Anti-Duhring, Part III – Socialism, I – Historical - Part 12

Marx summarises it in Capital III, Chapter 15.

“As soon as capital would, therefore, have grown in such a ratio to the labouring population that neither the absolute working-time supplied by this population, nor the relative surplus working-time, could be expanded any further (this last would not be feasible at any rate in the case when the demand for labour were so strong that there were a tendency for wages to rise); at a point, therefore, when the increased capital produced just as much, or even less, surplus-value than it did before its increase, there would be absolute over-production of capital; i.e., the increased capital C + ΔC would produce no more, or even less, profit than capital C before its expansion by ΔC. In both cases there would be a steep and sudden fall in the general rate of profit, but this time due to a change in the composition of capital not caused by the development of the productive forces, but rather by a rise in the money-value of the variable capital (because of increased wages) and the corresponding reduction in the proportion of surplus-labour to necessary labour.”

So, if the demand for labour rises faster than the supply, at a certain point, the market price of labour-power – wages – rises. That means that relative wages rise. As relative wages rise, workers have more to spend. The demand for wage goods rises, and so, over a period, capital accumulates faster in that production than in the production of luxury goods. Marx discusses this in Capital II, and in Wage-Labour and Capital, and Value, Price and Profit.

“It is not alone the consumption of necessities of life which increases. The working-class (now actively reinforced by its entire reserve army) also enjoys momentarily articles of luxury ordinarily beyond its reach, and those articles which at other times constitute for the greater part consumer “necessities” only for the capitalist class. This on its part calls forth a rise in prices.”

(Capital Vol II)

This rise in market prices for wage goods, and some luxury goods, resulting from increased wages is what leads bourgeois economists to claim that it is increased wages that cause higher prices/inflation. But, as Marx sets out in Value, Price and Profit, that is nonsense. The rise in wages/relative wages, does not change the value of commodities, it merely leads to that value being resolved in different proportions. The rise in relative wages is the other side to a fall in relative profits. The rise in market price of wage goods, is a result of increased demand not immediately being met by increased supply. The higher market prices for those wage goods, mean that the rate of profit in that production rises relative to the average rate of profit, which is what brings a faster accumulation of capital in that sphere.

But, likewise, the market prices of luxury goods fall for the opposite reason. As relative profits fall in proportion to the rise in relative wages, capitalists and other exploiters have less to spend on luxury goods. As the demand for luxury goods falls, so their market price falls, also leading to a fall in the rate of profit, below the average, in that sphere. Capital accumulates slower in that sphere. Overall, there is no change in the total value produced, and so no change in the total of prices. As capital is reallocated to wage good production, the supply of wage goods, and those luxury goods now consumed by workers, increases and their market price falls. The reverse happens in the production of luxury goods consumed by capitalists.

As Marx put it,

“... in periods of prosperity, particularly during the times of bogus prosperity, in which the relative value of money, expressed in commodities, decreases also for other reasons (without any actual revolution in values), so that the prices of commodities rise independently of their own values.”

(ibid)

For, all prices to rise simultaneously, it requires a relative fall in the value of money/standard of prices compared to the value of all other commodities. As Marx points out, when economies based their currency/standard of prices on precious metals such as gold or silver, new discoveries of these metals, that reduced their value, indeed created such conditions. But, it was that fall in the value of money that caused rising prices, and which led to workers requiring higher nominal wages, in order to maintain the same level of real wages, not vice versa.

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