This is a continuation of Part 1 of Wage Labor and Capital posted earlier. In the second section of Wage Labor and Capital, from The Nature and Growth of Capital onward, Marx is trying to refute the definitions of “capital” that bourgeois economists are putting out, and their claims of how “a rising tide lifts all boats,” of how rapid increase in productive capital is beneficial for all workers. He provides a sharp and holistic framework that allows us to bring together the social relations on the shopfloor, the domination of capital over labor at the workplace, and explains how this social relation expands into broader societal relations to explain why “the race to the bottom” is an inevitable, unescapable reality for workers under capitalism. His analysis is also immensely useful for us today, where in the midst of the economic crisis, we hear politicians touting the need to grow capital, to cut taxes for businesses, to “create jobs” for the unemployed. Marx tears down this logic and exposes the truth that bourgeois economists never told us.
Marx begins The Nature and Growth of Capital with the bourgeois economists definition of capital:
Capital consists of raw materials, instruments of labour, and means of subsistence of all kinds, which are employed in producing new raw materials, new instruments, and new means of subsistence. All these components of capital are created by labour, products of labour, accumulated labour. Accumulated labour that serves as a means to new production is capital.
He contends that the bourgeois economists are too simplistic and hide the unique features of how capitalism operates. He points out that every society has a certain set of social relations that enter into their mode of production, and what is unique about capital, is that it is specifically, the bourgeois relation of production which thrives under a certain set of conditions.
Marx points out two characteristics of capital:
1) The special character of bourgeois relation of production is the presence of Exchange Values in the products, to produce Commodities
2) The domination of exchange value and accumulated labor, over Living Labor Specifically, living labor serves only to preserve and multiply exchange values
This begs the question of: why would a class of people, ie. workers, accept the subordination to exchange value? What enters into the relationship between exchange values, the capitalist and living labor?
The worker provides labor power to the capitalist. Labor Power is a creative force that generates surplus value. It is a generative force.
In exchange, the capitalist gives wages that can acquire means of subsistence back to the worker. These means of subsistence are perishable and can be depleted. They are not generative. Therefore, once they are gone, the worker enters into the relationship with the capitalist again so they can acquire more means of subsistence. The cycle goes on.
Wages are the form in which this imbalanced exchange takes place between the capitalist and the worker.
Because of the dependence of workers on the capitalists for means of subsistence, we are told by bourgeois economists that Increased capital = Increased wages and better quality of life for workers. We are told we have no other choice, except that “the fastest possible growth of productive capital is the indispensable condition of the laborer’s life.”
Marx’s Response: “The Truth the Bourgeois Economists Never Told You”
In the best case scenario, where productive capital increases, it increases the demand for workers, which then increases the wages of workers. Yet
1)Workers may experience increased pleasure at the material things and means of subsistence they can buy. As Marx will later explain, for every increase in workers’ wages, the capitalists makes a much higher profit, and more access to material wealth than us. “Our wants and pleasures have their origin in society; we therefore measure them in relation to society; we do not measure them in relation to the objects which serve for their gratification. Since they are of a social nature, they are of a relative nature.” For that reason, the worker will feel poorer in their society because the level of inequality will increase.
2) Real wages vs. Nominal wages: The value of the worker’s wages may fall because of external circumstances even though the money price (nominal wage) maintains the same
Nominal Wages is the money price that the worker receives from the capitalist in exchange for their labor power.
Real Wages is the price of labor power in relation to the price of the commodity.
Marx lays out scenarios for how the real wages of workers may change depending on external economic conditions:
i) The decrease in the value of the circulating currency, ie. gold and silver. He explains that when gold and silver were discovered in the Americas back in the 16th century, the value of gold and silver declined in relation to other commodities. However, the workers continued to receive the same amount of coined silver for their labor-power as before. Therefore, ” The money price of their work remained the same, and yet their [real] wages had fallen, for in exchange for the same amount of silver they obtained a smaller amount of other commodities.
The consequence of this is that the worker got a smaller portion of the surplus value which they had created through their labor. The capitalist then subsequently made more of the portion of the worker-produced surplus value. According to Marx, “this was one of the circumstances which furthered the growth of capital, the rise of the bourgeoisie, in the 18th century.”
ii) Another scenario where the nominal wages and the real wages a worker receives does not match up is when the price of the means of subsistence, or other commodities, increase. Marx uses the example of 1847, where due to bad harvest, the price of the staples, such as grains, meat, butter, cheese, etc. – rose greatly in price. The worker received the same amount of money for their labor power, but their real wages fell because they could buy less with that amount of money. “Their wages fell, not because the value of silver was less, but because the value of the means of subsistence had increased.”
iii) Similarly, there can be a scenario where the real wages actually have more buying power. This is when the price of commodities fall because of eg: better machinery and favorable seasons.
3) Relative Wages
Marx introduces the concept of relative wages, which is drawn from the idea that “wages are a proportionate and relative quality.” This is an important concept because it has impacts for thinking about the relationship between wage/economic struggles, and the political struggles of workers.
Relative wages: Express the share of immediate labor in the value newly created by it [surplus value], in relation to the share that falls on the capitalist.
Real wages may rise, but relative wages will fall in relation to the capitalist. The “small cut” per say, of the worker in relation to the profits of the capitalist, of the surplus value that was primarily created/generated by the worker, defines the lack of power of the worker. It further defines worker’s subordination in society and exacerbates the power of the capitalist.
