“All his reasoning amounted to this: If the working class forces the capitalist class to pay five shillings instead of four shillings in the shape of money wages, the capitalist will return in the shape of commodities four shillings' worth instead of five shillings' worth. The working class would have to pay five shillings for what, before the rise of wages, they bought with four shillings.” (p 13-14)
That's basically what the demand-pull theory of inflation says, i.e. if workers have more wages to spend, this increased monetary demand for wage goods will cause the
market price of those wage goods to rise, and, by extension, the market price of the inputs for the production of those wage goods will, also, rise. But, that assumes, as with Weston, that the producers of these wage goods will not expand their supply – which the higher resulting
profits would suggest they would. At best, it would require that, in raising supply, they faced
diminishing returns/rising
marginal costs, but all evidence is that higher levels of output bring
economies of scale, and falling marginal costs.
For Weston, wages represent a fixed amount of national output, which he also assumes is fixed.
“But why is it fixed at four shillings' worth of commodities? Why not at three, or two, or any other sum? If the limit of the amount of wages is settled by an economical law, independent alike of the will of the capitalist and the will of the working man, the first thing Citizen Weston had to do was to state that law and prove it. He ought then, moreover, to have proved that the amount of wages actually paid at every given moment always corresponds exactly to the necessary amount of wages, and never deviates from it. If, on the other hand, the given limit of the amount of wages is founded on the mere will of the capitalist, or the limits of his avarice, it is an arbitrary limit. There is nothing necessary in it. It may be changed by the will of the capitalist, and may, therefore, be changed against his will.” (p 14)
There is, indeed, an objective basis for the determination of
wages. It is
the value of labour-power, as a commodity. In other words, to reproduce
labour-power, a determinate quantity of wage goods and services are required, and the
labour-time required for the production of those commodities is the labour-time required to reproduce labour-power. But, wages are the market price of labour-power, and like every other market price, vary from this determining
value, as a consequence of imbalances in demand and supply. Such variations might persist for days, as with variations in ice cream prices on hot and cold days, or for years.
If we take something lie copper, once firms have invested huge sums in exploration, expensive
fixed capital, for mines, they must optimise the usage of that fixed capital, and attempt to recover their sunk costs. Even if demand for copper falls, they must continue to produce it, because, otherwise, they have expensive machinery losing value in
depreciation. So, excess supply may persist for years, pushing down market prices. But, equally, when the demand for copper rise, firms must first explore for new mines, and then begin the process of developing the mine, which takes around seven years, and more than ten years to reach optimum production. So, for all that time, excess demand pushes up market price.
“As
a result of booming demand, operating profits in the copper industry
have grown dramatically – operating margins up from 8% in 2001 to
38% in 2005. So why does copper supply not increase faster, as the
industry clearly has plenty of cash to invest? To answer this
question, we need to look at the basic economics behind investment
decisions in the copper industry. Much of the added value in
production of copper arises in the mining stage: only 25% of added
value is in smelting / refining but the rest is in extraction and
processing of copper ore. Thus the key supply constraint is the
limited number of mines. When copper demand was lower, there was a
surplus of production capacity and additional supply could be added
simply by increasing throughput from existing mines. But supply
cannot be increased indefinitely without additional copper production
capacity, i.e. new mines. Despite the prevailing very high level of
copper prices, copper supply from mines has not risen as fast as
might be expected. Copper Industry Investors Look at Long Term Prices
The economic theory is that when prices rise due to higher demand,
supply will increase as it becomes possible to operate marginally
economic mines at a profit due to the higher prices. The problem in
practice is that copper is supplied from facilities that require huge
investment in the mine and supporting infrastructure, and a major
investment decision is required. A short-term rise in copper prices –
even when sustained over several months – does not necessarily
change industry investors’ perceptions of the long-term copper
price. Mining companies will not invest in a project unless their
expectations of long-term prices are at a level where the project
becomes attractive.”
Similarly, with labour-power. If
capital creates a
relative surplus population, by introducing labour-saving technologies, workers cannot reduce their numbers, so as to remove excess supply, and so wages fall. Indeed, as Engels pointed out, in such conditions, workers cannot effectively reduce their supply by engaging in strike action, because competition between them, for jobs, mitigates against it. It is only as capital accumulates, on an
extensive basis, that this excess supply is slowly used up, and so wages rise, but this also takes many years. On average it takes around 12-13 years. For example, the period between 1949-62. Then, in the following period of 12-13 years, wages continue to rise, but still consistent with a rising mass of profit, and so without causing a
crisis of overproduction of capital. During such periods, apart from the general, gradual improvements in
productivity, its only in those spheres where specific labour shortages arise that capital undertakes the cost of new technological innovation, and retooling.
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