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Monday, March 7, 2016

A Simple Challenge to Marxists on the Theory of Wage Determination in Volume 1 of Capital

To the Marxists everywhere, my simple challenge:
Is your view that Marx’s theory of wage determination in volume 1 of Capital that real wages in capitalism can and will rise above the value of the maintenance and reproduction of labour, and in the long run will keep rising, vastly improving the living standards of workers?
If you say “yes,” then my refutation here of Marx’s view of a rising rate of exploitation in capitalism (from increasing surplus value extracted from workers) is vindicated.

If not, and you think that Marx’s view was that wages tend towards the value of the maintenance and reproduction of labour (and, yes, this was Marx’s view: see here and here), then you need to explain the data on the soaring real wage in capitalism over the past 160 years.

The data in de Zwart et al. (2014) provide a useful summary of the long-run trend in modern capitalism, but for the real wages of building labourers from the 1820s to the 2000s. They provide decadal averages of the real wage of building labourers in Western Europe but expressed in the quantity of subsistence baskets of goods that the daily wage buys.

The long-run trend can be seen in the graph below (with data from de Zwart et al. 2014: 80, Table 4.4).


As we can see and beyond any doubt, real wages for building labourers have soared in the long run. Similar trends are apparent for other skilled, semi-skilled and unskilled workers, and for the average real wage, despite short-term regressive periods such as the First World War, the Great Depression, the Second World War, and the stagnation to some extent in real wages in the neoliberal period.

Because we are dealing here with 160 years of data and the y axis has such a broad range, the graph above obscures the rising real wage in the 19th century.

We can see the 19th century trend in the graph below (with data again from de Zwart et al. 2014: 80, Table 4.4).


So even in the 19th century under gold standard capitalism the real wages of building labourers in Western Europe in terms of the number of subsistence baskets of goods was soaring.

Despite Marx’s theory, wages were not tending towards the value of the maintenance and reproduction of labour, which is clearly a type of subsistence wage.

As I argued here, under the logic of Marx’s own theory (if we accept for the sake of argument the concept of surplus labour value) but contrary to what Marx himself argued, capitalism actually has had a historical long-run tendency to reduce the rate of exploitation. One cheer for capitalism!

BIBLIOGRAPHY
de Zwart, Pim, van Leeuwen, Bas and Jieli van Leeuwen-Li. 2014. “Real Wages since 1820,” in Jan Luiten van Zanden, Joerg Baten, Marco Mira d’Ercole, Auke Rijpma, Conal Smith and Marcel Timmer (eds.), How was Life?: Global Well-Being since 1820. OECD Publishing, Paris. 73–86.

21 comments:

  1. This is all wrong.

    Marx didn't argue wages tend to a minimum as the outcome of the sum of social processes in the world. He argued that capitalists, by the very process of capital accumulation, exert downward pressure on wages to the limit of bare subsistence. However, there are other factors counterbalancing this.

    You're posing a false dichotomy, and to make matters worse you're only considering the imperial core in isolation; a very myopic tactic, considering we are analyzing a global system.

    I recommend taking a look at some of the articles in the recent July-August edition of Monthly Review, which focused on imperialism in depth. Look at Smith or Cope, for example. Really, the whole thing is worth a look.

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    1. " He argued that capitalists, by the very process of capital accumulation, exert downward pressure on wages to the limit of bare subsistence. However, there are other factors counterbalancing this."

      Have wages in the long-run developed capitalist world soared above subsistence levels? Yes or no?

      If yes, you prove my post here:

      http://socialdemocracy21stcentury.blogspot.com/2016/02/the-long-run-tendency-of-capitalism-is.html

      If no, then you are denying the evidence before your eyes.

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    2. "You're posing a false dichotomy, and to make matters worse you're only considering the imperial core in isolation; "

      B.S. This is based on the exploded Marxist nonsense that capitalist development in the West entailed or entails imperialist exploitation of the Third World. If that is so, how did Switzerland and Finland develop since neither had a third world empire?

      And, even worse, Paul Bairoch has shot this nonsense down in flames anyway:

      http://socialdemocracy21stcentury.blogspot.com/2016/02/paul-bairoch-on-industrial-revolution_20.html

      http://socialdemocracy21stcentury.blogspot.com/2016/02/paul-bairoch-on-industrial-revolution.html

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  2. "Marx didn't argue wages tend to a minimum as the outcome of the sum of social processes in the world. He argued that capitalists, by the very process of capital accumulation, exert downward pressure on wages to the limit of bare subsistence. However, there are other factors counterbalancing this."

    And yet Engels -- simply following Marx's wage theory -- in Herr Eugen Dühring’s Revolution in Science (1894; first published in 1878) said:

    “Thus it comes about that the excessive labour of some becomes the necessary condition for the lack of employment of others, and that large-scale industry, which hunts all over the world for new consumers, restricts the consumption of the masses at home to a famine minimum and thereby undermines its own internal market.” (Engels [1894]: 308).

