That is how things actually stand from the perspective of values and prices. However, in practice, things work out differently. Firms do not have to accept a rise in wages resulting in lower profits. They trade with each other on the basis of commercial credit. Firm A raises its prices by 10%, and firm B buys inputs from A at this higher price as invoiced. Firm B passes on these higher costs, and its own, in the prices of its own output, as invoiced to C, who, in turn, raises prices by 10% invoiced to A. With no increase in currency supply by the central bank, commercial credit automatically expanded by 10%, and enabled the this devaluation of the currency and rise in prices.
Similarly, central banks ensure that liquidity is sufficient for all firms to raise prices, rather than suffer the required fall in profits, resulting from a rise in wages. Its on this basis that they describe a price-wage spiral, as rather being a wage-price spiral. The ideological purpose of that is to suggest to workers that there is no point seeking these compensating higher wages, and, if only they would desist, the inflation would end.
“There reigns now on the Continent a real epidemic of strikes, and a general clamour for a rise of wages. The question will turn up at our Congress. You, as the head of the International Association, ought to have settled convictions upon this paramount question. For my own part, I considered it therefore my duty to enter fully into the matter, even at the peril of putting your patience to a severe test.
Another preliminary remark I have to make in regard to Citizen Weston. He has not only proposed to you, but has publicly defended, in the interest of the working class, as he thinks, opinions he knows to be most unpopular with the working class. Such an exhibition of moral courage all of us must highly honour. I hope that, despite the unvarnished style of my paper, at its conclusion he will find me agreeing with what appears to me the just idea lying at the bottom of his theses, which, however, in their present form, I cannot but consider theoretically false and practically dangerous.” (p 9-10)
What Marx agreed with Weston about was that, ultimately, workers could not simply rely on trades union struggle for higher wages, to combat higher prices. In that struggle, labour would always lose in the end. If wages rose for a time, eventually, it would lead to capital being overproduced, and crisis. Capital would respond by technological innovation, labour would be replaced, and wages would fall. The solution could not be found within the confines of the wages system, but only outside it, by the abolition of the wages system itself.
However, Weston was in error, in his theoretical explanation of why workers could not win, by raising their wages. That theoretical error was the same as that made by Proudhon, of equating labour with labour-power, and consequently the value created by labour with wages.
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