Monday, August 16, 2010

Karl Marx – Wage Labour and Capital

Text available here.

This is going to be the first installment of my study of Marxism. I think it’s a good place to start because it seems to deal with some of the major issues in Capital (based on my understanding from secondary sources since I’ve only gotten through the first few chapters), which many readers never get to because they give up during the dull―but important―section on commodities.

I am using a text edited by Fredrick Engels. There is some argument that Engels’s views represent a specialized offshoot of Marxism and attempt to make it into a scientific version of political economy. Here, Engels’s goal is to turn the essay into a work that Marx would have written in 1891, rather than 1849. He notes that his chief alteration is to describe workers as selling their “labor power,” rather than their “labor” in exchange for wages. I don’t know of any reason to think that this affects the substance of the work.

Labor power is a commodity that workers sell to capitalists. Like any commodity, labor power has both a use value and an exchange value, which conflict with each other.1 From the perspective of capital, labor power is a use value and the capitalist purchases the right to put the worker to work for a certain period of time. That labor power produces goods or services that the capitalist can sell to replace expended materials, pay labor costs, and generate profits.

In contrast, labor power only has an exchange value to the worker. The worker does not receive a direct share of the product of his or her labor power, but receives the amount that the employer is willing to pay for that labor power. The exchange value of labor power consists of the wage. Workers are forced to sacrifice their labor time and power to those who own the means of production because the alternative is typically starvation (the capitalist system has imposed high costs on unemployment since the proletariat was forced off the land and into the cities and it became necessary to compel them to choose work rather than criminality or some other unproductive (from the standpoint of capital) means of living).

The value of labor power is affected in the same fashion as any other commodity: when demand outpaces supply, the exchange value (wages) go up and when demand decreases, prices go down. If Marx seems to be drifting a little close to classical microeconomics, his approach remains thoroughly non-orthodox.2 He goes beyond mere supply and demand and explains how armies of sellers and workers compete not only with each other, but with themselves. This relationship is dialectical, since the competition is also internal: different kinds of workers (e.g., undocumented immigrants and union labor) compete with each other, driving down wages. However, despite the flux of supply and demand, prices tend to balance out, more or less, meaning that a commodity’s exchange value is brought in accord with the cost of its production: in this case, the cost of materials and labor time.

Another key point is that commodities symbolize social relationships. Something only becomes capital by being transformed by the social relations of production. Not all commodities with exchange values are capital. They must be multiplied and produced via labor power: “It is only the dominion of past, accumulated, materialized labor over immediate living labor that stamps the accumulated labor with the character of capital.” (See Marx's discussion of fetishism in Capital).

Marx shows how the interests of capital and labor are mutually exclusive. Whenever profits grow, relative wages must shrink, widening the lines of stratification between the bourgeois and working classes and increasing social control over labor. A rise in actual wages may often be offset by other factors. One such factor is a rise in commodity prices (often necessities, on which the working class spend the bulk of their income). See Frederick Kaufman, The Food Bubble: How Wall Street Starved Millions and Got Away With It, Harper's, July 2010, at 27 (describing how grain speculation led to a dramatic rise in global wheat prices). This effectively reduces the real wages of workers because, even if they receive more income, they can do less with that income. Capital, on the other hand, experiences an increase in profits, since commodity prices go up faster than does the need to pay workers (this is especially true in a speculation situation in which prices go up without the need for more labor inputs).

Further, even if real wages go up, they will rise more slowly than profits. Money received by businesses while selling goods can be divided into three segments: (1) the cost necessary to replace and fortify the material implements of production, (2) wages, and (3) profits. Since the cost to cover materials merely replaces preexisting wealth, wages and profits must be divided up from the fruits of labor power. This alienates the proceeds of the worker’s labor power and allows capitalists to benefit themselves to a proportionally greater degree than laborers. The effect is that wages fall in a relational sense, since the socioeconomic gap between the worker and the capitalist grows.

This argument is persuasive in light of recent events. First, wages have not kept pace with increases in productivity. Second, moral hazard (the idea that insuring loss discourages loss avoidance) has been inscribed into the capitalist system. It was necessary for the federal government to bail out banks and investment firms when their speculation schemes fell through. The people who stand to profit from such risky activity are effectively shielded from that risk and only stand to gain in the form of short-term profits or a golden parachute. Those who bear the risk (workers, communities, environmental stakeholders, etc.) are simultaneously unable to receive the rewards of such risk-taking and must bear the brunt of it when the bubble bursts and the system collapses. It is difficult to imagine a form of capitalism that would do away with this kind of moral hazard. Simply letting the banks fail would have caused an even greater depression, wounding the working class. However, while large firms are now recovering from the recession and are seeing larger profits, those firms are sitting on their new revenues, rather than allowing them to "trickle down" to workers. See Tom Petruno, Big Companies are Awash in Cash as Economy Picks Up, L.A. Times, Mar. 24, 2010, Meanwhile, the jobless rate continues to be abysmal. While recent numbers might show a slight decrease in unemployment, that may be because some of the jobless have simply given up hope of finding a job and are no longer counted on the unemployment roles. Andy Kroll, More Grim News on Jobs Front, Mother Jones, Aug. 6, 2010, For a discussion of the moral risk argument as applied to capitalism, see Slavoj Žižek, First as Tragedy, Then as Farce 12-13 (2009).

