V – Wages and Prices
Weston puts forward a cost of production theory of value, like that fallen into by Adam Smith, and used by the marginalists. This is different to The Labour Theory of Value, developed by Smith, in his analytical work, and pursued more consistently by Ricardo. The distinction resides in the social cost of production as against the capitalist's individual cost of production, and consequently the difference between the determination of value by the summation of costs of production, i.e. of the component parts of the commodity, as against the resolution of the value of the commodity into these component parts.
So, although Weston, and those who argue a cost of production theory of value never says that the value of commodities is determined by wages, this is what their argument amounts to. What they say is that wages are, say, £10, and the capitalist adds, say, 10% for their profits, and a further 10% to cover rent to the landlord, so that the price of the commodity is £12. As Marx says, this is the same thing as determining the value/price of the commodity by wages, because if wages double, to £20, with a fixed percentage addition for profits and rent, of 10%, the price of the commodity would also double to £24.
This is also the argument used, today, by Keynesians, and other marginalists, to claim that rising wages lead to inflation, via cost-push. But, its also used by Left Keynesians to argue that inflation is caused by other rising costs of production, as for example, Michael Roberts argument that current inflation is a result of rising costs following lock-downs, and supply constraints, as well as by rising profits, the latter being a mirror image of the argument of inflation arising from higher wages.
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| The value of the commodity is determined by the socially necessary labour required for its reproduction, i.e. the current value of the constant capital consumed in its production (means of production), plus the current labour, which resolves into wages and profits. |
But, it is clearly quite different to say that the value of a commodity is determined by its social cost of production – by the total labour-time required – which value resolves into the reproduction of its components – constant capital, wages, profit – than to say that it is comprised of a summation of its component parts. If the value of a metre of cloth comprises £10 for constant capital, with a further £10 coming from the new value added by labour, then, if there is no change in productivity, its value will remain £20, as determined by this social cost of production, whether the £10 of new value resolves into £5 wages and £5 profit, or £8 wages and £2 profit, £2 wages and £8 profit.
A simple observation, Marx says, shows not only that there is no correlation between high wages and high commodity prices, but superficially, the opposite seems to be the case. British manufacturing wages were much higher than those on the continent, yet, everywhere, the prices of British manufacturers were lower than their European competitors. British agricultural wages were generally low, compared to elsewhere, and yet, British agricultural prices were higher.
And, the idea that the prices of commodities are determined by adding some given percentage for profit and rent, simply leads back to the same problem of what determines this given percentage?
“If they assert that they are settled by the competition between the capitalists, they say nothing. That competition is sure to equalize the different rates of profit in different trades, or reduce them to one average level, but it can never determine the level itself, or the general rate of profit.” (p 39)
As Marx sets out in Capital III, if the rate of profit, in one sphere of production, is higher than in others, capital will accumulate more rapidly in that sphere. The consequence will be that supply, in this sphere, will rise more rapidly than in other spheres, relative to demand, causing market prices to fall. As these prices fall, so the rate of profit, in that sphere, will fall. The opposite will occur in those spheres where the rate of profit is lower than elsewhere. This is the crucial role played by The Law of the Tendency For the Rate of Profit to Fall, in allocating capital in the economy, and consequent determination of a general rate of profit, and prices of production.
The argument that the value of commodities is determined by wages is a circular argument, because the value of labour-power is also determined by the value of the commodities required for its own production.
“On the whole, it is evident that by making the value of one commodity, say labour, corn, or any other commodity, the general measure and regulator of value, we only shift the difficulty, since we determine one value by another, which on its side wants to be determined.” (p 40)
It amounts to the tautology that value is determined by value. Value is determined not by wages – the value of labour-power – but by the total labour-time required to produce a commodity. That value is necessarily greater than the value of wages, which represent only the value of reproducing the labour-power, not just because of the value of constant capital, preserved in the labour process, but because the capitalist only employs labour on condition that the new value it creates is greater than the value of labour-power.
“It was, therefore, the great merit of Ricardo that in his work on the principles of political economy, published in 1817, he fundamentally destroyed the old popular, and worn-out fallacy that “wages determine prices,” a fallacy which Adam Smith and his French predecessors had spurned in the really scientific parts of their researches, but which they reproduced in their more exoterical and vulgarizing chapters.” (p 40-1)
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