Marxist and orthodox economics both use the term real wages, but Marxists mean something subtly, but fundamentally, different by it.
Orthodox economics uses the term “real wages”, in the same way it talks about “real interest rates”, or “real profits”, as against nominal interest rates or nominal profits. In other words, it means the nominal change in these revenues, less inflation. In fact, not even, really, less inflation, but less the change in the market prices of some chosen basket of commodities. The fact that each country has various such baskets, going under the heading of CPI (Consumer Price Index), RPI (Retail Price Index), and so on, is indication that these are not measures of inflation, which, as Marx describes, in A Contribution To The Critique of Political Economy, The Poverty of Philosophy, Wage Labour and Capital, and elsewhere, is a monetary phenomenon, arising from the devaluation of the standard of prices.
These different price indices are used by states more as policy tools. For example, when they index pensions and benefits, they have shifted from RPI to CPI, as the latter has generally produced a lower figure, enabling the state to reduce the amount of increase paid to pensioners and claimants. Indeed, when it comes to their discussion of “real interest rates”, they do not even use the figure of nominal rates minus “inflation”, but nominal rates minus some, often fanciful, figure of their target “inflation” rate. In all these cases, the starting point is of the conception of revenues to factors of production – labour (wages), capital (interest), entrepreneurship (profit).
There is, of course, a valid point to this, in that money prices disguise the nature of exchange of commodities i.e. C – M – C, as an exchange of equal values. The seller of a commodity, be that commodity hats or labour-power, does so, in order to obtain, in exchange, some other commodity, which, for them, has greater use-value. If nominal wages, interest rates or profits remain constant, but commodity prices rise, then those nominal revenues, will buy fewer of the commodities they previously were able to buy, i.e. their relative value will have fallen. Of course, as Marx sets out, in Theories of Surplus Value, Chapter 17 et sub, one of those commodities the seller seeks to obtain is money, itself, the general commodity, contrary to the assertion of Mill, Say and Ricardo – Say's Law.
As with all these other commodities the value of the money commodity, or the standard of prices, may rise or fall, too, changing its exchange-value to every other commodity, which is the real nature of inflation/deflation. If money wages remain constant, but commodity prices rise, then those wages will buy fewer commodities, and this is what orthodox economics means by falling real wages, and vice versa. If nominal interest rates remain constant, but commodity prices rise, the money-lending capitalist will have to use more of their revenue to buy the commodities they consume, leaving less for them to lend out as money-capital. If nominal profits remain constant, but commodity prices rise those profits will buy fewer additional means of production, meaning a slower rate of capital accumulation. The same is true with rents and taxes.
However, what all of this presents is a picture of revenues paid simply as the price of the supply of different factors of production – labour, land, capital, entrepreneurship. But, Marx demonstrated that what the wage-labourer sells is not labour, but their labour power. In Capital III, and Theories of Surplus Value, Marx also examines these revenues, and the claims made by bourgeois economics, going back to Adam Smith's Trinity Formula. The revenues are presented as being the price paid for the supply of the given factor of production, equal to the value it contributes to production. If we take land, it has no value. It is not the product of labour. So, its price should be zero, and rent cannot, then, be a price for its supply.
If we take capital, in the form of productive-capital, its components, as commodities, each have value, but, transferred into the end product, they are only capable of reproducing themselves, and not of producing profit, so profit cannot be a price for the supply of productive-capital by the entrepreneur. The entrepreneur's labour in the form of the labour of superintendence, as with that of the orchestra conductor described by Marx, may add value, but its equivalent is, then, only as a form of specific labour, and so wages, not profit.
If we take capital in the form of money-capital, it consists of the general commodity – money – just as productive-capital consists of the commodities that comprise the component parts of the means of production. The value of £100 can only be £100, it cannot be £110, which would be a logical absurdity. So, interest of £10 cannot be the price of money-capital either. Yet, all these prices, and revenues exist, under capitalism, despite being irrational. They exist, because capital is not a thing, but a social relation, and as a product of this social relation, surplus value is produced, which takes the form, first of profit, from which is then deducted rent, interest and taxes.
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