Marx isolates two means by which capitalism ensures that profits rise to the detriment of wages: (1) technological development and (2) the division of labor. The technological side of this was evident when I was paid to do data entry at Blue Cross–Blue Shield and the company moved from the inefficient process of having people directly type insurance claims into computers to a scanning system. While scanning might have been less unpleasant from my perspective, it required a lower degree of skill and didn’t take as many hours to complete. This meant slashing hours and pay. People who were on track to become full-time employees remained part-time, losing out on health benefits. While the technology allowed me to accomplish the same amount of work in less time, it became more difficult to qualify for productivity bonuses, so I found myself working more hours (informal full-time hours without accompanying benefits) to earn my old wage. Counterintuitively, the rise in productivity allowed by technology forced a drop in real wages, since I had to work longer and donate more of my time to my company without receiving the health insurance that would have once accompanied such an increase in working time.

Competition between capitalists drives this process on a global scale, something we have seen in the outsourcing of labor to nations with lower wages and less strict labor standards during recent decades. As available work and wages fall, workers must work more hours and do so under less pleasant circumstances. This increases the supply of labor and further depresses wages, allowing workers to hurt their own interests as a class for the sake of their individual well-being. Laborers not only compete with each other, but with themselves.

1 Marx writes:

The commodity itself appears as unity of two aspects. It is use value, i.e. object of the satisfaction of any system whatever of human needs. This is its material side, which the most disparate epochs of production may have in common, and whose examination therefore lies beyond political economy. Use value falls within the realm of political economy as soon as it becomes modified by the modern relations of production, or as it, in turn, intervenes to modify them. What it is customary to say about it in general terms, for the sake of good form, is confined to commonplaces which had a historic value in the first beginnings of the science, when the social forms of bourgeois production had still laboriously to be peeled out of the material, and, at great effort, to be established as independent objects of study. In fact, however, the use value of the commodity is a given presupposition -- the material basis in which a specific economic relation presents itself. It is only this specific relation which stamps the use value as a commodity. Wheat, e.g., possesses the same use value, whether cultivated by slaves, serfs or free labourers. It would not lose its use value if it fell from the sky like snow. Now how does use value become transformed into commodity? Vehicle of exchange value. Although directly united in the commodity, use value and exchange value just as directly split apart. Not only does the exchange value not appear as determined by the use value, but rather, furthermore, the commodity only becomes a commodity, only realizes itself as exchange value, in so far as its owner does not relate to it as use value. He appropriates use values only through their sale [Entäusserung], their exchange for other commodities. Appropriation through sale is the fundamental form of the social system of production, of which exchange value appears as the simplest, most abstract expression. The use value of the commodity is presupposed, not for its owner, but rather for the society generally.

Karl Marx, The Grundrisse 881 (M. Nicolaus trans. 1973).

2 See David Harvey, The Limits to Capital 8 (1982) (“Marx accepts the importance of supply and demand in equilibriating the market, but he vehemently denies that supply and demand can tell us anything whatsoever about what the equilibrium prices of commodities will be. ‘If supply and demand balance one another, they cease to explain anything, do not affect market-values, and therefore leave us so much more in the dark . . . .’” (quoting 3 Karl Marx, Capital 189 (F. Engels ed. 1967))).

1 comment:

Cameron said...


Thank you for posting your thoughts on this book. Nowadays internet makes it easier to study political economy. Some have produced video clips that are available online.

As I was reading it I came across this paragraph:
“A rise in actual wages may often be offset by other factors. One such factor is a rise in commodity prices...... This effectively reduces the real wages of workers because, even if they receive more income, they can do less with that income. Capital, on the other hand, experiences an increase in profits, since commodity prices go up faster than does the need to pay workers”.

Are you talking about “inflation” by the above comment? If so, I’d like to say the following. Inflation is not intrinsic to capitalism. In other words, it’s not inherent natural aspect of capitalist production. Inflation is a phenomenon of the current monetary system in which money is not backed by precious metals and consequently central banks can create money out of thin air and inject directly into circulation. That’s the source of inflation in my opinion.

Another issue to consider is the case of deflation in which case prices fall. That rarely happens but it does.
I get the impression that you claim that a rise in wages is not a gain for the working class. That’s not true. In fact earlier you say “Marx shows how the interests of capital and labor are mutually exclusive”. When wages go up labor wins and capital loses.
Indeed, labor must fight for higher wages. A rise in wages is not necessarily offset by countervailing effects. It’s a win for laborers.