Productivity - Part 6 of 6, Factor Returns

Factor Returns

If the value of a machine, and raw materials is £100 (100 hours of labour), and 100 hours of current labour is used to produce commodities, then these commodities have a value equal to 200 hours of labour/£200. If a hectare of land is used, this land has no value, and contributes nothing to the value of the production. So, there is no reason why the capitalist should be paid more than £100 for the machine and materials used in production, and no reason the landlord should be paid anything at all, a conclusion that radical bourgeois Ricardians arrived at, too. Indeed, Walras arrived at the conclusion that, in a capitalist economy, with perfect competition, profit would be competed away, a similar conclusion to that reached by Adam Smith more than a century earlier. William Baumol also came to that conclusion.

But, it is clearly nonsense, because, in a capitalist economy, where land is private property, the landowner will not permit its use unless they obtain a rent for it, and similarly, the capitalist does not advance capital out of a sense of civic duty and altruism, but solely to make profits, and those profits are the basis upon which the industrial capitalist pays rent to the landlord, and interest to the bank, bond or share holder for the money-capital they borrow. The profit does not derive from the new value created by capital, any more than rent derives from the value created by land. The profit is created by the fact that the workers create more new value in production than is required to reproduce the value of their labour-power/wages.

There will, indeed, be times when labour becomes relatively scarce, and so when wages rise at the expense of those profits, for example, in the 1840's-1860's, 1890's-1910's, 1950's-1970's (and again in the 2000's, until, after 2008/10, states deliberately slowed economic growth and capital accumulation, and so the increase in employment and wages, but which is breaking through once more) but, when that process reaches a point at which profit margins are squeezed to an extent that crises of overproduction of capital arise, the capitalists engage in a new period of technological innovation, so replacing labour with technology, creating a new relative surplus population and consequent fall in wages and rise in profits. So long as control over industrial capital is in the hands of the bourgeoisie that will always be the case.

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