Nominal Wages - Part 2 of 4

Marx notes, therefore, the effect of constant, falling or rising nominal wages, in different conditions. If we begin by considering the situation in terms of a money commodity, such as gold, then, the nominal wage might be set as 10 grams of gold per day. As described above, this is the price of labour-power for a day, and so equal to the value of all those wage goods required for the reproduction of the labourer. But, if the value of gold falls, then the prices of all commodities rises, because, as money commodity, the prices of commodities are simply their exchange-value against gold. In other words there is inflation resulting from this fall in the value of money.

If nominal wages remain at 10 grams of gold per day, these 10 gram of gold, will, now, buy a smaller quantity of those wage goods required for the reproduction of the worker's labour-power. In other words, real wages will have fallen. But, nominal/money wages are set and paid, in advance of the worker using those money wages to buy all of those commodities, whose prices have now risen as a result of the inflation/fall in the value of money/gold.

“In the 16th century, the gold and silver circulation in Europe increased in consequence of the discovery of richer and more easily worked mines in America. The value of gold and silver, therefore, fell in relation to other commodities. The workers received the same amount of coined silver for their labour-power as before. The money price of their work remained the same, and yet their wages had fallen, for in exchange for the same amount of silver they obtained a smaller amount of other commodities. This was one of the circumstances which furthered the growth of capital, the rise of the bourgeoisie, in the 18th century.”

(Marx – Wage-Labour and Capital)

Indeed, as Marx sets out in Capital, it was this same factor that meant that landlords, who had fixed rents in money terms for long rental periods, lost out as this same inflation of commodity prices, due to a fall in the value of money, meant that rents fell in real terms, bringing about a deterioration of the position of landlords to the benefit of industrial capital, and of the urban areas at the expense of the countryside.

As Marx describes, in A Contribution To The Critique of Political Economy, however, it is not simply a fall in the value of the money commodity that can result in a fall in the value of the standard of prices. The standard of prices, say the £, is really just a proxy for a given quantity of universal labour, which is the indirect measure of the value of commodities, i.e. their exchange-value, measured against it. The £ might start out as being equal to a gram of gold, but, over time, the state can reduce this standard to being much smaller quantities of gold, say one-hundredth of a gram. The value of gold itself, may remain constant, therefore, and yet, the value of £1, might fall to just a hundredth of its previous value, because it now represents only a hundredth of a gram of gold, and so a hundredth of the amount of universal labour, it previously did.

“As a result of an historical process, which, as we shall explain later, was determined by the nature of metallic currency, the names of particular weights were retained for constantly changing and diminishing weights of precious metals functioning as the standard of price. Thus the English pound sterling denotes less than one-third of its original weight, the pound Scots before the Union only 1/36, the French livre 1/74, the Spanish maravedi less than 1/1,000 and the Portuguese rei an even smaller proportion. Historical development thus led to a separation of the money names of certain weights of metals from the common names of these weights.”

(A Contribution To The Critique of Political Economy, Chapter 2)

When we come to fiat currencies, i.e. a standard of prices/currency unit that is no longer redeemable for a given quantity of precious metal, its value is determined solely by the quantity of it thrown into circulation.

“Whereas, therefore, the quantity of gold in circulation depends on the prices of commodities, the value of the paper in circulation, on the other hand, depends solely on its own quantity...

Gold circulates because it has value, whereas paper has value because it circulates. If the exchange-value of commodities is given, the quantity of gold in circulation depends on its value, whereas the value of paper tokens depends on the number of tokens in circulation. The amount of gold in circulation increases or decreases with the rise or fall of commodity-prices, whereas commodity-prices seem to rise or fall with the changing amount of paper in circulation.”

(ibid)

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