    You also forget that in vol. 1 for Marx the reserve army of labour keeps the real wage in check and keeps wages down towards the value of the maintenance and reproduction of labour -- for if it did not and wages had a tendency to soar above subsistence level the whole theory of exploitation based on continued theft of more and more surplus labour or relative surplus labour value would break down. You haven't addressed my post here because it totally refutes Marx's theory clearly and logically:

    http://socialdemocracy21stcentury.blogspot.com/2016/02/the-long-run-tendency-of-capitalism-is.html

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    1. Its seems like marxists forgot about debt endougenous money and demand management.

      Which actually prevent from this to happen.

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    2. These are some rotten cherries you're picking:

      "I find few things as discouraging as the persistent attribution of positions to a writer whose works contain repeated, categorical, indeed emotional, denunciations of those views. Marx's views on wages are a prime example. Both vulgar Marxists and vulgar opponents of Marx have propounded two associated myths: that he believed wages under capitalism are inevitably driven near some physical subsistence level, and that he considered this to constitute robbery of the workers and a major evil of capitalism. Yet Marx and Engels tell us again and again, sometimes in most intemperate language, that these views are the very opposite of theirs." W. Baumol

      The only person who believed that life under capitalism necessarily resulted in universal subsistence wages was Ferdinand Lassalle, whom Marx and Engels mocked at length.

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    3. No, Anonymous, you are wrong.

      You are referring to this article of Baumol:

      Baumol, William J. 1983. “Marx and the Iron Law of Wages,” The American Economic Review 73.2: 303–308.

      His misunderstandings and incorrect interpretation of Marx in that article are well known. See the refutation here:

      Cottrell, Allin and William A. Darity. 1988. “Marx, Malthus, and Wages,” History of Political Economy 20.2: 173–190.

      Cottrell and Darity (1988) demonstrate that Marx’s Value, Price and Profit (1865; first published in 1898) does say that wages tend towards a minimum (the value of maintenance and reproduction of labour) and that Capital does not contradict nor repudiate that view (Cottrell and Darity 1988: 181).

      My analysis of Value, Price and Profit here and chapter 6 of volume 1 of Capital here shows this is true.

      Even though Marx did reject the orthodox “iron law of wages” since he rejected Malthusian population theory, he still thought wages would tend towards the value of maintenance and reproduction of labour (sometimes with a moral and historical element).

      Marx's theory in Capital is that the real wage tends to equal the value of the maintenance and reproduction of labour, because:

      (1) capitalists try to reduce the real wage to and even below subsidence level

      (2) capitalists reduce the price of basic commodities required for subsistence and so reduce the necessary part of the working day and hence the value of the maintenance and reproduction of labour.

      (3) the huge and constantly growing reserve army of labour keeps the real wage in check and keeps wages down.

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    4. Also, if real wages do not tend towards value of maintenance and reproduction of labour and constantly rise over time making living standards soar (even as the working week is stable), then Marx's whole theory of exploitation based on extraction of more and more surplus labour value falls apart. It collapses like a house of cards.

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  3. Moses David didn't argue that all life would end in 1975 as a result of all the physical processes in the world, only that comet Kahoutek would exert downward pressure on the lifespan of every living thing. However there are other factors counterbalancing this. Moses David has never been refuted.

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  4. Marx's THEORY was that the rate of exploitation was determined by the relative power of the working class. He was the first to articulate such a theory -- that is now embedded in Post-Keynesian theory -- and deserves credit for it.

    Marx's POLITICAL RHETORIC tended to state that capitalism would tend to crush wages unless workers stood up for themselves. During the 20th century raises did tend to rise.. precisely BECAUSE the working class started standing up for themselves. Since the 1970s wages have stagnated as the working classes have ceased standing up for themselves.

    Marx's theory of wages: 10/10
    Marx's predictions about wages: 7/10

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    1. (1) "Marx's THEORY was that the rate of exploitation was determined by the relative power of the working class"

      No, it wasn't. He thought the working class trade union struggles could not raise wages in a continuous, effective and successful way:

      “These few hints will suffice to show that the very development of modern industry must progressively turn the scale in favour of the capitalist against the working man, and that consequently the general tendency of capitalistic production is not to raise, but to sink the average standard of wages, or to push the value of labor more or less to its minimum limit. Such being the tendency of things in this system, is this saying that the working class ought to renounce their resistance against the encroachments of capital, and abandon their attempts at making the best of the occasional chances for their temporary improvement? If they did, they would be degraded to one level mass of broken wretches past salvation. I think I have shown that their struggles for the standard of wages are incidents inseparable from the whole wages system, that in 99 cases out of 100 their efforts at raising wages are only efforts at maintaining the given value of labor, and that the necessity of debating their price with the capitalist is inherent to their condition of having to sell themselves as commodities. By cowardly giving way in their every-day conflict with capital, they would certainly disqualify themselves for the initiating of any large movement.

