But, similarly, by presenting all of these revenues as simply a price of various factors of production, orthodox economics also disguises the nature of commodity prices themselves, and of changes in those prices. It is the basis of its claims that wage rises cause inflation. Nominal wages are the money price of labour-power, whose value is determined by the value of the commodities required for its production. If the value of those commodities – wage goods – rises, as a result of a fall in social productivity, then its clear that, rather than a rise in wages being the cause of such higher prices, it is a consequence of it. Moreover, the prices of those wage goods may rise, without there being any change in social productivity, or change in their value. The rise in their price may simply be a consequence of a fall in the value of money/standard of prices, as described by Marx, i.e. inflation. In that case, its clear, again, that the higher wages are not the cause of these higher prices, but a consequence of them.
Furthermore, even assuming no change in the value of labour-power, and a rise in wages, then, resulting from a change in the level of demand and supply for labour-power, such higher wages do not result in higher values of commodities/commodity prices, but in a larger proportion of that value resolving into wages, and a consequently smaller proportion into surplus value (profit, rent, interest, taxes). If commodity prices rise, subsequent to any such rise in wages, it is not as a consequence of the rise in wages, itself, but a consequence of central banks facilitating capital in seeking to maintain its previous rate of profit, via increasing liquidity, and devaluing the standard of prices, so as to create inflation. It is that which sets in motion an inflationary spiral, as workers, then have to compensate for these higher commodity prices, by seeking further rises in their money wages.
Its real wages that actually represent the value of labour-power, whilst nominal or money wages may rise above or fall below them. In other words, money wages may be high enough to buy more of the commodities than required for the reproduction of labour-power, leading to a rise in workers' living standards, including an expansion of the range of goods and services they consume. Such periods occur when the economy grows more rapidly, and the demand for labour results in higher money wages. At other times, the opposite will occur, as a surplus of labour exists, pushing down on money wages, so they buy less of the commodities required to reproduce labour-power. Living standards fall.
A rise in workers living standards, of itself does not challenge the position of capital, as the above demonstrates. Money wages and real wages may rise, but do so by less than the rise in social productivity, so that the proportion of necessary labour falls, and surplus labour rises. This was the basis of the social-democratic consensus and of Fordism. It is the rise in relative wages that challenges capital, i.e. the growing proportion of wage share of total output at the expense of profit, as happened, between 1900-1914, 1960-1980, which, ultimately leads to a crisis of overproduction of capital.
Capital responds to such crises by a technological revolution, creating a relative surplus population, and fall in the proportion of necessary to surplus labour, as seen in the 1930's, and 1980's.
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