In Chapter 7, Marx discusses the General Law determining the rise and fall of Wages and Profit. He shows how the capitalist is constantly preoccupied with only increasing profit, ie his share of the surplus value and therefore, is driven by the need to sell more and more commodities.
The capitalist has 3 considerations when he is calculating his profit
a) need to replace the cost of raw materials and means of production — this replaces previously existing value.
b) needs to replace the wages advanced to the worker – this comes from the surplus value that the worker has created through their labor power
c) need to have as much surplus/profit left over after (a) and (b) — this amount also comes from the surplus value that the worker has created.
Therefore, because the wages and profit come from the same source ie. surplus value created by the workers’ labor power, there is an inverse relationship between the two. The share of profit [of the surplus value] increases in the same way that the share of wages [of the surplus value] decreases. Capitalists think in the way of constantly increasing their relative profit in relation to the relative wages of the worker.
What may be slightly confusing though, is that the real wages of the worker can increase, even while their relative wages may decrease. The diagram below attempts to explain this:
Marx says, real wages can also rise, but not in the same proportion as profits.
In this case, real wages rose from $100 in Scenario A to $110 in Scenario B, by an increase of 10%.
Profits in Scenario A = 10x= $1000
Profits in Scenario B = 13y = $1430.
In this case, capitalist profit rose from $ 1000 in Scenario A to $ 1430 in Scenario B, by an increase of 43%
Thus it is possible for real wages to rise, but not in the same proportion as capitalist profit, and also followed by a decrease in relative wages.
Here, Marx is trying to once again, counter the bourgeois myth that increased productive capital = increased wages, and that “the rising tide lifts all boats.” He is saying here that yes, maybe real wages *might* increase, but because of the competitive nature and profit-seeking nature of the capitalists, they will always try to squeeze down the relative wages of the worker in relation to the capitalists’ share of the profit. This dominant relationship, and outright theft and loss of workers’ control over the surplus value that the worker has produced, will reflect itself politically in society, with the worker losing their power. With the loss of workers’ power, there is even less and less pressure or incentive for the capitalist to increase real wages. With the loss of workers’ power, nothing stops the capitalists from squeezing the relative wages to even lower, and lower and lower levels.
In our current day era of economic crisis, where the profit margin of the capitalist is low to begin with, combined with the loss of workers’ power and control over their workplace and the surplus value that they produce, a result of decades of giving in to capital, it is no wonder that our relative wages have been squeezed to an even lower level, and our real wages are ever more dismal.
4) Marx exposes yet another truth that the bourgeois economist hides from us, ie. that the interest of capital and wage labor are opposed.
Rapid growth of capital requires rapid growth of profits. But profits can only grow rapidly if the price of labor is decreased. The same way that capitalists compete with each other for more productive, cheaper machinery, they will also compete with each other for cheaper and more productive workers.
As the diagram above shows, as profits expand through the increased productivity of the workers, capitalists can afford to increase real wages of the workers. This rise in real and nominal wages must however, be accompanied with the fall in relative wages, so the capitalists can make more profit than before. In other words, the real wages of the worker can rise, by say 3%, but not in the same proportion as the rise in profits, which could be about 30%.
Therefore, if the real wages of a worker increases with rapid growth of the capitalist, there is at the same time a widening of the social chasm which divides the worker from capital, that increases the power of capital over labor.
What Marx points out here is useful for us thinking about Keynesian economics, and other such social democratic policies. He claims that when bourgeois economists say that the worker has an interest in the rapid expansion of capital, what they mean is that
a) The more speedily the worker augments the wealth of capital, the larger the crumbs they receive
b) the more number of workers can be employed
c) the more number of wage slaves will be dependent on and subordinate to capital.
The increase in material life/well being does not abolish the antagonism between the workers’ interest and the capitalists’ interest. When capital grows rapidly, wages may increase, but capitalist profit increases disproportionately. Thus, the material conditions of the worker has been improved at the cost of their social position.
How does rise in production capital affect wages?
With more capitalists around and increased competition, they will:
>need more profits to stay alive > need to sell products more cheaply > to sell more cheaply they need to produce cheaply > to produce cheaply they need to increase the productive forces of labor as much as possible >> to make labor more productive
Capitalist competition results in a) increased division of labor b) increased machinery c) more exploitation of labor at a larger scale to decrease the cost of production, ie to use same/less amount of labor to produce more than competitior
The effects of such competition around productivity on the capitalist class is the need to have more markets since now, each commodity is sold for less because of the large scale production. There is the need to outweigh the lower selling price by increasing the quantity of sale to replace the cost of production.
The effects on workers is that
a) a greater division of labor, increased competition among workers, eventually one worker does the work of ten. They are also compelled to sell their labor cheaper than the other, and be more productive than the other
b) simplification of labor. special skills become worthless through increased use of machinery. cheaper and easier for workers to learn work, decreases the cost of production for the capitalist and so the wages of the worker will decrease
c) increased use of machinery. when one worker gets displaced by a machine, it is more likely that in their next job, they will get paid less than their former job. competition with machine decreases the workers wages
d) to make the same amount of wages as before, the worker needs to be much more productive than before and work more hours. essentially, the worker is competing against themselves as a member of the working class
e) the wages that previously one person/breadwinner used to make enough wages to support the household. More members of the family are now drawn into the labor force, including women and children, and it now takes 3 – 4 workers in a household to support the household, ie to make the same wages that previously one worker made.