      At the same time, and quite apart from the general servitude involved in the wages system, the working class ought not to exaggerate to themselves the ultimate working of these every-day struggles. They ought not to forget that they are fighting with effects, but not with the causes of those effects; that they are retarding the downward movement, but not changing its direction; that they are applying palliatives, not curing the malady. They ought, therefore, not to be exclusively absorbed in these unavoidable guerilla fights incessantly springing up from the ever-ceasing encroachments of capital or changes of the market.”
      (Marx 1913: 124–126).

      This totally destroys your interpretation of Marx's wage theory.

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    2. It really amazes me how the left delude themselves about the power of unions. Wages did not fall because the unions lost power. They fell because of increased competition in the labour market as a result of women entering the workforce, increased migration, globalisation and shift from manufacturing to services(where contracts tend to be negotiated individually rather than collectively).

      The unions were powerless to do anything against these social developments so they lost out in most industries.

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    3. Interesting point. Yet in some Western European countries trade unions have managed to have a greater degree of power and influence on wages.

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    4. Anonymous, I don't think so. The Taft-Hartley Act and Reagan's deliberate anti-union moves are a matter of historical record.

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  5. (2) "During the 20th century raises did tend to rise.. precisely BECAUSE the working class started standing up for themselves."

    Did you even read the post properly?

    Our empirical evidence shows that the real wage **soared** even in the 19th century from the 1840s onwards -- before unions become powerful. This phenomenon can be seen throughout the capitalist West even before 1914.

    Even late 19th century capitalism did increase the real wage in an historically unprecedented way. That -- at the same time -- destroys Marx's claim capitalism only tends to increase the rate of exploitation, for a soaring real wage with stable working week requires that the rate of exploitation is falling. Your comment doesn't refute this argument.

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  6. "Marx's THEORY was that the rate of exploitation was determined by the relative power of the working class."

    No, that is not Marx's economic theory, neither in Wages in Value, Price and Profit (1865) nor in Capital.

    Marx's theory is that the real wage tends to equal the value of the maintenance and reproduction of labour, because:

    (1) some capitalists try to reduce the real wage to and even below subsidence level

    (2) capitalists reduce the price of basic commodities required for subsistence and so reduce the necessary part of the working day and hence the value of the maintenance and reproduction of labour.

    (3) the huge and constantly growing reserve army of labour keeps the real wage in check and keeps wages down.

    This exactly how Marx can make his doomsday prediction at the end of vol. 1:

    "Along with the constantly diminishing number of the magnates of capital, who usurp and monopolise all advantages of this process of transformation, grows the mass of misery, oppression, slavery, degradation, exploitation; but with this too grows the revolt of the working-class, a class always increasing in numbers, and disciplined, united, organised by the very mechanism of the process of capitalist production itself. The monopoly of capital becomes a fetter upon the mode of production, which has sprung up and flourished along with, and under it. Centralisation of the means of production and socialisation of labour at last reach a point where they become incompatible with their capitalist integument. This integument is burst asunder. The knell of capitalist private property sounds. The expropriators are expropriated.” (Marx 1906: 836–837).

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  7. Lk why are you not posting posts about austrians and liberterians anymore?

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    1. The Austrian idiots who rile him up stopped posting here. The Marxist idiots persist.

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    2. Well i know but still i dont know why but austrians and liberterians annoy me even more than marxists

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    3. They irk me more too, because they discredit attempts to argue for sensible market based policies and better, less controlling government. That's a hard enough case to make even when you don't have idiots crying that taxes are theft, or public schools are slavery. Apologists for terror like Hedlund on the other hand make the case easier. Rather than cogent objections he openly longs for a Man of Steel

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  8. It's been a long time since I read Capital, and not being a Marxist don't have much interest in reading it again, but this is what I recall:

    Marx assumes that wages will tend towards some minimum value when:
    (1) Labor is abundant relative to capital; and
    (2) Labor cannot overcome its collective action problem.

    If the first condition is false, then capital will compete for scarce labor and so drive up wages.

    If the second condition is false, then labor can leverage its mass to obtain redistributive policies which will also drive up wages.

    Marx's error is in assuming that governments in a capitalist system will always respond to organized labor to repression, so that organized labor will be forced to overthrow the government and its supporting socio-economic system and create its own. That said, capitalism doesn't necessarily lead to higher wages:

    https://en.wikipedia.org/wiki/Real_wage#/media/File:US_productivity_and_real_wages.jpg

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