that he realises that there is a problem with the Ricardian model, but he cannot resolve those contradictions without abandoning the theory. Mill correctly attacks the view of Malthus, Torrens and others that the value of commodities is determined by the value of capital, i.e. by the value of capital plus an amount of profit. Mill correctly states, as against this view, that capital is itself comprised of commodities.
““Capital is commodities. If the value of commodities, then, depends upon the value of capital, it depends upon the value of commodities; the value of commodities depends upon itself” ([James Mill,] Elements of Political Economy, London, 1821, p. 74). (p 97)
Mill, as a proponent of the industrial bourgeoisie, does not hide the contradiction between the interests of capital and labour. Like Ricardo, he sees the accumulation of capital as an end in itself, and the means to that was via the industrial capitalists. To that end,
“It is necessary that the mass of the labourers should not be masters of their own time and slaves of their own needs, so that human (social) capacities can develop freely in the classes for which the working class serves merely as a basis. The working class represents lack of development in order that other classes can represent human development. This in fact is the contradiction in which bourgeois society develops, as has every hitherto existing society, and this is declared to be a necessary law, i.e., the existing state of affairs is declared to be absolutely reasonable.” (p 97-8)
However, it was also on this basis that Ricardo argued against Smith that what was important was the net product rather than the gross product. Ricardo believed that productivity needed to be raised as high as possible so that those unfortunate enough to have to labour, and produce the surplus product appropriated by others, could be kept to a minimum.
As a Ricardian, Mill defines capital as merely a different form of labour, i.e. hoarded rather than immediate labour, and this is the root of his dilemma of why the one form of labour – hoarded labour – should have a higher value than the other form of labour. In other words, why is it that 5 hours of hoarded labour buys 10 hours of immediate labour? Moreover, it is not just accidentally or occasionally the case that the former exchanges for a greater quantity of the latter. It is always the case. And, that has to be the case, or else the capitalist would make no profit. (NB. The cases where firms make losses are very rarely because workers have been paid higher wages than the new value they create. It is nearly always the case that the firm makes a loss because they cannot realise the new value that has been created, or that the firm employed labour to engage in production of products, which were not, in fact, use values, i.e. not demanded at their current price of production.)
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